Export and preferential origin

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

Preferential origin means that a product, and its parts or ingredients was made ('wholly obtained') or sufficiently processed in the exporting country.

It starts with a trade agreement between 2 countries regarding certain goods. These goods must either be manufactured from raw materials or components which have been grown or produced in the exporting country. Or, if that is not the case, they must at least undergo a certain amount of work or processing in the exporting 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 lets the importing party pay a lower import tax, allowing them to sell a product at a lower price. A trade agreement specifies exactly which requirements must be met when manufacturing a product in the EU, so that the lower import tax applies. 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. When you export to countries outside the EU, such as the UK, your importer will have to deal with the normal import tariffs. The import duty on bicycles (with HS code 8712) in the UK is 14%. If you do not apply the tariff exemption, your client in the UK must pay that percentage.

Do you want the importer to be exempt from import duties? They can arrange this using a certificate of origin drawn up by you. This means that first, you must prove that you meet the origin requirements of your product. The trade agreement lists the requirements. These 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. For the importer not to pay import duties on the bicycle, the producer must demonstrate that all the parts are produced in Europe. Or, if some parts came from outide of the EU that these parts were used to make a new product, the bicycle. In this case, the end product will be classified as being of Dutch origin. This is also referred to as the ‘last substantial transformation’.

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.

A declaration of origin can only be used when the value of the shipment is not higher than €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?

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 or the importer benefit from lower or no tariffs? Then check in the trade agreement which requirement the product must meet to obtain preferential origin.
4. Are you a producer? Collect evidence to determine preferential origin. For example, production process description, a cost overview, and supplier declarations for materials you have purchased in the EU.
5. 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 the importing party will receive an exemption from import duties. This means they can offer your bicycle cheaper in their country and probably sell more as well

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:

1. You can request your REX registration digitally (go to the EU Customs Trader Portal). Read here about the prerequisites.
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.

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.

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.

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.

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.