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UCC: New Non-Preferential Origin Rules

Actualizado: 24 mar 2020

25 de Mayo de 2017 -

More than ever the proliferation of non-preferential measures represents an important concern.

" ICC observes the proliferation of non-preferential rules of origin as an increasing barrier to cross-border trade and calls for a standstill until either a multilateral agreement or sectoral agreements can be reached" International Chamber of Commerce, June 2015

The non-preferential origin measures are designed to e.g. control unfair market price (e.g. anti-dumping duties), to protect local industry (e.g. tariff quotas), to implement environmental or sanitary measures (e.g. labeling) or to ensure national security or political policy (e.g. trade embargoes)

Non-preferential rules of origin determined by national law create significant barriers to cross-border trade, with the result that a product may have different countries of origin depending on the rules applicable to the importing country.

There is a major modification in the new Customs Code regarding  non-preferential origin rules applicable since 2016. The new regulation may affect imports and exports from the EU.

But in industries that depend on exports and where origin is considered important for the manufactured product, non-preferential origin rules may have a bigger impact, mostly on complex supply chains structures with several providers located in different countries.

Companies may need to set up new procedures in order to fully track row materials, parts or components to be incorporated in its manufactured products within the EU to be able to determine the non-preferential origin of the final product to be exported from the EU.   

In principle every product is subject to non-preferential origin rules when a non-preferential origin certificate is requested. Local Chambers of Commerce in the EU are in general terms the Entities in charge of issuing non-preferential origin certificates.

It should be note that the lack of compliance or mismanagement with non-preferential origin rules may have a critical business impact (e.g. economical and/or reputational damage).

The new regulation  coming into force brings clarity and legal certainty but on the other hand it could also make burdensome and difficult to control non-preferential origin.

1.-Overview: preferential and non preferential origin

There are two kinds of origin from a customs point of view, non-preferential origin and preferential origin of goods. 

While preferential origin confers customs duties benefits (reduced customs duties or even zero customs duties to be paid) base on Free Trade Agreements signed by the EU and third countries, the purpose of non-preferential origin is different as previously commented.

The EU's export refunds in the framework of the Common Agricultural Policy are often based on non-preferential origin rules

In order goods to qualify for non-preferential origin, goods must fulfilled certain requirements.

These requirements have been modified under the new Customs Code making under some scenarios its determination more complex. 

2.- Community Customs Code

In summary under the current Customs Code the basis for determining EU non-preferential origin is:

A.-For products wholly obtained in the EU, origin determination is easy.

B.-Products not wholly obtained in the EU:

  • For textiles and for a very limited number of  items the applicable criterions are  specific processes, that means that the previous imported goods need to undergo specific manufacturing/working process. On the top of this, residual rules may apply as well to certain items. E.g. bearings.

  • For the rest of the products (most of them) the applicable criterion is the "last substantial transformation". Regardless a change in its classification, a good is considered substantially transformed when the good has undergone specified manufacturing or processing operations. This rule have so many nuances. But what should be deemed as last substantial transformation?  There is no definition about what should be understood as last substantial transformation in the current Customs Code for most of the products out of textiles and very specific listed items as previously commented.

It is commonly agreed that the origin of a product not covered by a specific rule in the current EU legislation should be determined in accordance with the position taken by the EU in the negotiations under the Harmonization Work Program (HWP) at the WTO which defines the concept of "last substantial transformation" for a large number of products.

The Harmonized Non-Preferential Rules of Origin is expected to prevent discrepancies in origin determination among WTO Member countries  WCO. EU Law-Cases play as well a critical role and prevail over WCO rules as far as WCO rules are not binging rules.

With this regard it is interesting as well the specific regulation on origin determination regarding anti-dumping measures in the EU (Council Regulation ECC 1225/2009 on protection against dumped imports):

"Special provisions in particular with regard to the common definition of the concept of origin, as contained in Council Regulation (ECC) N 2913/92 of 12 October 1992 establishing the Community Customs Code may be adopted pursuant to this regulation"

3.- New Union Customs Code

Therefore as explained above, the list of non-binding rules by the WTO are used as guidelines for the non listed products even though these WTO rules are not legally binding.

It was expected that as soon as the HWP finalizes its task and the members of the WTO  accept the final results, these non-binding rules were transposed into a EU legal framework for determining the non-preferential origin. And this is what have happened with the new Customs Code. Most of the WTO rules have been included in the new UCC.

Main ideas regarding this:

1.- The list of qualifying operations for non-preferential origin that has been transposed to the UCC is not an exact copy of the WTO rules.

2.- The list does still not cover all chapters of the Combined Nomenclature.

3.- In case a product is not covered by the list of qualifying operations, the last substantial transformation criterion still applies. And therefore the list rules of the WTO may be of guidance.

4.- In case the last processing  is not considered to be substantial or economically justified, then the non-preferential origin will be determined on the basis on the general residual rule, that means the country where the major portion of the materials is originated.

This general residual rule is what it will make things more complex as far as many companies will need to keep track of most parts and components to be included in the final manufactured product.

What about liabilities regarding non-preferential origin determination for EU exports based on a previous origin wrongly determined by a third supplier?

It is remarkable as well that under the new Customs Code non-preferential origin certificates may be issued  for export according to the rules of the country of destination/import.

In the current customs Code there is a list of minimum operations. Minimum operations are processing activities that will never qualified as being sufficient for a given item to obtain non-preferential origin. This list of minimum operations only applies to textiles but under the new Customs Code the list will be applicable to all goods as e.g. labeling, packaging or assembly.

What should be understood as e.g. assembly? EU Cases- Law must be deeply considered

To ensure an efficient control and application of rules of origin, compliance operations are also carried out by Customs Administrations as part of their normal risk assessment programs which require that risky transactions be examined in depth by way of post audit verifications.

These are  some of the main questions that any company should ask itself in order to know if they are or not compliance with new non-preferential origin rules:

  • Does your Company comply with minimum operations rules to qualify for non-preferential origin?

  • Does your Company comply with new specific manufacturing process to qualify for non-preferential origin?

  • Does your Company comply with the new rules for determining last substantial transformation?

  • Does your Company keep track of origin for all the components/raw materials of products manufactured in the EU to be later exported?

  • Have your Company in place internal procedures to control non-preferential origin rules?


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