Understanding rules of origin in global trade
Nick Crouch · Posted on: June 27th 2025 · read
Why origin matters
In global trade, every imported or exported product must have a declared country of origin.
This is determined through internationally recognised Rules of Origin, which play a critical role in:
- Determining applicable tariff rates
- Ensuring customs compliance
- Accessing preferential trade benefits under Free Trade Agreements (FTAs)
- Supporting supply chain transparency and risk mitigation
Understanding preferential and non-preferential origin
Preferential origin
Preferential origin applies when goods meet specific criteria under a FTA between trading partners. These agreements allow businesses to reduce or eliminate customs duties, making products more competitive and cost-effective.
To qualify, goods must:
- Meet origin rules outlined in the trade agreement.
- Provide proof of origin: The necessary certificate of origin or supporting documentation.
- In some cases, be directly transported between FTA partner countries
HMRC audits:
HMRC can audit preferential origin claims under trade agreements (e.g. UK-EU TCA) and request detailed supporting evidence, such as supplier declarations and bills of materials.
Key issues:
Misunderstanding of origin rules
Inadequate or missing evidence to support claims
Overreliance on invalid supplier declarations
Incorrect assumptions about processing conferring origin
Main risks:
Repayment of full customs duty (plus interest/penalties)
Loss of preferential treatment on past shipments
Suspension of authorisation to issue origin statements
Increased scrutiny from HMRC and trading partners
Non-preferential origin
Non-preferential origin applies to products that do not qualify under any trade agreement. It is important to note that these are not as standard as you would expect so it is critical that businesses have access to, and understands, the applicable rules for the countries it imports into. Businesses cannot assume that the work they complete in the UK means the goods change origin.
These goods must still be classified by their country of origin for customs purposes, but they follow standard tariff rates and general trade regulations rather than benefiting from reduced duties.
Businesses cannot assume that the work they complete in the UK means the goods change origin.
Example:
A UK company imports tennis shoes into the EU and claims UK origin.
The EU non-preferential origin rule for HS Code 6404 requires a Change of Tariff Heading (CTH), but excludes assembly of uppers to soles (heading 6406).
If this is the only process carried out in the UK, the shoes do not qualify as UK origin.
Preferential origin rules under the UK-EU TCA are similar but have slight differences.
Tariff impact:
Non-preferential rate
up to 16.9%
Preferential rate
between 0%–11%
(depending on the originating country)
Key responsibilities for exporters and importers
Any statement on the origin of commodities provides legal responsibilities for the importers and exporters. It is commonplace for importers to accept the origin provided on the commercial invoice. We have seen cases that confirm that any assumption on origin could present a risk to the importer in the form of historical customs duty liabilities.
It is therefore key for importers to have open communication with their suppliers to ensure they have satisfactory processes in place to evidence the origin of the goods.
Exporters will need to ensure they have suitable information records and processes to confirm and evidence the correct origin of the goods. As we highlighted above, the origin may differ depending on the country of import as rules of origin are not standardised within free trade agreements.
It is therefore key for Exporters to understand their supply chains and ensure it can confirm the correct origin status of its exported products. Failure to do so presents risks to both the Exporter (in the form of penalties) and the Importer (historical customs duty liabilities and penalties). Failure to confirm the correct origin could also impact the business relationship, especially if errors result in additional customs duties.
We therefore recommend that procedures for determining and evidencing the origin of goods is subject to an external review. This will help ensure the business minimises the risks of duty exposure and adverse businesses relationships.
Why origin matters for U.S. tariffs (section 301)
When the U.S. introduced Section 301 tariffs (often referred to as “Trump Tariffs”), the origin of goods became a central issue.
- A product manufactured in China but shipped from the UK still retains Chinese origin.
- U.S. importers may face significant additional duties if origin is misdeclared or unsupported.
- Exporters to the U.S. must ensure accurate origin declarations and maintain traceability—especially when using third-party suppliers or offshore production.
Key takeaways
- Preferential Origin rules allow businesses to save on tariffs under FTAs.
- Non-Preferential Origin applies standard duty rates, potentially increasing costs.
- Strategic sourcing decisions can help companies meet origin requirements for trade benefits.
- Businesses should regularly review and test origin procedures to protect margins and relationships.
MHA’s Customs Team can assist your business with reviewing its current customs procedures to ensure that it has satisfactory controls in place to mitigate the risks of incorrect declaration of origin.
Our team has assisted businesses with analysing products against the applicable rules of origin and confirm areas of concern which require further review.
