Expanding into international markets can be a valuable step for any business, but cross-border trade also brings added responsibilities.
One area that often catches businesses out is rules of origin, as these determine where goods are treated as coming from for customs purposes.
Getting these wrong can lead to significant issues, so it is best to understand how to stay compliant.
What are rules of origin?
As the name implies, rules of origin establish the economic nationality of goods.
Where confusion might arise is in the fact that this will not always be the same as the country the goods are shipped from.
For example, a product could be assembled in the UK using materials from several other countries, meaning it may not automatically qualify as UK-originating.
This can affect the rate of Customs Duty payable, whether trade agreement benefits are available and what evidence needs to be retained.
Getting this wrong may mean your business misses out on reduced or zero rates of duty, even where the goods can still be traded internationally.
What types of origin should businesses understand?
There are two main types of origin that may be relevant when importing or exporting goods.
Even if goods are made or finished in the UK, businesses should still check the relevant rules before making an origin claim, as they may not automatically qualify as having UK preferential origin.
How are rules of origin worked out?
It can be a complex question as to how the rules of origin are determined, but it is possible to get a clear understanding of the rules.
As the determination is dependent on the product, its commodity code and the trade agreement being relied upon, all aspects of production must be considered.
For goods to qualify, they must:
The use of non-originating materials could require a change in tariff classification, a minimum level of local value added or specific manufacturing processes to take place.
Some agreements also include rules that allow materials from certain countries to be counted together, so it is important to understand the details before claiming a preference.
The correct approach to applying the rules will depend on the supply chain behind the goods, including where materials come from and where key processing takes place.
Businesses should also keep clear records, as HMRC may ask for evidence to support any reduced duty claim.
A mistake can lead to unexpected Customs Duty, delays at the border or compliance issues if a preferential claim cannot be substantiated.
Getting support from our team can be helpful in ensuring that you are handling the rules effectively so that you do not need to be worried about compliance issues.
For advice on rules of origin and how they affect your international trade, get in touch with our team.
