Showing posts from tagged with: Binding Origin Information (BOI)

Claiming Preferential Duty Rates – what you need to know?

Free Trade Agreements Facilitation goals can include removing or cutting customs duties on goods; scrapping any limits (quotas) on the amounts firms can import/export; allowing businesses to provide services and bid for public contracts in the other country and cutting red tape whilst maintaining important standards like health and safety or environmental protection.

The reduction or removal of customs duties is usually the benefit that traders will focus on because it provides a tangible financial benefit to their business by reducing the cost of their raw materials or by making their goods more competitively priced in the free trade market.

However here are conditions attached to the FTA such as goods must be deemed to have preferential origin status in the country of supply and the importer must have proof of this origin status.

Origin is the 'economic' nationality of goods traded in commerce

Origin with regard to Customs is comparable to people passing through an airport after arriving in a destination country. The ease of movement through immigration controls depends on your nationality and any agreements made between your country and the country you are now entering. These checks can range from a simple glance at your passport to more vigorous checks and the need to purchase a visa for countries with no agreements in place.

In the case of goods, their preferential origin status is their nationality or citizenship and their proof of origin status (EUR1 or supplier declaration) is their passport.

Like citizenship, preferential origin is subject to a number of conditions. When an Irish citizen travels from Canada to the United States they are not doing so as a Canadian citizen and likewise it is not enough for a product to be simply transported from a country to claim that it has preferential origin status in that country.

The two principle determining factors in assessing a goods right to preferential origin are; that they are wholly obtained in that country or that they have they been sufficiently transformed in that country to confer origin.

Wholly obtained

Products are considered as "wholly obtained" in a country when they are entirely produced in that country without having used input from other countries.

Examples of wholly obtained products include:

  • Vegetable products harvested or gathered in that country;
  • Live animals born and raised in that country;
  • Products obtained from live animals in that country;
  • Products obtained from hunting or fishing conducted in that country;
  • Products obtained by maritime fishing and other products taken from the sea by a vessel of that country;
  • Mineral products extracted from its soil, from its territorial waters or from its seabed;
  • Products extracted from marine soil or subsoil outside that country’s territorial waters, provided that the country has sole rights to work that soil or subsoil and products produced from a combination of any of the above examples.

Sufficiently transformed

Ordinarily it should be clear whether or not a product has been wholly obtained in a country but what if a product has not been wholly obtained but has been manufactured in a country, can this qualify as preferentially originated?

The answer to this is yes.  It may qualify but first it must satisfy the conditions for preferential origin as set out in the FTA between the two countries.

The specific rules on how a product will qualify as being sufficiently worked in order to confer origin are dependent on the tariff classification of the finished product that is exported.  An outline of the classification process can be found here.

Some of the listed rules consider whether the processing carried out has added sufficient value to the exported product, that the finished product is of a different tariff heading to the non-originating raw materials used, that specific processing operations have been carried out or a combination of any these options.

Other concepts in preferential origin

The general tolerance or de minimis rule may allow the use certain non-EU materials in the processing of a wholly obtained product whilst still retaining preferential origin status.

Minimal operations or simple processing operations such as packaging or labelling products will not be sufficient to confer origin.

There are other considerations with preferential origin claims such as directly transporting the product, the non-manipulation of the product and duty drawback rules. The concept of cumulation can make it easier to meet the conditions for preferential origin claims, by forming countries into groups or zones for origin purpose. The application of these rules and concepts will differ depending on the products and countries involved and should be considered on a case by case basis.

It should be noted that while it is the exporter who is responsible for declaring the origin status of the goods, it is the importer who will receive the benefit of the preferential duty rate of the imported goods. The implication of this is that in a post clearance audit situation, if it is found that the product doesn’t qualify for preferential origin it will be the importer who will be assessed on the difference between the preferential rate of duty and the duty rate applied without preferential treatment. As assessing the originating status is generally completed on a self-review basis by the exporter, the importer should therefore be aware of the preferential origin rules in order to carry out their due diligence on their supplier’s claim of origin.

In cases where the preferential origin status may include an element of doubt, a trader can apply to their national customs authorities for an origin ruling. This will provide them with certainty regarding the application of the rules. In the EU this ruling is known as a Binding Origin Information (BOI).

Proof of origin

In order for a good to claim preferential origin on import the exporter must provide proof of origin status which comes in the form of either a preferential origin certificate or a supplier’s declaration. A preferential origin certificate is completed by the exporter and stamped by customs on export. The preferential origin certificate that is used in the EU is called a EUR1.

Alternatively, an exporter can make a declaration on the commercial invoice that the goods have preferential origin. In order to make an invoice declaration for goods exceeding a value of €6,000 an exporter will have to apply to Revenue to become an approved exporter.

The Registered Exporter system (the REX system) is the system of certification of origin of goods that applies in the Generalised System of Preference (GSP) of the European Union and was introduced on 1st January 2017 with a transition period running to 2020. To be entitled to make out a supplier’s declaration on origin, an economic operator will have to be registered in a database by their competent authorities. The economic operator will become a "registered exporter".

Important points to consider

  • Are the goods “wholly obtained”?
  • Do they qualify as sufficiently transformed? Note: that they have been correctly classified and the correct rule has been applied.
  • Will other factors affect the preferential origin status?
  • Will a ruling (Binding Origin Information) be required?
  • Do you need to register on the REX system?
  • Do you know how to complete a EUR1 or a supplier’s declaration?
  • When you receive proof of origin from an exporter, have you made sufficient enquiries to assess that this has been correctly issued?

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