Explaining the Origin of Goods

The term "tariff preference"refers to the preferential treatment that a product receives when import duty is being levied. This usually involves a significantly reduced customs duty rate, often 0% for industrial products. If importers cannot claim preferential treatment, they pay the normal duty rate according to the customs tariff, unless other tariff reductions can be claimed.

The granting of tariff preferences at import depends on the presentation of specific proofs of origin that are defined in the preferential agreements. Formal proofs are usually issued by the national customs authorities on specific forms.

In most of the EU's preferential agreements with third countries, the movement certificate EUR.1 is the designated proof of preferential origin. As the EU and Turkey form a customs union, a special certificate is used for most goods movements between the EU and Turkey (movement certificate A.TR). The movement certificate A.TR proves that the goods imported from or exported to Turkey are goods in free circulation of the EU and Turkey respectively.

The USMCA does not define a formal certificate of origin. A claim for preferential treatment under the USMCA, however, must contain nine minimum data elements that may be provided on any commercial document.

The EU's preferential agreements with third countries also provide for informal proofs of preferential origin. If a company has the status of an approved exporter, it may submit an invoice declaration, using the prescribed wording from the agreement on the commercial invoice. As a rule, the invoice declaration may be used by any exporter if the originating goods supplied are valued at less than EUR 6,000.

Some of the more recent agreements do not provide for formal proofs of origin. Instead, the certification of the origin of goods is solely based on self-certification: The economic operators themselves declare the origin of goods in so-called statements on origin. The prerequisite for this procedure is the registration of the economic operators as "registered exporters"(REX) with their national customs authorities.

Tariff preferences are granted only to products that originate in the states who sign the preferential agreements. For example, goods being imported into a USMCA signatory state must originate in one of the other two signatory states if the preferential customs duty rate is to be applied at import.

• Has been wholly obtained or produced in the EU
• Has been produced in the EU, using materials not wholly obtained or produced there, provided that these materials have been sufficiently worked or processed

The rules of origin in the preferential agreements stipulate in detail which forms of working or processing of non-originating materials are sufficient for the final product to obtain originating status. Rules of origin refer to chapters, headings, or subheadings in the Harmonized System (HS) and can be divided into four basic categories:

• Change of chapter/heading/subheading: The final product must be classified in a chapter or heading or subheading different from the non-originating materials used in its production.

• Inclusion or exclusion of non-originating materials of particular chapters or headings

• Value clauses: The value of non-originating materials must not exceed a specified proportion of the Ex Works price of the final product, or a minimum proportion of originating materials is prescribed.

• Specific working or processing procedures: The respective rule prescribes a specific procedure (for example, sanding, cleaving, or refinement) to be performed with or on the materials.

These four basic rule types are also combined in the agreements. Specifications on changes of heading/tariff shifts are often combined with a value clause, for example.

In the recent past, the EU and its partner states in the so-called Pan-Euro-Mediterranean (PEM) area have largely harmonized the rules of origin in bilateral preferential agreements. The Regional Convention, adopted in the EU on 1 May 2012, will successively replace the approximately 60 bilateral origin protocols within the scope of the PEM network.

Depending on the preferential agreement, a movement certificate EUR.1, an invoice declaration, or a statement on origin can be used as proof of origin.