Navigating the post-Brexit rules of origin

27 January, 2022

When the UK finally secured a trade deal with the European Union at the end of December 2020, it was boldly declared that this agreement would guarantee tariff-free access. While this is technically true, it ignores the added weight and complexity of red tape the new trading arrangements brought for many businesses. Above all, it was not made clear at the time that tariff-free depends on compliance with complicated rules of origin.

Originating versus non-originating

Originating goods are those of UK or EU preferential origin. Most of these can be shipped tariff-free between the two areas although they are still subject to Customs checks. Nonoriginating goods are those of non-UK or non-EU origin. However, we were surprised to discover that originating goods are not necessarily those made wholly in the UK or EU.

The origin of the product’s component parts is very important. Goods that are made in the UK may not qualify as originating if they contain more than a certain quantity of nonoriginating parts, while goods which are not made in the UK can take on originating status with a high percentage of nonoriginating parts. Confused? So were we. Products from outside the UK/EU may take on originating status provided the goods have undergone sufficient processing. In other words, there must be a sufficient value, or weight, of UK input. Alternatively, goods may qualify as originating if the final product has a different tariff code from the original parts after processing.

As a UK supplier, if you use too high a value of non-UK or EU goods in your final products, it may not be possible to declare them as preferential origin goods. This rule is clearly designed to prevent widespread abuse of preferential status. For example, a UK company who has previously imported Chinese products for sale in the EU, might start importing the component parts, assemble the product with a few British nails or screws, and claim UK origin.

Change of tariff heading

You may be able to use unlimited quantities of non-originating goods provided there is a change in the Customs tariff heading. In other words, the product has changed sufficiently to be classified as something different. The detail on what is allowed for each tariff code is contained in a very useful document called ‘Detailed Guidance on the Rules of Origin’, which is part of the UK/EU Trade and Cooperation Agreement.

Imagine, for example, we were to attach a clasp or a stud to a pair of small Japanese bearings and export them as earrings. Even if the stud cost significantly less than the bearing, we could declare the finished articles as preferential origin goods because the tariff heading would change from ball or roller bearings (8482) to imitation jewellery (7117).