This article will provide a brief history of customs within the United Kingdom (UK), and an overview of the UK’s stance on free trade and market liberalisation. Insight is provided into the transnational instruments governing rules of origin and legislation enacted by the World Trade Organisation and the World Customs Organisation which harmonise the application of duty rates. The conclusion will address how UK companies can locate whether they can benefit from free trade agreements and preferential rules of origin, and advise on how to establish compliant documentation.
A brief history of the legislation underpinning the rules of origin
The origin of the word customs derives from the Grecian word teloneum, which means “tax”. Customs have existed for over 4000 years, within ancient civilisations including Mesopotamia and Ancient Egypt, and were used to regulate trade and raise taxes to fund the state. The Greeks and Romans imposed sophisticated trading systems at ports whereby taxes were collected at ports and trade routes. The Romans implemented a system of taxation to fund the empire’s operations.
• Between 1815 and 1846 the Corn Laws were enacted in Britain, as a series of protectionist measures designed to protect the British market from competition from cheaper foreign imports. The Corn Laws imposed higher tariffs on imported foreign grain, and lead to a significant reduction in agricultural imports.
• In 1846, prime minister Sir Robert Peel repealed the Corn Laws. The step was considered to be a monumental decision in the context of the liberalisation of the market, and catalysed significant debate on protectionism versus free trade.
• This event paved the way for increased international trade and a gradual reduction of tariffs on other goods.
In contemporary context, the United Kingdom has a progressive stance on free trade and market liberalisation. Since the UK left the single market of the European Union’s Customs Union, since 1 January 2021 the UK-EU Trade and Cooperation Agreement (Trade and Cooperation Agreement between the European Union and the European Atomic Energy Community, of the one part, and the United Kingdom of Great Britain and Northern Ireland, of the other part – widely referred to as the TCA) has been in place, accounting for the majority of the UK’s trade in goods. In 2023, the European Union (EU) accounted for 42% of the UK’s exports and 52% of its imports. On a wider basis, the UK has also modernised trade agreements with Japan, Switzerland, Norway and the EFTA regions, Turkey, Canada, Australia and New Zealand amongst others, and entered into trade continuity agreements with countries such as Mexico. Modernisation may include terms on investment, the environment and sustainability, trade and gender, digital services, small and medium sized enterprises (SMEs) and agricultural policies, amongst other areas, and vary to their extended negotiated terms within the various agreements. Whilst a trade agreement was declined by the Biden administration in the United States, the UK has sought to achieve a Memorandum of Understanding (MoU) with various states including Indiana, North Carolina, South Carolina, Oklahoma, Utah, Washington, Florida and Texas, and is currently negotiating agreements with the seven members of the Gulf Cooperation Council (GCC) and India. The United Kingdom is set to officially join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) on December 15, 2024. This follows the ratification of the UK’s accession by six existing CPTPP members, including Peru, which provided the final necessary approval. Upon accession, over 99% of current UK goods exports to CPTPP members will become tariff-free, potentially boosting the UK economy by approximately £2 billion annually by 2040. The multilateral trade agreement will enable the UK to access preferential terms with Brunei and Malaysia for the first time, in addition to enabling the ability to achieve full cumulation – of benefit to complex manufacturing processes, within the thirteen participating economies.
Additionally, the UK has implemented the Developing Countries Trading Scheme (DCTS) which lowers or removes tariffs for products exported from and originating in 65 developing economies and emerging markets.
A list of the UK trade agreements in effect is available: here
From the early days of the Silk Roads, the lex mercatoria and medieval merchant shipping; to industrialised economies and the creation of the General Agreement on Tariffs and Trade (GATT) trade has played an integral role in supporting economic development and promoting peaceful relations among nations. More recently, the World Trade Organisation (WTO) and the World Customs Organisation (WCO) have played a pivotal role in harmonising the legislation governing international trade within participating nations.
The WTO facilitates global trade, resolves disputes, and sets trade rules among member nations to promote economic cooperation.
The General Agreement on Tariffs and Trade (GATT) is a fundamental structure underpinning the adoption of international legislation in domestic customs policy. The GATT came into force on January 1, 1948, and served as a framework for international trade until the establishment of the WTO in 1995.
The essential element of the GATT story is that since World War Two, for the first time in history, countries have co-operated in lowering trade barriers between themselves and in accepting a code of practical rules for fair trading in international commerce. This co-operation has been on a world-wide, not a regional basis.
The GATT is an international trade agreement whose objectives are:
(a) to help raise standards of living;
(b) to achieve full employment;
(c) to develop the world’s resources;
(d) to expand production and exchange of goods;
(e) to promote economic development.
An important article within The GATT Agreement is:
• Article I: General Most-Favoured-Nation Treatment
“With respect to customs duties and charges of any kind imposed on or in connection with importation or exportation or imposed on the international transfer of payments for imports or exports, […] any advantage, favour, privilege or immunity granted by any contracting party to any product originating in or destined for any other country is accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties.”
Article III and Article I of the General Agreement on Tariffs and Trade (GATT) work together to promote non-discriminatory treatment in international trade but address different aspects. Article III addresses the national treatment on internal taxation, and ensures that imported goods are treated no less favourably than domestically produced goods once they enter the domestic market. This provision prohibits discrimination in the form of taxes, laws, or regulations that favour local products over imports, thereby promoting fair competition and preventing protectionist policies.
