Guidance

Case studies for insufficient production when trading between the UK and the EU

Use the case studies to help you decide when your goods may (or may not) go beyond insufficient production.

From:
HM Revenue & Customs
Published
6 October 2021

The following case studies aim to illustrate some of the principles behind insufficient production to help you decide when your goods may (or may not) go beyond insufficient production. As the exact processing and their impact on the characteristics of a product vary, you’ll need to consider all the requirements in the rules of origin chapter to determine whether your product qualifies for a zero tariff between the UK and the EU.

You must decide if a process goes beyond ‘insufficient production’ on a case-by-case basis because it depends on the exact processing and operations undertaken and could be challenged by the importing customs authority.

If you want help deciding on the origin of your goods, you can:

Case study 1 – packaging sweets

A UK business imports sweets from the EU. These sweets are of EU origin. The sweets are packed into a bag by hand. This bag has been imported from China. The bag is then sealed by hand with tape and a label is stuck onto the bag.

Rules that need to be considered

To be considered as going beyond insufficient production:

Applying the rules to the example

The packaging undertaken is ‘simple’. It is undertaken by hand and no special skill is needed. Even if the placing of sweets into the bag had been done by machine, it would still not go beyond ‘simple’ as the machine is not needed to place the sweets into the bag.

Fixing labels is always considered insufficient production. You do not need to analyse the precise nature of fixing labels, because it is not described as ‘simple’.

Outcome

The packaging process described is simple and would be considered insufficient production, as would the fixing of labels. As such, the operations undertaken on the sweets would not go beyond insufficient production and bilateral cumulation could not apply to allow the EU production to be considered as having taken place in the UK.

What could change the outcome

If the production of the plastic bag had taken place in the UK, through processing that went beyond insufficient production, the processing of the sweets could be considered to go beyond insufficient production. This is because an operation has taken place other than those listed in the insufficient production provision, taking the overall processing beyond insufficient production. As such, bilateral cumulation could be used when determining the origin of the bags of sweets. This would allow the EU production to be considered as having taken place in the UK and mean they could be exported to the EU as products of UK origin.

Case study 2 – assembling furniture

A UK business imports furniture parts which originate from a country outside the UK and the EU. They are going to assemble the furniture in the UK and then export to the EU. Assembly is done by hand with the assistance of basic tools. The products go through a visual quality check before they’re exported.

Rules that need to be considered

To be considered as going beyond insufficient production the assembly needs to go beyond simple assembly of parts of articles to constitute a complete article or disassembly of products into parts (subparagraph (o) of Article 43, page 61 of the Trade and Cooperation Agreement).

Applying the rules to the example

This type of assembly does not require any special skills or specialised machinery and could be carried out by a lay person with the assistance of basic tools. As such, it is ‘simple’ assembly, and this operation is insufficient production.

Outcome

The assembly does not go beyond ‘simple’. This product would not qualify for tariff-free export to the EU even if it met its product-specific rule through the assembly in the UK.

Case study 3 – assembling an analytical instrument

A UK business imports parts for an analytical instrument from the United States of America for assembly in the UK.

As part of the assembly, products are also calibrated and tested in the UK before sale or export to make sure they function properly and produce accurate results. The business uses specialised apparatus and software throughout this process.

Rules that need to be considered

To be considered as going beyond insufficient production the assembly needs to go beyond simple assembly of parts of articles to constitute a complete article or disassembly of products into parts (subparagraph (o) of Article 43, page 61 of the Trade and Cooperation Agreement).

Applying the rules to the example

This operation involves processes that require specialised apparatus to assemble, calibrate and test the product. As such, it is not ‘simple’ assembly and goes beyond insufficient production.

Outcome

The assembly in this example goes beyond ‘simple’.

Case study 4 – packaging toys

A UK business imports toys, gift boxes and branded stickers from countries outside the UK and EU. They put the toys in the gift boxes and affix the branded stickers to the boxes in the UK, before exporting them to the EU. The products go through a visual quality check before sale or export.

Rules that need to be considered

To be considered as going beyond insufficient production:

  • the packaging needs to go beyond simple placing in bottles, cans, flasks, bags, cases, boxes, fixing on cards or boards and all other simple packaging operations (subparagraph (k) of Article 43, page 61 of the Trade and Cooperation Agreement)
  • the fixing of labels needs to go beyond affixing or printing marks, labels, logos and other like distinguishing signs on products or their packaging (subparagraph (I) of Article 43, page 61 of the Trade and Cooperation Agreement)

Applying the rules to the example

Placing toys in gift boxes does not require special skills or specialised machinery so does not go beyond ‘simple’.

