The preferential origin, free trade agreements and customs compliance: an up-to-date overview

The judgment of the IV Chamber of the European Court of Justice C‑653/22 released on 23 November 2023 recalls that the origin is an obligation of the importer/economic operator which is required to managet it by taking a specific and professional care. The customs origin could be non-preferential and preferential one.

The mentioned case law gives us the chance to go deeper with an up-to-date overview of the preferential origin.

The preferential origin is an important “status” (quality) of the goods which are imported or exported from/to the European Union.

For this reason, it is important to share and explain some points of the European Union Guidance on the preferential origin issued in 2022.

Firstly, it is stated that to obtain preferential originating status, two main criteria are defined in free trade agreements:

1. Wholly obtained products – where only one country is involved in the manufacture of both materials and products;
2. Sufficiently worked or processed products obtained in a country incorporating materials which have not been wholly obtained there, provided that the materials used in the manufacture of these products have undergone sufficient working or processing. The sufficient “working or processing” that is needed to obtain preferential origin to the final product is determined by the list rules.

The part of the free trade agreement where are listed the rules of origin is called “protocol of origin” ; in this protocol are listed the HS chapter and codes associated to the rule of origin and it is possible to see “…In some cases, a chapter, heading or sub-heading entry is preceded by “ex”. This means that the specified origin rule applies only to that part of the chapter, heading or sub-heading for which the description of the product is provided…”. In other words, “ex” means rule valid only for a HS code.

The rules of origin can be classified in one of the following category:

– Wholly obtained requirement;

– Change in tariff classification (for the non-originating components);

– Value or weight limitation. For what concerning the value rule, the non-originating materials (NOM) means that the value  of all or specific non-originating materials may not exceed a given percentage of the exworks price of the final product;

– Specific working or processing;

– combination of some rules abouve listed.

The rules of origin do not cover the “insufficient operations” which are those that when carried out either individually or in combination are regarded as being of such minor importance that they never confer originating status when only non-originating materials are used in the production.

In general, but not in mandatory way, the free trade agreements have the following list of insufficient operations:

1. preserving operations to ensure that the products remain in good condition during transport and storage; b. breaking-up and assembly of packages;
2. washing, cleaning; removal of dust, oxide, oil, paint or other coverings; d. ironing or pressing of textiles; e. simple painting and polishing operations;
3. husking, partial or total bleaching, polishing, and glazing of cereals and rice;
4. operations to colour or flavour sugar or form sugar lumps; partial or total milling of crystal sugar;
5. peeling, stoning and shelling, of fruits, nuts and vegetables;
6. sharpening, simple grinding or simple cutting; j. sifting, screening, sorting, classifying, grading, matching; (including the making-up of sets of articles);
7. simple placing in bottles, cans, flasks, bags, cases, boxes, fixing on cards or boards and all other simple packaging operations;
8. affixing or printing marks, labels, logos and other like distinguishing signs on products or their packaging; m. simple mixing of products, whether or not of different kinds;
9. mixing of sugar with any material; o. simple addition of water or dilution or dehydration or denaturation of products;
10. simple assembly of parts of articles to constitute a complete article or disassembly of products into parts; q. slaughter of animals

The preferential origin covers another important aspect which is the documents and status to be provided to claiming for the origin.

In particular, the Approved Exporter is a status, granted by an authorization, allowing self-certification of preferential origin of goods by economic operators exporting under certain EU preferential arrangements.

Ideally, the approved exporter is the economic operator which has met certain conditions required by the customs authorities and who is allowed to make out invoice or origin declarations instead of applying for origin movement certificate (e.g EUR.1).

The apporved exporter authorization:

• is a one-off formality, where the exporter provides the customs authorities with the necessary information. Once the authorisation is granted, it is valid for all exports of the covered originating goods during the period of the authorisation;
• can be withdraw.

The Registered Exporter System (the REX system) is another system of self-certification of preferential origin of goods that are laid down by the free trade agreements (especially the latest one) and requires the registration in a database by the competent authority. Once registered, the economic operator becomes a “Registered Exporter”.

The REX system is a single system (enrolement in the European register) for self-certify the preferential origin.

It is  applied in different unilateral (generalised preferences system), bilateral or multilateral preferential trade arrangements between the EU has with third countries.

For what it concers the free trade agreements we can recall that REX is required in the following trade flows: Canada (CETA), UK (TCA-trade cooperative agreement), Japan , Vietnam (EVFTA), Ivory Coast, Ghana, Mauritius, Seychelles, Comoros Zimbabwe, Madagascar, Nouvelle Caledonie, Nouvelle Polinesie, Saint Pierre et Miquelon

Antoher important point of the preferential origini s represented by the principle of territoriality for the working or processing on a good must be carried out without interruption in the territory of the European Union or in the territory of the country or countries covered by the preferential arrangement.

Originating goods leaving the territory of the European Union or the territory of the country or countries covered by the preferential arrangement lose their originating status.

However, as stated in the Guidance on the Rules of Origin 2022,  there may be exceptions to this principle: “…

1. a) Originating goods might be exported to a country that is outside the territory covered by a preferential arrangement and then returned to the exporting country.
2. b) For various reasons, such as modern manufacturing processes or for economic purposes, it can be advantageous to undertake operations in third countries and therefore exceptions may be allowed to the principle of territoriality. Some preferential arrangements allow such external working or processing, provided it conforms to certain specified conditions. Failure to comply with the specific conditions will result in the final product being treated as non-originating…”.

In general, it is important to underline that the preferential origin is a duty of the economic operator who should rely its declarations, statement or applications for a origin certificate either on its own data or on the manufacturer/supplier declaration. Indeed, in the Preferential origin guidance it is stated that: “….1. Introduction Preferential origin documents can be issued or made out for goods on the basis of information and documents proving their originating status. One such document is a supplier’s declaration where suppliers provide buyers with information necessary to determine the originating status of goods for the purposes of preferential trade between the EU and certain countries. 2. General Overview A supplier’s declaration is a declaration by which a supplier provides information to his customer concerning the originating status of goods with regard to the specific preferential rules of origin. Notwithstanding the invoicing, the supplier is the person who has control and the knowledge of the originating status over the delivered goods. By making out a supplier’s declaration, the supplier declares the originating status of the goods he provides to his customer who needs this information to certify the preferential origin of the goods he exports. The exported goods are either the finished product from the supplier or a product incorporating the delivered material. Where the supplier’s declaration has been provided and is required by the exporter, it shall be kept for use in the following cases: 1. Applications for the issue of movement certificates EUR.1 or EUR-MED. 2. The making out of an invoice or origin declaration, an invoice or origin declaration EUR-MED or a statement on origin. The supplier’s declaration can also support the making out of a subsequent supplier’s declaration when the goods are sold, delivered or transferred between suppliers. Suppliers’ declarations are mainly used for deliveries of goods within the European Union. However, suppliers’ declarations in trade with some partner countries of the European Union are also possible. A supplier’s declaration may never be used as a document on origin for claiming preferential treatment at importation….”

Finally, the preferential origini is: a) one of the pillar of the customs obligation; b) an AEO prerequirements; c) a topic whose management/compliance with will be heavily impacted by artificial intelligence; d)  an customs element which will role a fundamental role on the development of the circular economy.