Import and preferential origin

What is a trade agreement?

When countries close a trade agreement, they often agree to award each other’s products preferential origin status. This means that countries give each other a discount, or even an exemption, on import duties when there is mutual import of goods. Lower import tax means cheaper products: you can 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 to make use of the lower import tax. The EU has preferential origin agreements with many countries, such as Switzerland, South Korea, Norway, Japan, and the UK.

What is set out in a preferential trade agreement?

A preferential agreement says that, in principle, trade in goods of preferential origin between the EU and the other country will take place without tariffs. To qualify for this tariff exemption, companies must prove that their goods meet the rules of origin. These rules of origin are set out in the agreement.

What is preferential origin and how do you use it for import?

To benefit from a preferential trade agreement, the products being imported must have preferential origin status. This means that goods must either be manufactured from raw materials or components which have been grown or produced in the beneficiary country. Or, if that is not the case, at least undergo a certain amount of work or processing in the beneficiary country. Such goods are considered to be ‘originating’.

A practical example of preferential origin for import

Suppose your Dutch company imports felt bowler hats. Within the EU, this is not too complicated, because free movement of goods applies. But if you import from 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 bowler hats (with HS code 6501) in the EU is 2.7%. Unless the EU has made agreements about a discount on import tariffs through a trade agreement.

This is the case if you import your hats from, for example, Japan, Mexico, Mozambique, the UK, or Canada, but also from other countries. If you import your hats from one of those countries, you do not have to pay any import duties provided it can be shown that the products originate or were made or processed there.

What steps do you need to take to prove origin?

It is up to the importer to request preferential tariff treatment. The importer is responsible for the correctness of the request for preferential tariff treatment and compliance with the conditions. A request for preferential tariff treatment can be based on:

• an origin declaration stating that the product originates from the exporting country. This is issued by your exporter; or
• information known to the importer that the product originates from the exporting country (importer's knowledge). The importer's knowledge must be based on information showing where the product originates from, and also meets the conditions of the agreement.
• the importer that requests preferential tariff treatment must keep the following information for 7 years:

  • if the request was based on an origin declaration, the origin declaration drawn up by the exporter; or
  • if the request was based on the importer’s knowledge, all data showing that the product meets the conditions for obtaining origin.

In short, when importing your bowler hats, prove that your hats meet the requirements of origin. Then you will receive an exemption from import duties. This means you can offer your bowler hats cheaper in the Netherlands and probably sell more.