As the definition of affixing of labels does not include ‘simple’, you do not need to analyse the nature of fixing labels.

Outcome

As both operations are insufficient production, the product does not meet rules of origin and does not qualify for a zero tariff.

What can change the outcome

If the gift boxes were produced in the UK through processing that went beyond insufficient production, the final product would pass the insufficient production test.

The importer in the EU would be able to claim a zero tariff on the packaged product if it also met its product-specific rule.

Case study 5 – bottling and canning alcoholic beverages

A UK business imports beer from the EU (that also originates in the EU) in bulk. They plan to bottle or can the beer in the UK and then re-export it to the EU. They use specialised machinery to:

  • blend the beer with water
  • carbonate the beer
  • remove unwanted gas
  • pressurise with specific gases to make sure the beer does not spoil too soon

Rules that need to be considered

To be considered as going beyond insufficient production:

  • the addition of water needs to go beyond simple addition of water or dilution with water or another substance that does not materially alter the characteristics of the product, and dehydration or denaturation of products (subparagraph (n) of Article 43 of the Trade and Cooperation Agreement)
  • the bottling or canning needs to go beyond simple placing in bottles, cans, flasks, bags, cases, boxes, fixing on cards or boards and all other simple packaging operations (subparagraph (k) of Article 43 of the Trade and Cooperation Agreement)

Applying the rules to the example

If it can be argued that the specialist machinery is needed to add the water, it is possible that it has gone beyond the simple addition of water. It must also be shown that the addition of water materially alters the characteristics of the product. If it can be argued that the addition of water creates a new product for retail sale that is suitable for consumption, it is possible that the addition of water has altered the characteristic of the beer.

The bottling or canning operation requires specialised machinery which are needed to make sure that the beer has the required characteristics to not spoil prematurely. These operations are not ‘simple’ placing in bottle or cans and cannot be done without machinery.

Outcome

It is not clear in this case if the addition of water goes beyond ‘simple’. However, the canning operation does go beyond ‘simple’. As such, the operation carried out by the business goes beyond insufficient production and bilateral cumulation can apply.

Case study 6 – bottling and canning of non-alcoholic beverages

A UK business imports fruit juice concentrate from the EU in bulk. They plan to bottle or can in the UK and then re-export it to the EU. The juice originates in the EU. They use specialised machinery to:

  • blend the juice concentrate with water to reach the required consistency and flavour
  • pasteurise it before it is put in bottles or cans
  • remove unwanted gas before the bottle or can is capped with a seal to stop the juice from spoiling too soon

Rules that need to be considered

To be considered as going beyond insufficient production the:

  • dilution needs to go beyond simple addition of water or dilution with water or another substance that does not materially alter the characteristics of the product, and dehydration or denaturation of products (subparagraph (n) of Article 43, page 61 of the Trade and Cooperation Agreement)
  • pasteurisation needs to go beyond preserving operations such as drying, freezing, keeping in brine and other similar operations where their sole purpose is to make sure that the products remain in good condition during transport and storage (subparagraph (a) of Article 43, page 61 of the Trade and Cooperation Agreement)
  • bottling needs to go beyond simple placing in bottles, cans, flasks, bags, cases, boxes, fixing on cards or boards and all other simple packaging operations (subparagraph (k) of Article 43, page 61 of the Trade and Cooperation Agreement)

Applying the rules to the example

If it can be argued that the specialist machinery is needed to dilute the juice, it is possible that it has gone beyond simple dilution with water.

It must also be shown that the dilution with water materially alters the characteristics of the product. If it can be argued that the dilution with water creates a new product for retail sale that is suitable for consumption, then it’s possible that the dilution with water has altered the characteristic of the juice.

As pasteurisation destroys or deactivates organisms and enzymes that spoil the product, it can be considered to give the product specific characteristics that go beyond making sure the product remains in good condition during transport or storage. This means it can be assumed that pasteurisation goes beyond insufficient production.

