The country of origin is traditionally determined according to the following methods:

• the technical or industrial criteria: This defines, with regard to specific types of products, the processes or operations which must have taken place in the country concerned to confer origin. This can also determine certain operations or processes which are considered as being insufficient for conferring origin.
• added value or other economic criteria: Here, for example, the value of the imported materials does not exceed a certain percentage of the ex-works price.
• a change of tariff heading or other customs classification criteria: The goods would be classified under a different heading as a result of the work conducted in the originating country of the imported materials.
• the last substantial processing or working: The origin will be determined by the country where the substantial processing or working has taken place, provided it is economically justified and results in a new product or represents an important stage of manufacture.

Importers must distinguish between preferential and non-preferential origin.

2.4.1 Non-preferential Rules of Origin

The non-preferential rules of origin are used for determining the origin of products subject to all kinds of commercial policy measures (such as anti-dumping measures and countervailing duties, retaliatory duties, quantitative restrictions and import restrictions, surveillance of imports, export refunds and trade statistics). Other provisions, such as those related to public tenders or origin marking, are also linked with the non-preferential origin of the products.

The basic rules on non-preferential origin state that the goods originating in a country shall be those wholly obtained or produced in that country. When goods originate in more than one country, the origin will be determined on the basis of the substantial transformation test: goods whose production involved more than one country shall be deemed to originate in the country 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 of manufacture.

There are also specific rules applicable to origin of textiles and other products specified in the Implementing Provisions to the Community Customs Code. The origin of those products is determined according to the technical or industrial criteria, the added value criterion, or the change of tariff heading criteria.

2.4.2 Preferential Rules of Origin

Preferential origin confers certain benefits on goods traded between particular countries, namely entry at a reduced or zero rate of duty. Importers should refer to the rules laid down in the specific relevant legislation. Rules on the Generalised System of Preferences are contained in the Implementing Provisions to the Community Customs Code. However, importers should look into the specific preferential trade agreements concluded between the EU and its trade partners for other preferential origin rules.

Preferential origin rules require the goods to be shipped directly to the Community and be accompanied by a certificate or invoice declaration proving that they satisfy the requirements to obtain originating status. For instance, the Generalised System of Preferences requires a certificate of origin Form A. The importer will be held liable for the incorrectness of the origin certificates.

Products wholly obtained in a beneficiary country are considered as originating in that beneficiary country. For other products, the working or processing required to be carried out on non-originating materials is generally set out in the relevant regulatory text. It usually relies on the technical/industrial criteria, the added value or the economic criteria, or the change of tariff heading. However, the abstract criterion based on the substantial processing is not usually taken into account for preferential origin.

It is, under certain conditions, possible to use material originating in a preferential partner country other than that from which the goods are exported. When only two partners of the preferential agreement are involved, this is called bilateral cumulation. In addition, manufacturing can take place under certain conditions within a regional group, leading to regional cumulation.

Importers should take into account that they can request Binding Origin Information from the EU customs authorities.¹ These decisions will be binding concerning the origin of the products. Binding Origin Information shall be binding on the customs authorities as against the holder for a period of three years. However, Binding Origin Information can be revoked under certain conditions specified in the Community Customs Code. Examples include its incompatibility with a judgment of the European Court of Justice or with a regulation adopted by the Community.

2.4.3 Generalised System of Preferences

The EU has a general system of preferences in force whereby certain products of some beneficiary countries, including the Chinese mainland, can benefit from lower or zero import duties. In particular, Council Regulation 980/2005 contains the relevant GSP provisions which are applicable from 1 January 2006 to the end of 2008 (the "GSP Regulation").

a) Types of Preferences

The GSP Regulation provides for three specific arrangements: (i) a general scheme of preferences; (ii) the "Everything But Arms" special arrangement for least developed countries (LDCs); and (iii) a Special Incentive Arrangement for Sustainable Development and Good Governance (also known as "GSP Plus").

