What is preferential origin and how do you use it for export?
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, if that is not the case, they must at least undergo a certain amount of work 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, 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, Japan and the UK.
A practical example of preferential origin for export
Your company in the Netherlands 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, such as the UK, 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.
How exactly do EU origins and exports work?
When you export to a country with a preferential trade arrangement, you must prove the origin of your goods. If you do nothing, you will have to pay import duties when you export your product.
Do you want your importer to be exempt from import duties? 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 include:
- whether a product is wholly obtained in the EU;
- which processing has taken place in the EU;
- the maximum amount of materials not originating from the EU.
Take the export 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. This is the so-called ‘MaxNom 45%’.
How do you prove EU origin?
You have checked that the percentage of EU-origin of your bike is correct. But how do you prove that when exporting? With older trade agreements you could show a certificate of preferential origin. For example, EUR.1, EUR-MED, or a FORM A document. Or an invoice declaration, which in some cases required a customs authorisation.
Nowadays, the EU often applies a self-certification system. This is done via an export invoice, packing list, or other trade documents. In this document, the exporter uses a standard text to declare 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 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. They declare it themselves.
What steps do you need to take to prove origin?
- Determine the correct HS code of the product to be exported.
- Find out what the import duty is with or without a preferential origin declaration.
- Do you benefit from lower or no tariffs? Then check in the trade agreement which requirement the product must meet to obtain preferential origin.
- Are you a producer? Collect evidence to determine preferential origin. For example, production process description, costing, and requesting preferential supplier declarations for materials you have purchased in the EU.
- Are you a trader? Then it is enough to request and record in your records the supplier's declarations for products of preferential origin purchased in the EU. Include the prescribed text of the preferential origin declaration on your export invoice.
In short: when exporting your bicycle, prove that the bicycle meets the requirements of EU origin. Then you will receive an exemption from import duties. This means you can offer your bicycle cheaper in the other country and therefore probably sell more.
Various trade agreements are affiliated with the General Preferential System (GPS). This is known as the Algemeen Preferentieel Systeem (APS) in Dutch. GPS is a European Union scheme 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. The GPS scheme also works with REX.
How does REX work in practice?
REX is a self-certification system managed by the EU. To register your company as REX, follow these steps:
- You can request your REX registration digitally. Read here about the prerequisites.
- Customs will send you a REX number.
- Once you are a registered exporter, you can issue a declaration of origin yourself when exporting your product.
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 KVK offers an example of an origin declaration for export.
Is REX as easy as it sounds?
REX makes it easier for you to declare the origin. There is no licence involved and you are certifying yourself. However, always check in advance if the goods being exported meet the preferential requirement. And that you also record this properly in your records. 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 4 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.
Be careful. Mistakes are easily made. For example, does the purchasing department start importing bicycle tires from a non-EU country 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 import duties.