The bottling of the fruit juice in this scenario does go beyond ‘simple’. The operation requires specialised machinery to remove unwanted gas from the bottle and to seal it so no further gas can enter so it does not spoil prematurely. These operations are not ‘simple’ placing in bottles as they cannot be done without machinery.

Outcome

It is not clear if the dilution with water goes beyond ‘simple’. However, the pasteurisation and bottling of the fruit juice goes beyond insufficient production. Therefore, bilateral cumulation can apply to the final product.

Only one of these operations would need to go beyond ‘simple’ for the operation to go beyond insufficient production.

Case study 7 – peeling, cutting, and packaging of fruits

A UK business imports fruits into the UK from the EU to peel, cut and package for re-export to the EU. The fruits are of EU origin. They use specialised machinery for every step of the process. The fruit is, first, peeled and then cut into smaller sizes for retail sale. The fruit is then packaged into individual-sized plastic trays. During packaging, unwanted gases are vacuumed from the trays, a top film is then laid and sealed to provide protective packaging for the product and make sure the contents do not spoil prematurely.

Rules that need to be considered

To be considered as going beyond insufficient production:

  • peeling the fruit needs to go beyond peeling, stoning and shelling, of fruits, nuts and vegetables (subparagraph (h) of Article 43, page 61 of the Trade and Cooperation Agreement)
  • the cutting needs to go beyond sharpening, simple grinding or simple cutting (subparagraph (i) of Article 43, page 61 of the Trade and Cooperation Agreement)
  • the packaging needs to go beyond simple placing in bottles, cans, flasks, bags, cases, boxes, fixing on cards or boards and all other simple packaging operations (subparagraph (k) of Article 43, page 61 of the Trade and Cooperation Agreement)

Applying the rules to the example

Peeling the fruit would be considered insufficient production and peeling is not qualified by ‘simple’ so you do not need to analyse the nature of the peeling process is required.

Cutting the fruit would go beyond ‘simple’ where specialist machinery is needed to cut the fruit to a specific weight, size, and shape suitable for retail sale. As consistently cutting it to this specific weight, size, and shape would be impossible by hand.

However, in this case, the machine is just cutting the fruit into smaller sizes and could be done by hand. Just using a machine to cut the fruit for efficiency, given the scale and volume of the operation, would not be considered as going beyond ‘simple’ as the operation could be done by hand, but it would just take longer. As such, the cutting does not go beyond ‘simple’.

The packaging of the fruit in individual-sized plastic trays can go beyond ‘simple’. This operation requires specialised machinery to vacuum any unwanted gas and lay and seal the top film. It is, therefore, not simple packaging. These operations are not ‘simple’ packaging as they cannot be done without machinery.

Outcome

Although the peeling and cutting of the fruit is insufficient production, as the packaging does go beyond ‘simple’, these operations, as a whole, are not insufficient production. Therefore, bilateral cumulation can apply to the final product.

Case study 8 – arranging bouquets

A UK business imports EU cut flowers of different types and arranges them into bouquets or floral arrangements in the UK for re-export to the EU. The cut flowers are of EU origin.

Rules that need to be considered

To be considered as going beyond insufficient production sorting needs to go beyond sifting, screening, sorting, classifying, grading, matching including the making-up of sets of articles (subparagraph (j) of Article 43, page 61 of the Trade and Cooperation Agreement).

Applying the rules to the example

The process of designing and putting together a floral arrangement or bouquet requires special skills to create an artistic product. The process by which this artistic product is created goes beyond just sorting.

Outcome

These operations go beyond insufficient production and bilateral cumulation can apply.

What can change the outcome

If the operation was just to place the same flower in a wrapping, then it would be argued that this does not take any special skill to do this and there is no artistic product at the end of it. As such, it is only sorting. In this case, the operation would not go beyond insufficient production.

However, if the wrapping was made in the UK through processing that went beyond insufficient production, then bilateral cumulation could apply.

Case study 9 – embroidering a business logo to a sporting good

A UK business imports a sporting good which originates in a country outside the UK or EU, and embroiders a business logo with a machine. The final product will be exported to the EU.

Rules that need to be considered

To be considered as going beyond insufficient production the embroidering needs to go beyond affixing or printing marks, labels, logos and other like distinguishing signs on products or their packaging (subparagraph (l) of Article 43, page 61 of the Trade and Cooperation Agreement).

