How do rules of origin work for international businesses?

When importing or exporting goods, it is important to understand where those goods are deemed to originate from for customs purposes.

This is because the rules of origin can affect the rate of Customs Duty your business pays and whether you are able to claim preferential treatment under a trade agreement.

Understanding the rules of origin

Rules of origin are used to determine the economic nationality of goods.

Although this may sound straightforward, the country of origin is not always the same as the country the goods are shipped from.

For example, a product may be assembled in the UK using parts or materials sourced from several other countries. The rules decide whether the finished product can still be treated as UK-originating.

As the rules vary between trade agreements, businesses need to check the specific agreement and product rules that apply to each shipment.

Where goods do not meet the relevant requirements, they can usually still be traded, but your business may miss out on a reduced or zero rate of Customs Duty.

How do I determine which type of origin applies?

There are two main types of origin that businesses should be aware of:

• Preferential origin – This applies when a business wants to claim a reduced or zero rate of Customs Duty under a trade agreement or preference scheme. The goods must meet the rules set out in the relevant agreement before the claim can be made.
• Non-preferential origin – This applies for wider customs purposes, including standard tariffs and trade policy measures. These rules are separate from the preferential rules contained in individual trade agreements.

It is worth noting that goods made or finished in the UK will not automatically qualify as having UK preferential origin.

How are rules of origin determined?

The test for origin will depend on the product, its commodity code and the trade agreement being used. In general, goods may qualify if they are:

• Wholly obtained or produced in the relevant country or region, such as certain agricultural products, minerals or natural resources.
• Made entirely from materials that already qualify as originating under the agreement.
• Made using non-originating materials, provided the finished product still meets the specific rule for that product.

When non-originating materials are used, the rules may require a change in tariff classification, a minimum level of local value added or certain manufacturing processes to take place.

Some agreements also include measures such as cumulation or tolerance rules, which can help more goods qualify for preferential treatment.

To apply the rules correctly, businesses need to know the product code, review the relevant trade agreement and understand where the materials and processing involved in the finished product come from.

Clear records are also essential, as HMRC will expect evidence to support any origin claim your business makes. In most cases, this evidence should be kept for at least four years, although some agreements may require records to be kept for longer.

Getting rules of origin wrong can result in your business paying more Customs Duty than necessary or facing compliance issues if a claim cannot be supported.

Our team can help you understand which rules apply to your goods, review the records needed to support your claims and ensure that your business remains compliant when trading internationally.

For support with rules of origin and international trade compliance, get in touch with our team.