On November 18, 2010, the European Commission adopted Regulation 1063/2010 on the rules of origin for products imported under the General System of Preferences (GSP). Under the new Regulation, the rules and procedures for developing countries that wish to join the European Union’s preferential trade arrangement are simplified and, to a certain extend, relaxed. Over the last several years, more and more traders, organizations and countries have complained that the rules of origin under the GSP were outdated and being too complex and stringent. With the new Regulation, the European Commission aims to simplify the rules of origin, make them more development friendly and provide a more secure environment for legitimate trade.

The GSP system is a preferential trade arrangement by the EU directed at the developing countries. Under the GSP, products that are being imported from developing countries can be imported against reduced or no import duty. For products to fall under the scope of the GSP, the products must be produced or manufactured in the country that has been granted the beneficial (preferential) tariff treatment. The products must “originate” in the country concerned.

Products originate in a specific country if the so-called rules of origin are complied with. Based on these rules, goods that are wholly obtained (e.g., the banana that is grown in a specific country) or, where this is not the case, have undergone sufficient processing in a specific country are considered to be of the origin of the country concerned. What is considered “sufficient processing” is determined on a product by product basis. For each product, specific criteria apply based on for example a specific processing requirement or the value added. In addition, the change of tariff heading, the use of ingredients/materials wholly obtained in the specific country or a combination of any of these criteria may apply. These criteria can be difficult to understand and apply.

Under the new Regulation, these rules are simplified and tailored more to the specific needs and day to day practice of individual industries and sectors of production. Furthermore, special provisions have been introduced to allow the Least Developed Countries to obtain more benefits under the GSP. Among others, the new Regulation provides for:

  •  More sector specific and simplified rules for determining whether products qualify as sufficiently worked or processed to obtain preferential origin;
  •  The conditions for cumulation of origin are made more efficient allowing more products to qualify under the preferential tariff treatment; and
  •  The procedures for establishing and controlling the origin of products are clarified, allowing, for example, registered exporters to provide statements on origin that will be subject to controls by the local authorities after the actual exportation of the products to the EU.

The new rules of origin will apply from January 1, 2011. It is expected that not only will more products become eligible for preferential tariff treatment, but also that controls will become more effective and fraud and abuse will become more difficult — while the red-tape for businesses involved will decrease.

For companies currently involved in the trade between the EU and the Developing Countries, the new Regulation may provide serious opportunities. It is therefore strongly recommended to review and check the consequences and possibilities of the new Regulation for your company as soon as possible.