The Difference Between the Country of Origin and Preferential Origin

Globe with country flags

Did you know that the country of origin and preferential origin are not one in the same when importing your goods? Find out how they differ and how to avoid costly assumptions in this article.

What do we mean by “origin” when importing goods?

When you are bringing in a shipment, the word “origin” can be used in many different contexts. 
For shippers and freight companies, origin usually means the country or port which the goods are being shipped from. For example, a shipment of goods can be referred to as “China origin” just because they are being shipped from Shanghai, or a trailer of goods could have “Polish origin” because they are loaded in Warsaw. 

In this context of booking freight, your goods change origin on the paperwork with every new leg of carriage. This is not what is being referred to or what should be declared when you are processing your import customs clearance.

What “Country of Origin” is during customs clearance

When you are processing a customs clearance,  the country of origin is where the goods were made, processed, or assembled – if the extent of processing or assembly allows for a change of origin as per the rules of that commodity in the tariff.

The following chain of manufacture demonstrates how this can work:

  • Iron ore mined and refined in Australia will have Australian origin. 
  • If that iron is shipped to China and made into screws then those screws could have Chinese origin, depending on the process – such as adding other agents when creating steel.
  • If those screws are exported to Germany and used in the assembly of a washing machine, then the origin of the washing machine depends on the majority origin of the parts being used – or it can be considered German if the majority does not exceed a certain percentage.

Consider how the metal used throughout the washing machine (screws, frames, wires, pipes, the drum) could have all originated in Australia, but the processing of each part can change the origin before it gets to assembly in Germany. This is why it’s important to understand how and when origin can change. In this case, the origin of the metal and the screws becomes largely irrelevant – as is a common scenario when it comes to manufacturing and customs. 

Note that there are some situations where historical origin is important – such as the sanctions on Russian iron and steel. In this case, the “Chinese” screws would be illegal for import into the EU because the iron was mined in Russia.

How is preferential origin different to the country of origin?

Preferential origin ” is when the country of origin allows for a reduced or waived import duty rate on certain goods because of a trade deal with the country of import. However, you cannot assume that goods that can obtain preference automatically just because they have the right country of origin.

Consider again the washing machine that was assembled in Germany. It could qualify to be of German origin simply because 30% of the parts are German and this is the largest value of all the originating countries, but for example it may not qualify for preferential origin in another country unless 40% or more of the parts are German.  It should be noted that each trade agreement has different qualifying conditions so you would need to check the exact rules. In this case, the country of origin on your declaration will be Germany but you will not be able to apply preference to your import.

Do your due diligence – a certificate of preference is not always proof of preferential origin

Many exporters will put an export preferential origin statement on their paperwork or create a certificate of preference such as a GSP (now a DCTS  in the UK) based on the country of origin or at the request of their customers. However, the presence of a preferential clause or document does not always mean that your goods do in fact qualify for preference.

Additionally, your customs authorities will chase you (not your supplier) for any owed duties if preferential origin cannot be proven during a thorough audit.
This is why it is best to get advice from a customs consultant before applying for preference. They will be able to help you ask the right questions and obtain the proof you need when importing goods that can have preferential duty.

Customs Support works with businesses like yours across the EU and UK to ensure that you remain safe and compliant when trading globally. Contact us for a customs health check today.