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Brexit: export and preferential origin

This information is provided by Brexitloket |

Do you export to the UK? And do you want to avoid having to pay import duties on your products? Then it is important for you to know how you can make use of the EU-UK agreements. Preferential origin is an important part of this.

Find out what has changed since the most recent EU-UK agreements in 10 questions and answers.

First of all: what is preferential origin and how can I use it for my trade?

Preferential origin starts with a trade agreement regarding certain goods. These goods must either be manufactured from raw materials or components which have been grown or produced in the beneficiary country or, should that not be the case, at least undergo a certain amount of working or processing in the beneficiary country. Such goods are considered to be "originating".

In a trade agreement, countries give each other a discount (or even exemption) on import duties with mutual import of goods. This makes for a lower import tax, and allows you to sell your product at a lower price. And you can sell more in that country. Or buy at a lower price. A trade agreement specifies exactly which requirements must be met when manufacturing a product in the EU, in order to make use of the lower import tax. In short, these are agreements about preferential origin. The EU already has agreements on preferential origin with many countries, such as Switzerland, South Korea, Norway and Japan. And now also with the UK.

Can you give me a practical export example?

Say, your Dutch company exports bicycles. Within the EU this is not too complicated, because here the free movement of goods applies. But when you export to countries outside the EU, your importer (and therefore you) will have to deal with the normal import tariffs. As of 1 January 2021, the import duty on bicycles (with HS code 8712) in the UK is 14%. If you do not make use of the tariff exemption, you must pay that percentage. Find more examples here.

What exactly has been agreed in the trade agreement and what does that mean for my exports to the UK?

The agreement stipulates that, in principle, trade in goods of preferential origin between the EU and the UK will take place without tariffs. To qualify for the tariff exemption, companies must demonstrate that their goods meet the rules of origin. The rules of origin are laid down in the agreement. In order to reach the threshold for tariff and quota-free market access in the UK or in the EU, materials of UK origin count as components of preferential origin in the EU, and vice versa. The rules of origin specify per product (group) the maximum of materials from third countries that may be used without losing the preferential origin status. The specific rules per product (group) are included in an annex [ORIG-1 to 6].

The Border operating model

The UK has drawn up its own new rules that are described in the Border operating model, BOM. This is separate from the trade agreement reached by the EU and the UK. It describes new rules to specific groups of products, including foodstuffs, vegetables, fruit, meat, fish, and live animals. The new rules will come into effect in different phases on 1 October 2021, 1 January 2022 and 1 March 2022. Read more.

How exactly do EU origins and exports to the UK work?

Trading goods with the UK was not a problem before: we were in the same internal market with EU rules, including the free movement of goods. But now the UK is a different market. So if you do nothing, you will have to pay import duties if you want to export a product to the UK. The import duties that will apply in the UK from 1 January 2021 can be found on the UK government website GOV.UK. You will see the example of cycling (with HS code 8712). You can also find them on the Access2Markets portal of the EU (enter your HS code first). Note: Import duties may vary per country and product category. Do you want your importer to be exempt from import duties, as agreed in the EU-UK trade agreement? Your importer can arrange this using a certificate of origin drawn up by you. You must prove that you meet the origin requirements of your product. The trade agreement lists the requirements to be given preferential EU origin status for each product. These factors apply:

  • whether a product is wholly obtained in the EU;
  • which processing has taken place in the EU;
  • what is the maximum of materials not originating from the EU.

Take the example of the bicycle. In order not to pay import duties on the bicycle, the producer must demonstrate that at least 55% of the factory price of the final product is added value (materials, wages, profit and overhead) in the EU. In other words: no more than a maximum of 45% of the factory price of the end product may come from outside the EU (so-called "MaxNom 45%"). Please note: in view of the short lead time, there is a risk that you will not have the required supplier's declaration(s) on time and therefore have insufficient options to make use of the preferential arrangement. To solve this problem, the European Commission has created regulations that allow you as an exporter for a period of one year (1 January to 31 December 2021) to issue an origin declaration and collect the required supplier declaration(s) later. This is on the condition that you do have (other) information stating that your materials are of preferential EU origin.

How do I prove EU origin?

You have checked that the percentage of EU-origin of your bike is correct according to the trade agreement with the UK. But how do you prove that when exporting to the UK? With older trade agreements you could show a certificate on preferential origin. For example, EUR1, EUR-MED and the FORM A. Or an invoice declaration, which in some cases required a customs authorisation. Nowadays, the EU often applies a system of self-certification. This is done via an export invoice, packing list or other trade document. In this document, the exporter declares by means of a standard text, a statement on origin, that the goods are of preferential EU origin. Each exporter may submit such a declaration of origin up to an invoice amount of € 6,000. For shipments with a higher value, the exporter in the EU must have a REX registration number. This number must also be stated on the statement of origin. REX stands for Registered Exporter. If you register as REX, you will receive a REX number from Customs. The exporter then no longer needs to have an origin document issued by customs. You declare it yourself.