The World Trade Organisation’s Agreement on Rules of Origin was established as part of the Uruguay Round of trade negotiations between 1986 to 1994. The Agreement on Rules of Origin identifies that rules of origin principles are to transparent and predictable, and that they must not distort or disrupt international trade. They address both non-preferential rules of origin, used for trade policy measures, and the preferential rules of origin adopted by free trade agreements.
The WCO introduced The Revised Kyoto Convention on the Simplification and Harmonisation of Customs Procedures was adopted in June 1999, and entered into force in February 1994. It included provisions on the rules of origin aimed at facilitating customs practices on a global basis.
In the absence of a free trade agreement, each countries’ exports to other World Trade Organisation members’ countries must be treated with equivalent duty rates, known as most favoured nation (MFN) or third country duty rates. If a WTO member imposes a particular duty rate on imports from one country, it must apply the same rate to imports of the same product from all other WTO members, unless a specific exception like a preferential trade agreement (e.g., FTA or customs union) applies.
The exception to this rule is the implementation of trade remedies – which are permitted to protect the domestic market from being saturated with low-cost goods, and sanctions. These remedies must comply with specific WTO agreements and be implemented in a fair and transparent manner. Commercial policy measures include:
• anti-dumping duties
• countervailing duties
• trade embargoes
• safeguarding measures
• quantitative restrictions
• tariff quotas
The UK’s Trade Remedies Authority investigates if a trade remedy is required to protect national industry. UK companies may contact their team if they have concerns about unfair trading practices or unreasonable import surges. For example, aluminium bars and rods, biodiesel, steel, and electric bicycles are products which may be subject to Trade remedies, safeguards and retaliatory duties.
Rules of Origin
• Rules of Origin are the criteria used to determine the economic nationality of a product, as opposed to the geographic nationality of product.
• They are used to determine which preferential or other country specific measures apply to imported goods.
• Their application, which relates to where the goods or their component parts are produced or manufactured, decide what country they count as originating from.
• Restrictions and tariffs are applied at different levels according to the nationality of the product.
• The origins of a product are used to determine the tariffs when crossing borders.
• In addition to this, Rules of Origin are also used to charge anti-dumping duties, and put safeguard measures in place, for government procurement purposes, marketing or labelling, or gathering trade statistics.
• In order to apply a preferential origin under the terms of a free trade agreement to claim 0% or reduced import tariffs, most trade agreements require the products to be exported directly from the originating country or region subject to the agreement.
• Goods can move through or be stored under customs control in countries that are not in the agreement, so long as they are not entered into free circulation, if they are to retain the preferential origin.
• Article 154 of regulation (EU) 952/2013 identifies that once originating goods are cleared into free circulation and re-exported outside of the domestic territory, they obtain non-preferential origin.
• Non-preferential origin, however, remains unchanged as the goods pass through different customs territories, unless the goods are sufficiently processed within one of the territories to obtain a new origin.
• Cumulation is a deviation from the core concept of origin and occurs when manufacturing processes take place in several countries.
• Where two of more countries have the same rules of origin, and free trade agreements in place between them, if the product of one country of an FTA is further processed to a significant level in partner country, it can be labelled as originating in the final country of production.
Non-preferential rules of origin
• Non-preferential rules of origin are usually set in national policy and legislation where there are no preferential trade agreements in place between two or more countries. Countries must establish the non-preferential origin of a product on World Trade Organisation in accordance with terms and associated tariffs. If there is no trade agreement the trading terms will usually be under the terms of ‘most favoured nation’ (MFN) tariffs that are applied to all members of the World Trade Organisation.
• The exception to this rule would be when a UK government places protectionist tariffs on import due to a political threat, for example the UK government has placed 35% tariffs on imports of goods of Russian economic origin. This applies equally, whether the goods are exported from Russia or any other territory.
Rules of Origin Eligibility and Compliance
The United Kingdom has established multiple trade agreements, and the proof of origin for compliance may vary greatly between the different agreements. The UK has increasingly enabled traders to self-certify through drafting a statement on origin to be included within a relevant document such as the commercial invoice. Other proofs may include a EUR-1 or EUR-MED certificate, or Form A, and certain agreements may require one of the contracting parties to apply a Registered Exporters (REX) code.
To check the appropriate methodology and tariff eligibility traders may review the UK Trade Tariff, and enter the commodity code for their product, and the country of origin. If the trader is exporting products from the United Kingdom to another territory, they should also review the UK Trade Tariff to confirm whether a supplier’s declaration is required. For example, since 31 January 2021 a supplier’s declaration is a mandatory document to hold and issue to accompany a statement on origin with a claim for tariff preference when UK companies export to the European Union.
Simply writing the country of origin, without further formalities is not sufficient. It is important to observe that when applying a statement on origin, it is a tax waiver, and therefore the text and any further information such as the signature, company stamp and supplier’s declaration must accurately reflect what is required by the trade agreement.
For further information and for a review of rules of origin compliance within your organisation, please contact Alinea Customs’ consultancy team.
Further information is available from: Alinea Customs – Consultancy.
