The origin of a product is the decisive criterion for key customs measures, particularly the applicable customs duty rate. Goods with preferential origin can be imported into the EU at reduced rates. In contrast, goods with non-preferential origin, such as those from China, may be subject to additional anti-dumping or countervailing duties. Non-preferential origin is also referred to as commercial origin.
It is essential to distinguish between non-preferential and preferential origin, as each has its own legal requirements.
Non-preferential origin
According to Art. 60 para. 1 of the Union Customs Code (UCC), goods that are wholly obtained or produced in a single country or territory are considered originating products of that country or territory. This includes all materials used in the manufacturing process. In times of globalisation, this basic rule applies to very few goods. The use of even a single material, such as a set of screws, originating from another country or territory, excludes the application of Art. 60 para. 1 UCC. In such cases, more than one country or territory is involved in the manufacturing process. The relevant country or territory for determining commercial origin is established under Art. 62 para. 2 UCC, which states that origin depends on where the last substantial, economically justified processing or working took place.
Processing or working is not considered economically justified, especially if the purpose is to change the customs origin in order to avoid import duties (see e.g., ECJ judgement of 21/11/2024, Case C-297/23 P – Harley-Davidson).
The EU Commission defines substantial processing operations that determine non-preferential origin in its Delegated Regulation (EU) 2015/2446, which supplements and clarifies the UCC. The list (Annex 22-01) is organised by HS codes and specifies the required criteria. An important criterion is “CTH” (Change of Tariff Heading), which means that processing must result in the product being classified under a different HS code after processing.
Another important criterion is the value-added rule, which stipulates that the proportion of non-originating materials must not exceed a defined total amount of the ex-works price of the finished product.
Preferential origin
Unlike non-preferential origin, preferential origin is not uniformly defined for all imports from third countries. A distinction is made between preferences unilaterally granted by the EU and bilateral preferential agreements between the EU and third countries.
Preferential measures for imports from third countries can be established unilaterally by Union acts, and no agreement is required for this. The basis for such benefits is the so-called Generalised Scheme of Preferences (GSP), regulated in Regulation (EU) No. 978/2012 of the European Parliament and Council from 1 January 2014.
An example is customs preferences for the so-called “least-developed countries” (LDCs), where the Union alone determines the requirements a product must meet to obtain preferential origin. Other beneficiary countries are grouped under OBC (Other Beneficiary Countries) or EBA (Everything But Arms).
In the case of bilateral preferential agreements or free trade agreements between the EU and other countries, the rules of preferential origin are negotiated in the agreement. The preferential origin established in this way applies only to originating goods from the parties to the agreement.
In addition to origin preferences, there are also so-called free circulation preferences. These do not depend on the origin of the goods but on their customs status. Free circulation preference plays a role, for example, in the customs union between Turkey and the EU.
To claim preferential benefits, additional requirements must be met. Usually, proof of origin—such as a supplier’s declaration or movement certificate EUR.1—is required. Furthermore, direct transport of the goods between the parties to the agreement is generally necessary (proof of direct transport).
Determination of preferential origin
Goods that are wholly obtained or produced in a single country or territory generally acquire preferential origin. In this respect, preferential origin does not differ from non-preferential origin. However, once more than one country or territory is involved in the manufacturing process - such as when materials of different origins are used—different requirements apply.
In such cases, it is not sufficient to consider only the last economically justified processing or working. Further requirements must be fulfilled, including:
Change of Tariff Heading (“CTH”): The processing must result in a change of HS code. For example, pipes under HS code 7304 that are processed to become construction parts classified under HS code 7308 fulfil this requirement.
The “CTH” requirement can be combined with the condition “except from materials of HS code XXXX”.
Value-added rule: Manufacturing from materials whose value does not exceed X percent of the ex-works price of the finished product.
There is an exception for materials originating from countries or territories with which cumulation is permitted. Cumulation allows for the use of materials of different origins without having to meet the strict requirements for obtaining preferential origin. Cumulation is generally permitted with materials from the other contracting party. If cumulation is allowed, processing beyond minimal treatment may be sufficient. The definition of minimal treatment can be found in the relevant preferential agreement or the rules for unilateral preference grants.
If only minimal treatment is performed, preferential origin cannot be obtained under any circumstances. Examples of minimal treatment include:
Simple assembly of parts into a complete product (e.g. a kit made up of a few parts);
Disassembly of products into components;
Simple painting or polishing;
Applying or printing brands, labels, logos, etc.;
Simple mixing of products.
The assessment of preferential origin requires knowledge of the materials and production steps. It is also relevant whether the materials themselves have preferential origin. Especially with complex production and supply chains, careful evaluation is necessary. It is advisable to document the composition of the product using a bill of materials (“BOM”). If necessary, a preference calculation regarding the value-added rule can be made based on this BOM. The preference calculation can be digitally embedded in the inventory management system of the ERP system, allowing changes to product code, price or material origin to be processed directly by the system. In addition, the issuance of proofs of origin can be managed within the system.
Proofs of origin
The primary proofs of preferential origin are origin declarations on the commercial invoice and movement certificates (e.g. EUR.1).
The most important proof of origin a company can issue is the origin declaration on the commercial invoice. The preferential origin can be checked and proven during import using the commercial invoice. Any entrepreneur may generally issue origin declarations on the commercial invoice, provided the value of the goods does not exceed EUR 6,000. If the value exceeds this threshold, the issuer must hold the customs authorisation as an “Approved Exporter”. This authorisation must be applied for in the country of export and requires the presentation of the company’s internal customs procedures and related information. The authority will assess whether the company is sufficiently capable of complying with customs regulations. If it determines otherwise, it may refuse the “Approved Exporter” authorisation.
If the company is not an “Approved Exporter”, a movement certificate must be applied for at the relevant customs office in the country of export. For each application, it must be explained individually why the requirements for preferential origin are met. Applying for a EUR.1 certificate can be a competitive alternative if the exported goods are always the same. However, when diverse goods subject to changes in composition and production are involved, the origin declaration on the commercial invoice is advantageous, as it can be independently issued by the entrepreneur after verifying the requirements.
Supplier declarations
Supplier declarations are not proofs of origin in their own right, but they are closely related instruments. They are primarily used when the issuer of the commercial invoice is not also the manufacturer of the goods. In such cases, the issuer cannot verify whether the requirements for preferential origin are met and must obtain this information from the manufacturer, who may then issue a supplier declaration certifying that the goods meet the preferential origin requirements for trade with certain countries or territories. Both individual supplier declarations and long-term supplier declarations for the same product supplied regularly over an extended period are possible.
Supplier declarations can be issued without authorisation. However, issuing false supplier declarations can lead to the revocation of other customs authorisations or result in fines.
Binding origin information
To achieve certainty in calculations and legal matters regarding the determination of non-preferential (Art. 59 ff. UCC) or preferential origin (Art. 64 ff. UCC) of a product, Art. 33 UCC offers the possibility of requesting binding origin information (“vUA”). This is a binding assessment of the origin of a product by the relevant authority, based on a legal evaluation of its manufacturing process. The competent authority is either the locally responsible Chamber of Industry and Commerce or the Main Customs Office in Hannover. Binding origin information does not serve as proof of origin, preference certificate or supplier declaration but can provide reassurance and serve as a basis for the entrepreneur’s issuing of such proof.
Binding origin information is binding on both the customs authorities in the EU and the holder of the information for a period of three years.
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