i. General Arrangement

The General Arrangement offers tariff preferences in accordance with the sensitivity of the products concerned, depending on the situation of the sector manufacturing the same goods in the EU. Non-sensitive products benefit from duty-free access to the EU market, whereas sensitive products receive a reduction of the normal Most-Favoured-Nation (MFN) ad valorem duties by a flat rate of 3.5% (i.e. if the tariff duty was set at 15%, goods benefiting from the General Arrangement would be imposed an 11.5% import duty). Textile and clothing products enjoy a tariff reduction of 20%, calculated from the MFN duty rate (i.e. if the tariff duty was 15%, textile and clothing goods benefit from a reduction of 3%, receiving a final import duty of 12%), whereas on specific duties, the reduction amounts to 30% of the MFN duty rate.²

Where the rate of an ad valorem duty for an individual import declaration, reduced as a result of a tariff preference, is 1% or less, then that duty will be entirely suspended. Where the rate of a specific duty is likewise reduced to €2 or less, the duty will be entirely suspended.

ii. Everything but Arms Arrangement

The Everything But Arms Arrangement provides for a 100% suspension of customs duties on all imports into the EU, except those of Chapter 93 (arms and ammunition, parts and accessories thereof) originating in LDCs.

iii. GSP Plus

The Special Incentive Arrangement for Sustainable Development and Good Governance exempts from import duties all products benefiting from the GSP system originating in countries which have to adhere to several core conventions on human and labour rights, good governance and protection of the environment. A list of countries benefiting from GSP Plus is contained in Commission Decision 2005/924/EC of 21 December 2005.

b) Exceptions

Hong Kong exports to the EU have been excluded from the Generalised System of Preferences (GSP) Scheme since 1 May 1998, but selective exports originating in the Chinese mainland to the EU are still eligible for GSP benefits in the EU. However, exporters shipping GSP eligible the Chinese mainland origin goods via Hong Kong to the EU, should note that all shipments are required to accompany a non-manipulation certificate confirming that the goods have not been further processed in Hong Kong issued by the China Inspection (HK) Co. Ltd. in Hong Kong.

i. Removal of Tariff Preferences

The GSP indicates that the tariff preferences will be removed in respect of beneficiary countries which are believed to have achieved sufficient competitiveness for the products contained in a section of the Common Customs Tariff (CCT). Such removal will occur where the average value of Community imports of products of a CCT section originating in the beneficiary country exceeds 15% of the value of EU imports of the same products from all beneficiaries listed in Annex I over three consecutive years, on the basis of the most recent data that was available (for textiles the threshold is 12.5%). For example, the Chinese mainland is deemed to have achieved this in the clothing and textiles sector and, therefore, imports of those products into the EU no longer benefit from preferential treatment (see: table below in respect of all the product sectors removed if originating in the Chinese mainland).

List of Chinese Mainland Origin Product "Sections"
in the GSP Regulation which will not Benefit from Preferences

In sum, Chinese traders can benefit under the GSP scheme in respect of all the other products, i.e. those listed in Annex II of the GSP Regulation as sensitive or non-sensitive. However, a number of mainland products, such as certain chemicals, plastic items, toys, textiles and textile articles, footwear, jewellery, consumer electronics and watches and clocks as listed above are outside the preference list.

ii. Temporary Withdrawals and Safeguards

The GSP Regulation also provides for temporary withdrawal of preferences in the event of certain circumstances arising. These include serious shortcomings in customs controls, serious and systematic unfair trading practices and failure to comply with international conventions on money laundering. Moreover, where a product imported from a beneficiary country causes or threatens to cause serious difficulties to an EU producer, normal customs duties on that product may be reintroduced at any time.

c) Rules of Origin

As already explained above, there are two basic types of rules of origin for products entering the EU from third countries: non-preferential and preferential.³ In the case of the GSP, the EU's preferential rules of origin apply.

The possibility for regional cumulation of origin makes it possible in a GSP-benefiting country concerned to cumulate with originating materials from another country within the same regional economic group. Groups benefiting from regional cumulation are:

• Group I: Brunei-Darussalam, Cambodia, Indonesia, Laos, Malaysia, Philippines, Singapore, Thailand, Vietnam;
• Group II: Bolivia, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Nicaragua, Panama, Peru, Venezuela;
• Group III: Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, Sri Lanka.