The Origin of Goods and Its Growing Importance in Times of Trade Wars

Trade wars have put customs duties back in the spotlight. The United States is raising tariff rates, the Union is responding with safeguard measures, and anti-dumping duties on Chinese goods are rising. In this environment, the amount of duty payable is decided by a question that many companies underestimated for years: where do the goods come from.

First, a distinction. The origin of goods is not the same as their customs status. From the Union’s perspective, customs status divides goods into Union goods and non-Union goods. When dealing with origin, we start from imports from third countries, i.e. goods that are not Union goods.

Three factors that determine import duty

Import duty is determined by three factors, illustrated here by imports into the European Union. The first is the tariff classification of the goods in the Combined Nomenclature, which assigns them a numerical code and a duty rate. The second is the customs value, i.e. the basis on which duty is calculated. The third is the origin of the goods. Today, it is origin that most often decides whether the importer pays the standard rate, an increased anti-dumping duty, or nothing at all.

The origin of goods determines their economic nationality. It answers the question of which country is regarded as the country in which the goods were produced. Union customs law distinguishes between two types: non-preferential and preferential origin. Each serves a different purpose and is governed by its own rules.

Non-preferential origin

Non-preferential origin is governed by Articles 59 to 63 of the Union Customs Code (Regulation (EU) No 952/2013). It serves to apply commercial policy measures. Anti-dumping and countervailing duties, safeguard measures, tariff quotas and trade statistics are all linked to it.

However, non-preferential origin also determines the standard duty. On import into the European Union, the importer pays the standard rate of the Common Customs Tariff if the exporting country has no free trade agreement with the Union. The same applies where an agreement exists but the specific goods do not qualify for preferential treatment. The relationship also works the other way round. The Union may be the country of export to a state with which it has no agreement, and goods originating in the Union will then face the standard duty of the destination country.

There are two rules for acquiring origin. Goods wholly obtained in a single country acquire the origin of that country (Article 60(1)). Examples include extracted minerals or harvested crops. Where more than one country is involved in production, the goods acquire the origin of the country in which they underwent their last substantial, economically justified processing or working (Article 60(2)).

Substantial processing or working does not necessarily have to result in a new product. It is sufficient if it represents an important stage of manufacture or if the domestic input materials used reach a specified value. A change of tariff classification, the so-called tariff shift, is not a condition for non-preferential origin.

Origin for customs purposes must be distinguished from the “Made in…” mark, which has its own rules that differ from country to country. Origin is therefore determined not by the “Made in…” label, but by the conditions of the Union’s unilateral measures and of agreements with protocols on rules of origin.

Preferential origin

Preferential origin is governed by Article 64 of the Union Customs Code. It opens the way to a reduced or zero rate of duty. Goods acquire it on the basis of a free trade agreement or of unilateral preferences granted by the Union to developing countries. The Code itself does not lay down the specific conditions; these are set out in the relevant agreement or protocol on rules of origin.

These rules tend to be stricter and more detailed than those for non-preferential origin. For each tariff item, they specify what processing is sufficient: a change of tariff classification, not exceeding a value threshold for non-originating materials, or a precisely defined manufacturing operation. The importer proves preferential origin by means of an EUR.1 movement certificate, a statement on origin, or registered exporter status in the REX system.

The network of free trade agreements

The Union has built an extensive network of free trade agreements, including agreements with Japan, Canada, the United Kingdom, South Korea and Vietnam. Each opens a different market on different terms, and each comes with its own rules of origin.

This is where a key question of today’s trade wars arises. Goods subject to high duties in one country may acquire a new origin by being processed in a country that has a more favourable trade agreement with the target market. Companies are therefore relocating production operations and reassessing their supply chains.

The Union is not the only one building such a network. Third countries also conclude their own free trade agreements, with the United States being the most important from the EU’s perspective. These agreements also influence what is processed in the European Union and how, as they help determine where goods acquire a favourable origin for onward export.

This approach has a clear limit. The processing must be genuine and economically justified. Where an operation is aimed solely at circumventing duty, customs law will not confer origin on it (Article 33 of Delegated Regulation (EU) 2015/2446). Mere formal assembly without substantial added value does not confer origin.

Conclusion

The origin of goods has changed from a technical formality into a strategic tool. Getting it right saves duty. Getting it wrong leads to post-clearance recovery of duty, penalties and a loss of credibility with the customs authorities.

This is an exceptionally complex area. Every business plan must be assessed in detail in light of legislation and free trade agreements, but also of global trade trends and ongoing negotiations. For imports into the European Union, binding origin information (BOI) can help. The customs authority issues it under Article 33 of the Union Customs Code, and it is binding for three years.