When it comes to origin
Legal experts Roxanne de Vries and Jasper Muhlenbaumer work for the 16-member National Origin Sector – the Customs knowledge centre for all matters relating to origin and source. They deal with central policy issues – work that also regularly takes them to Brussels. “In Brussels, we can make a difference on behalf of Dutch Customs.”
“In addition to Value and Tariff, Origin is at the base of the customs tariff,” says Muhlenbaumer. “For instance, it co-determines the amount of the import duties to be paid and serves as a basis for trade measures, such as anti-dumping levies. The concept of tariff preference also plays an important role*. Those who import goods from partner countries or beneficiary countries as mentioned in the GSP** may qualify for a reduced tariff instead of the full amount of import duties. For example, they will not pay ten percent but three percent, provided they meet the conditions. That is, if they have the right proof of origin, among other things.”
De Vries: “One of the tasks of our unit is to check this on the import side: was a preferential tariff rightly granted to a business? But we also perform checks on the export side: can a business prove that its product is indeed of EU origin? In that case, the business must be able to produce supporting documents from its business records, about the origin of materials, about its production process, its procurement, and so on. In addition, our unit is responsible for the issue of, for example, Binding Origin Information (BOI) and for all matters relating to REX registrations. REX is short for Registered Exporter.”
Dependent on each other
As said, the National Origin Sector also supervises export. Muhlenbaumer: “Take a bicycle, for example. Exporters draw up a proof of origin – or have such proof issued –, which shows that this bicycle is of EU origin. In a country such as Mexico, a preferential tariff can be used when the bicycle is imported. So the proof of origin is in fact a valuable document that reduces the amount of duties to be paid on import. And should the Mexican customs authorities doubt the origin of the bicycle – does it indeed originate from the EU? – they can have this assessed via our unit.” De Vries: “We then check with the exporter whether all conditions have indeed been met, in order to be sure that the goods originate from the EU. And vice versa, if there is any doubt about the origin of products stated on import, we also ask the authorities in partner countries to carry out such assessment. So customs administrations are somewhat dependent on each other. For eventually, the origin of the product can only be determined by enquiring at the manufacturer or the exporter.”
The question as to whether a product is of preferential origin is often also difficult to answer. “If you pick an apple from a tree in the Netherlands, this is not so complicated in terms of origin,” Muhlenbaumer says. “We call this ‘wholly obtained’. The same applies, for example, to a calf born, raised and slaughtered here. It becomes more difficult when a machine is manufactured which is made up of hundreds of components. What makes that machine of EU origin? This is not so difficult when all these parts are of EU origin. But what if you import 50% of all nuts and bolts from China or Taiwan, and put work into it here or spray or paint the product... For the purpose of determining the origin, we then apply so-called list rules. These rules describe at product level what processing is required in order to determine that this end product is of EU origin, despite the fact that the materials used were not. The exact content of these list rules is the result of long-term negotiations between the EU and partner countries, both of which of course have their own economic interests in this.”
Adjusting where possible
As Muhlenbaumer and De Vries primarily focus on preferential origin, the various free trade agreements concluded by the EU with partner countries – such as CETA with Canada and EU-Japan EPA*** – form the basis of their work. “Because we participate in international working groups and EU meetings, we are in close contact with the European Commission and origin experts from the other Member States, and we can provide input for agreements yet to be negotiated,” Muhlenbaumer explains. “In doing so, we primarily look at things from a customs perspective – when it comes to Dutch trade interests, we are joined by the Ministry of Foreign Affairs. Are the rules of origin practical for us as Customs? If not, we try to make small adjustments. And if there are any gaps or ambiguities in existing regulations, we will try to do something about that – also based on signals from the business community.”
“This is quite difficult in practice, especially since the amendment of customs legislation within the EU is a lengthy process,” De Vries adds. “We therefore initially assess whether it is possible, in consultation with the European Commission and the other Member States, to give a certain joint interpretation to this legislation. It may help for the EU to draw up a guidance document together with the partner country. But sometimes changes in economic conditions – or new technological developments – really require new legislation. In that case, the EU must initiate the process of amending its own customs legislation or, in the case of trade agreements, restart negotiations with the partner country. This partner country will then emphasise its own interests and, for example, advocate certain amendments that will make it easier for certain products to comply with the rules of origin – ‘quid pro quo’. Fortunately, the EU often has a strong starting position, and the interests of the Member States are well represented.”
