International trade helps businesses to increase their profits, grow their brand and reduce their reliance on their domestic market. However, to do this successfully, firms need to be aware of the customs regulations and processes that govern both exports and imports.
In the Chartered Institute for Export & International Trade’s customs whitepaper, ‘Strong Foundations’, Customs Practice Lead Anna Doherty laid out the pillars of customs compliance.
The free guide set out how firms and traders can become more confident in the three core areas of classification, origin and calculation, boosting their international trade.
Origin
The second pillar is determining the ‘origin’ of your goods.
‘Origin’ refers to the economic nationality of a product and can be separated into two types – non-preferential and preferential.
In some instances, determining the origin of a product will be straightforward. For example, the origin of corn or copper ore will be the country in which they were harvested or mined. This means the goods are ‘wholly obtained’, coming from a single country.
However, origin becomes more complicated for manufactured goods, which contain a number of different materials and components originating from multiple countries.
In addition, if a product undergoes a manufacturing process that adds substantial value, this also affects its economic origin. In such cases, it must be proven that the product has been ‘sufficiently processed’ so that its origin can be determined.
Trade deals
What counts as ‘sufficient’ processing will be set out in free trade agreement’s (FTA) product-specific rules and for non-preferential origin, in the Origin Regulations.
These can include sector-specific criteria, such as the spinning of fibres into yarn, which would apply to textile and clothing goods, or customs criteria like the processing leading to the HS code of the goods changing.
There’s also the ‘rule of value addition’, which states that the good’s country of origin is where most of the economic value has been added. In the context of FTAs, this can be expressed as a minimum percentage threshold that the good must reach in order to qualify for preferential tariffs.
Risk
As with classification, the responsibility for correctly declaring a product’s country of origin lies with the trader.
For importers, this is especially important as the origin of the product will determine the duty rates for the goods.
Claiming preferential origin will require a trader to have sufficient proof of origin, as specified by the relevant trade agreement, which can range from an origin declaration made by the exporter on a commercial document to a certificate of origin on a pre-determined form.
Failing to correctly declare the good’s country of origin could lead to non-compliance with both tariff and non-tariff measures, and the over- or under-payment of duties and other charges.
To navigate these rules successfully, your team must have a strong grasp of your company’s supply chains – understanding where materials and parts are sourced, as well as where manufacturing processes to alter the goods take place.
Click here to download our free guide on building customs confidence.
The Chartered Institute has a dedicated Rules of Origin course, where importers and exporters learn how to interpret and apply origin to their goods.
