The origin of goods (Made in) and EU preferential origin

The Origin of the Goods (Made In)

Identifying the origin of the goods is indispensable for the purposes of import-export.
The certificate of origin is "a special document issued by the Chamber of Commerce, on an EU form, accompanying the goods and officially certifying the country of origin of the products". It is easy to identify the country of origin of goods if only one country was involved in their production. If two or more countries were involved in the production, then a discriminating criterion must be identified.
Article 60 of the Community Customs Code states that:

Index

“Goods wholly obtained in a single country or territory are regarded as originating in that country or territory.
Goods to the production of which two or more countries or territories contribute shall be deemed to originate in the country or territory where they underwent their last, substantial, economically justified processing or working in an undertaking equipped for that purpose and resulting in the manufacture of a new product or representing an important stage in the manufacturing process".

Goods to the production of which two or more countries contribute

Reading the article reveals the elements, or rather, the criteria imposed by the European Community for the identification of the origin of goods. The conditions that must coexist are:

substantialin the sense that the products used in production lose their commodity identity and give rise to a new product;
the processing must be such that the goods change their form, or their purpose or the possibility of use.

For some products, the European Union has defined precisely what constitutes substantial processing. Therefore, the customs rules identify those processing activities that are not sufficient to confer originating status, as we shall see below.

As regards the determination of origin for the application of the economic rules, customs only require certificates of origin for a few goods. In most cases, origin is ascertained on the basis of trademarks, commercial documentation submitted, etc.

Concept of origin and concept of Community status of goods

For the purposes of granting a preferential dutywhich may be total or partial duty exemption, under the agreements concluded by the EEC with certain third countries, the origin is attested by special movement certificates issued in accordance with the rules laid down in the same agreements or by specific Community provisions.
On the determination of the taxable value, the current regulations consider the value to be declared to customs, for the purposes of applying the taxes, to be the transition valuei.e. the price actually paid or payable, hence ultimately the invoice price.
Taxes on imported goods are settled in the customs declaration and are collected by customs in the various ways established (periodic or deferred payment).

Therefore, given the importance of the correct indication of origin, and in view of the possible penalties arising from a customs dispute, particular attention must be paid to the definition of the origin of the goods, taking into account

the concept of non-preferential origin;
the concept of preferential origin.

The concept of origin should not be confused with the concept of the Community status of goods. Let us look at the differences between non-preferential and preferential origin.

Non-preferential origin

The definition of thenon-preferential origin of goods is necessary in order to establish the application of the customs tariff of the European Communities (PT duty), the application of measures other than tariff measures established by specific Community provisions in the context of trade in goods, and the making out and issuing of certificates of origin.
Non-preferential origin means the place of production of the good or the place where it underwent its last working or substantial processing.
In order to establish the origin (the so-called MADE IN) of a product, one must first identify the applicable rule(s) and then check whether the production process complies with it.

Wholly obtained products

There are two basic criteria that determine thenon-preferential origin of a product:

products always originate in a country entirely obtained in that country;
it shows where the last substantial processing or transformation took place.

Entirely obtained means:

mineral products extracted in that country or territory;
the products of the plant kingdom collected there;
live animals, born and bred there;
products from live animals reared there;
the products of hunting and fishing practised there;
products of sea fishing and other products taken from the sea outside the territorial waters of a country by vessels registered in and flying the flag of that country or territory;
goods obtained or produced on board factory ships from products referred to in subparagraph (f), originating in that country or territory, provided that such factory ships are registered in that country and fly its flag;
products extracted from marine soil or subsoil located outside territorial waters, provided that such country or territory exercises exclusive rights for the exploitation of such soil or subsoil;
waste and scrap resulting from manufacturing operations and discarded articles, provided they have been collected there and can only be used for the recovery of raw materials;
goods obtained there exclusively from the products referred to in numbers 1) to 9).

Last substantial processing or transformation

2. Where the last substantial working or processing took place

This criterion applies to goods processed in two or more countries or produced with the use of materials or components not originating in the EU. It is mostly used for industrial goods such as machinery or plant.
According to this criterion, a good originates in the country where the last working or processing took place, which must be substantiali.e. resulting in a new product with specific composition and properties that it did not possess prior to such processing: in practice, it must result in a change of customs heading in the classification of the good, i.e. the first 4 digits of the customs nomenclature code must change. Or, that it represents an important step in the manufacturing process economically justifiedtherefore involving an increase in value, and carried out by acompany equipped for this purpose.

Non-preferential origin - rules

A list of processes considered substantial for certain products can be found in theannex 22-01 of Delegated Regulation 2446/2015according to customs classification. The annex contains:

primary rules associated with the customs heading (first 4 digits of the nomenclature) and, sometimes, primary chapter rules (first 2 digits of the nomenclature) that can be applied as an alternative to those associated with the heading;
residual rules referred to each chapter (first 2 digits of the nomenclature) referring to the origin of most materials calculated by weight or value, as the case may be.