‘Spaghetti bowl of rules’
Muhlenbaumer: “We used to have a fairly homogeneous system with clear rules. Although the list rules themselves had always been coloured by commercial policy, the proof of origin, the related conditions and their controls were more or less the same in each agreement. However, over the last ten years, many new free trade agreements have made the system more and more diffuse. Customs, the ministries concerned, the Chamber of Commerce and the business community are somewhat concerned about these different preferential arrangements with the countries to which we export. Let’s return to the bicycle: for example, if a business exports the same bicycle to Japan, Canada and Mexico, it will need three different types of proof of preferential origin. This development does not make it any easier for us – but also for our colleagues from the Declaration Processing and inspection teams. This ‘spaghetti bowl of rules’ – as it is called – is sometimes so complex that exporters and importers decide not to make use of the preferential arrangements.”
De Vries: “And that is a pity, because if you decide not to make use of a preferential arrangement, you will not maximize the benefits that EU trade agreements can produce. It would be nice if businesses did so, as that would ultimately enhance our competitive position. For the preferential arrangements allow exporters to sell their products at lower cost in a partner country.”
Speaking with one voice
Fortunately, this bowl of rules is on the agenda in Brussels, according to De Vries. “The primary task here is for the Commission to conclude agreements that are uniform – the outcome of the negotiations also depending, of course, on the partner country – and to provide adequate information on this. At a national level, our unit then tries to create sufficient clarity toward businesses. We cannot change the conditions of a new preferential arrangement, but we can explain how to use such arrangement as well as we can.”
“Because we are close to the action in Brussels, we also provide feedback to various departments within our own organisation about what is discussed and decided there. For example, our unit acts as a knowledge centre for Customs as a whole: we explain how the rules of origin should be interpreted and applied. We also ensure that this explanation is the same throughout the country. After all, if different regions are dealing with comparable cases, you want to speak with one voice.”
“We also help businesses to meet their obligations. We keep the information on the origin policy up to date in the Customs Manual. We also publish announcements on new trade agreements such as those with Canada, Japan, Singapore and Vietnam, which businesses can use as guidelines. And we share guidance documents from the European Commission. We sometimes also give presentations at one of the umbrella organisations, such as EVO-Fenedex or the Chamber of Commerce.”
Help desk function
What if businesses get confused by the rules? De Vries: “In principle, the Customs Information Line is the first point of contact for businesses, but our unit also serves as a help desk for more complex issues.”
Muhlenbaumer: “Market players sometimes also ask us questions such as: ‘We purchase cheap boots from Canada, but they appear to come from China. Can you tell us about their origin?’ Such questions are often difficult to answer, and we are not a consulting firm, of course. We expect businesses to try and find an answer themselves first. If they cannot find an answer, they can submit a specific question to us, supported by documents.”
“We work closely with the Customs National Office. Through the Customs National Office, we often become aware of specific issues, such as origin-related questions that the Office receives via the Customs-Business Consultation”, De Vries concludes. “These issues often give a good picture of developments in the trade sector, and we take such signals to Brussels as feedback. For we can make a difference there.”
* Non-preferential origin is particularly important for commercial policy measures, such as anti-dumping levies. Preferential origin offers certain tariff advantages for goods traded between countries that have entered into a trade agreement.
** GSP is short for Generalised System of Preferences, a unilateral scheme for importing goods from certain developing countries into the EU at a reduced tariff.
*** CETA: Comprehensive Economic and Trade Agreement / EPA: Economic Partnership Agreement.
National units in the spotlight
Dutch Customs has several national teams and units, all of which focus on specific tasks and have highly specialist in-house expertise. As knowledge and advice centres, they support the customs regions and often customs clients as well (be it directly or indirectly). Some of these organisational units (such as the Central Import and Export Service, the Central Excise Unit and the National Customs Help Desk) have been discussed in Customs NL inSight before; other units have so far received less attention. In this issue, we will highlight five of the latter group of units: our national units that deal with valuation, tariff classification, origin, guarantees and clearing respectively.