What steps do you need to take to prove origin?

  1. Determine the correct HS code of the product to be exported;
  2. Find out what the import duty is with or without a preferential origin declaration;
  3. Do you benefit from lower or no tariffs? Then check in the agreement (Annex ORIG-2) which requirement the product must meet in order to obtain preferential origin;
  4. Are you a producer? Collect evidence to determine preferential origin. (Production process description, costing, requesting preferential supplier declarations for materials you have purchased in the EU.)
  5. Are you a trader? Then it is sufficient to request and record in your administration the supplier's declarations for products of preferential origin purchased in the EU. You include the prescribed text of the preferential origin declaration on your export invoice.

In short: when exporting your bicycle, prove that your bicycle meets the requirements of EU origin. Then you will receive an exemption from import duties, you can offer your bicycle cheaper in the UK and therefore probably sell more. Various other agreements (Canada, Singapore and Japan and the developing countries affiliated to the General Preferential System (GPS. Algemeen Preferentieel Systeem, APS in Dutch) already work with REX. GPS is a scheme of the European Union to allow goods from certain developing countries to be imported into the EU at a reduced rate. The countries to which the scheme applies are called GPS countries. Read more about REX on the evofenedex website.

How does REX work in practice?

Registered Exporter (REX) is in fact a self-certification system, managed by the EU. To register your company as REX, follow these steps:

  1. You can request your REX registration digitally. Read here about the pre-requisites.
  2. Customs will send you a REX number.
  3. Once you are a registered exporter, you can issue a declaration of origin yourself when exporting your product. You can see what such a statement should look like in the Trade Agreement [ORIG-4].

As an exporter you only need to register once. You can use the REX number for all preferential schemes REX applies to. The content of the origin declaration follows from the preferential arrangement itself. This can differ per partner or destination country.

Tip: the Netherlands Chamber of Commerce offers an example of an origin declaration for export to the UK.

Is REX as easy as it sounds?

REX makes it easier for you to declare the origin, since there is no licence involved and you are in fact certifying yourself. However, you must check in advance whether the goods to be exported meet the preferential requirement. And you must also record this properly in your administration. You can do this with production declarations, cost calculations and supplier declarations. An exporter must keep a copy of the origin declaration for at least four years after it has been drawn up and also other information that shows that the product meets the conditions for obtaining origin status. As a REX holder, you may only draw up a declaration if you have proof. Pay attention. Mistakes are easily made. For example: is the purchasing department importing bicycle tires from a non-EU country from now on, because the price is slightly lower there? Then the percentage of 'non-originating material' of the bicycle will increase and you may no longer meet the requirements for exemption from UK import duties. The importer will not be happy with that. After all, he claimed exemption from import duties on the basis of your information as an exporter.

I have gone through the REX process. What can I do now?

Check your entire production process thoroughly.! Brexit will affect your trade more than you suspect. Think of other things that could change because the UK has left the EU, such as:

  • changed product requirements
  • changed packaging requirements
  • changed intellectual property rules
  • changed customs procedures

Double-check whether everything is in order with the Brexit Impact Scan Is everything all right? Then you can export your bike to the UK. Customs in the UK will assess upon entry of the bicycle whether your importer is entitled to the reduced import duties agreed in the trade agreement. Do they have doubts about the EU origin you have stated? Then they can ask Dutch Customs to check your administration as an exporter.

Will Brexit also affect my exports to other countries?

That depends. Does your bike have parts made in the UK? Then this could have consequences for your exports to other countries the EU has treaties with, such as Canada, Japan, Mexico and Mozambique. Materials and components from the UK no longer count as components of preferential EU origin. This may affect products exported to other countries with which the EU has preferential trade agreements, if the agreement states that a certain percentage of the materials must be of EU-origin. Back to the example of the bicycle. If you import the derailleur, saddle and tires from the UK and then export the complete bike to Japan, it is possible you no longer meet the EU origin requirement that the EU has agreed with Japan. You can still export your bicycle to Japan, but the bicycle will be taxed higher at the border and you will probably sell fewer of them, due to the higher price. You may want to adjust your production process to meet the EU-origin requirement in the trade agreement with Japan.

Read this article (in Dutch) about the fictional example of a packaging materials manufacturer from Delft who imports an electric motor from Leeds (UK). Or a real example of BMW and the production of cars in the UK and Germany.

Where can I go for more information?

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