Rules of origin: Why are they important and how can you stick to them?

Legislation | | MIC Customs Solutions |

Rules of origin might sound complex, but help is at hand if you want to ensure compliance.

If you're just dipping your feet into the possibilities of importing and exporting worldwide, then the chances are you'll already have come across the term 'rules of origin'.

It's enough to strike fear into the heart of the uninitiated, but the reality is that you must understand and adhere to rules of origin if you're going to trade globally without falling foul of the law.

Let's take a closer look at what exactly rules of origin are and how they might apply to you, as well as ways of making adhering to them much easier.

Why are rules of origin important?

Simply put, rules of origin are the criteria needed to determine the national source of a product. They are important because, in many cases, certain duties and restrictions arising from trade policy measures might depend on where something came from.

For instance, some goods may qualify for preferential treatment such as lower customs duty, while others are likely to attract full fees.

There are two types of rules of origin: non-preferential, which are mandatory and simply collect information for the multilateral trading system; and preferential, which relate to free trade agreements and the Generalized System of Preferences (GSP), and help to work out whether or not goods should have special treatment applied to them.

It is vital to take care when declaring the origin of a product, because this depends on whether the goods were wholly obtained or produced in a single country or their production involved materials from more than one country.

For example, if a product is assembled in one nation but used components from another, it could be said to have originated in either one. This is why businesses need to ensure they carefully check the regulations for the countries they are importing from and exporting to and get their facts completely correct.

Where are rules of origin used?

Rules of origin are used almost everywhere, as it is generally accepted that their harmonisation will significantly streamline international trade. However, in reality, FTAs and various deals can make this lining up of legislation more complex.

Nevertheless, origin information is deemed essential because the world's governments want to be able to keep abreast of every shipment being sent internationally so that the movement of goods across international borders can be regulated.

Sometimes import and export restrictions can be placed on certain products, so a method of measuring limits is vital - and rules of origin are it.

How to adhere to rules of origin

How big a task sticking to rules of origin will be depends on where in the world you are trading. Some nations require a Certificate of Origin for almost everything, while others only ask for them for certain types of goods, so the first task is to look up your products and check if they are on the relevant nation's list.

You will need to obtain product codes for your goods once you have determined that they need a certificate, which can be found in databases via organisations like HMRC and the EU.

And don't be tempted to shred your paperwork or delete it once the shipment is completed: all relevant information must be retained for as long as three years in case of an audit.

If you get rid of your paperwork and cannot prove the origin of the products you have traded, penalties may be incurred or your customers might find themselves having to pay back the full rate of duty.

Help is at hand using software solutions

All this might sound like a major headache, but don't let it put you off international trade. Instead, let MIC's Origin Calculation System (MIC OCS) support you.

This specialist software can create an automated solicitation of supplier declarations, followed by a calculation of the origin of your goods, even when changes in originating status take place over time.

Simply give us a call or drop us an email to find out more, and don't let rules of origin become a hurdle in your pathway to trading globally.