If there are no primary rules associated with the customs heading (4 digits) or chapter (2 digits), then reference can be made to the residual rule of the chapter.
For other products, which are not mentioned in Annex 22-01, reference can be made to the so-called list rulesalthough they are not currently up-to-date, available on the TAXUD website.
However, it is possible to use a residual criterion, provided for in the Customs Code: the country or territory of origin of the goods is that where most of the materials originate, determined on the basis of their value.

Insufficient processing to attribute origin

Article 34 of Delegated Regulation 2446/2015 lists the processes that by their nature must always be considered to be insufficient to confer origin:

handling operations intended to ensure that products are kept in good condition during their transport and storage (ventilation, spreading, drying, removal of damaged parts and similar operations), or operations to facilitate dispatch or transport;
the simple operations of dusting, sieving or screening, sorting, classifying, sorting, washing, reducing into pieces;
packaging changes and dividing and reuniting batches, simple operations of filling bottles, cans, flasks, bags, crates or boxes, or fixing them to cardboard supports or boards, and any other simple packaging operation;
the presentation of goods in series or sets or their offering for sale;
the affixing of trade marks, labels or other distinctive signs on products and their packaging;
the simple bringing together of parts of products to form a complete product;
disassembly or change of use;
the accumulation of two or more transactions among those referred to in numbers 1) to 7).

Preferential origin

For products imported from certain countries that meet specific requirements, preferential origin may be granted, i.e., the granting of import duty benefits (duty reduction or exemption, abolition of quantitative bans or quotas). preferential treatment. The legal framework for these agreements is the Generalised System of Preferences (GSP). The Generalised System of Preferences (GSP) is a non-reciprocal, non-discriminatory system of preferential tariff arrangements by which developing countries gain preferential access to EU markets. According to Article 208 of the Treaty on the Functioning of the EU, the overall objective of the GSP is to assist developing countries to reduce poverty through preferential access to the EU market.

Requirements for the attribution of preferential origin

Goods, in order to qualify for the above-mentioned benefits, must meet requirements that vary both according to the individual customs items of the products and according to the individual agreements signed by the EU with the various foreign countries (the so-called 'associated' countries): these requirements may differ from those set out in the Community Customs Code regarding non-preferential origin.
All agreements establish a set of specific rules and/or criteria for identifying a product as originating in a given country.
The identification of the processes that are considered sufficient to confer origin is instead left to the origin protocols of the individual agreements signed by the EU with certain non-EU countries, as the rules can sometimes differ from each other, even considerably.
The operator must therefore be well aware of the reference markets for his products, as the investigation to identify the preferential origin of goods must necessarily be initiated by the Council Decision on the agreement signed by the EU with the country of destination.

Preferential Rules of Origin

Within each protocol of origin, the series of working operations that are in themselves sufficient to confer preferential origin on goods are normally listed, as are all the operations that can never be considered sufficient.
For certain types of goods, the various protocols refer to 'annexes' that contain, in detail, the list of working or processing required to be carried out on non-originating materials in order for the product obtained to obtain originating status.
Given its importance, the violation or incorrect certification of the origin of goods is a criminal offence and, in some cases, may constitute an aggravating circumstance for the crime of smuggling.

Preferential origin certification schemes

Precisely because of the criteria followed by the European Community, the latter has set up, alongside the certificate of origin issued by the competent Chamber of Commerce, a whole series of documentary proofs of origin used for certifications of a preferential nature. These documents are:

the Eur 1;
the REX, which replaces Form A as of 2018;
the Atr (for Turkey only).

The REX now mandatory to be able to declare preferential origin in relation to agreements with Canada, Japan, Singapore, Vietnam... and most recently Great Britain after Brexit, with the new bilateral preferential agreements and replacing EUR 1.

REX is the new registered exporter system in force since last 1 January 2018 (Art. 81(1), EU Reg. No. 2447/15), i.e. the new way of certifying the origin of goods that the European Union is gradually introducing for the purposes of its preferential trade arrangements. It is currently applied under the Generalised System of Preferences (GSP), whereby the EU grants tariff preferences to developing countries; it is also extended to other unilateral schemes and trade agreements concluded by the EU itself (e.g. the free trade agreement with Vietnam).

Bibliographic and web references

Bibliography on customs regulations

Handbook of Commercial Law, Giappichelli publisher, 3rd edition 2019
Handbook of Customs Law and Practice, edited by Massimo Fabio, IPSOA Manuali ,VII Edition 2020
European Union Customs Code Annotated by Fabrizio Marrella- Pasquale Marotta Giuffrè Francis Lefebvre, 2019

Sitography on Customs Discipline