Applying the rules to the example

Affixing is interpreted to include cases where a logo, label or mark (which is contained in a separate piece of material) is placed, attached or fastened to the product or its packaging. Printing is interpreted to include cases where the logo, label or mark does not exist separately but is formed on the product or packaging directly through printing.

Outcome

While subparagraph (l) of Article 43, page 61 of the Trade and Cooperation Agreement does not refer to embroidering specifically, embroidering a logo on a sporting good can still be considered insufficient given it would likely have the same aim and result that this provision aims to capture (placing a logo on a product). Embroidering may also be included in a wider definition of printing.

What can change the outcome

There might also be instances where embroidering a logo could change the characteristics of the product (for example, where threads are treated with anti-microbial chemicals for use in gyms). To arrive at a conclusion for this case study more information would be needed:

  • about the exact process with which the logo or mark was placed on the product
  • if this would change the characteristics of the product

Case study 10 – dry ageing beef

A UK business imports beef from the EU for dry ageing in the UK before re-export to the EU. The beef originates in the EU. It is dry aged for between 21 and 35 days in a dry maturation chamber. The chamber constantly monitors the airflow, temperature, and humidity to make sure the correct conditions have been met. This gives the beef a new and distinct tenderness and flavour. Due to the improved quality and taste, the beef is marketed and priced differently.

Rules that need to be considered

To be considered as going beyond insufficient production the drying needs to go beyond preserving operations such as drying, freezing, keeping in brine and other similar operations where their sole purpose is to make sure that the products remain in good condition during transport and storage (subparagraph (a) of Article 43, page 61 of the Trade and Cooperation Agreement).

Applying the rules to the example

When the operation intends to give the product a special or different characteristic (for example improving the quality and taste), then this goes beyond insufficient production. In this example the change in quality and taste is evidenced by a change in the way the product is marketed or priced.

Outcome

As such, this operation does go beyond insufficient production and bilateral cumulation can apply to the final product.

Case study 11 – ageing gin

A UK business imports gin from the EU for cask ageing in the UK before re-export to the EU. The gin originates in the EU. It is aged for 3 months in oak barrels. This operation gives the gin a new and unique flavour.

Rules that need to be considered

To be considered as going beyond insufficient production the ageing needs to go beyond preserving operations such as drying, freezing, keeping in brine and other similar operations where their sole purpose is to make sure that the products remain in good condition during transport and storage (subparagraph (a) of Article 43, page 61 of the Trade and Cooperation Agreement).

Applying the rules to the example

The ageing intends to give the product a special or different characteristic (for example, improving quality and taste). As such, this is not intended to just preserve the good.

However, to meet the Rules of Origin, the operation must include some ‘production’. Simply storing a product would not be considered as adding any ‘production’, because there would not have been a change or manipulation to the product.

As the gin has been put in a specific barrel to provide the conditions to give the gin a specific quality, there has been a change or manipulation to provide this level of necessary production.

Outcome

This operation goes beyond insufficient production and bilateral cumulation can apply to the final product.

What can change the outcome

If the gin had been put in a barrel that was not intended to give it a special or different characteristic, then it would not go beyond insufficient production.

Case study 12 – cutting and packaging cheese

A UK business imports a large block of cheese from the EU into the UK to be cut and packaged before re-export to the EU. The cheese originates in the EU. Specialised machinery is used at every step of the process. The cheese is cut into an exact size, weight and shape suitable for retail sale and consumption using ultrasonic cutting equipment. This includes using a weighing machine to guarantee the fixed weight of the cheese. The cheese is then packed by flow wrapping in a modified atmosphere using food grade Carbon Dioxide and Nitrogen. The wrapping requires a specialised machine to create a seal so as not to spoil the cheese and wrap close to the cheese itself to prevent damage from transportation.

Rules that need to be considered

To be considered as going beyond insufficient production:

  • the cutting needs to go beyond sharpening, simple grinding or simple cutting (subparagraph (i) of Article 43, page 61 of the Trade and Cooperation Agreement)
  • the packaging needs to go beyond simple placing in bottles, cans, flasks, bags, cases, boxes, fixing on cards or boards and all other simple packaging operations (subparagraph (k) of Article 43, page 61 of the Trade and Cooperation Agreement)

Applying the rules to the example

It would go beyond ‘simple’ where specialist machinery is needed to cut the cheese to a specific weight, size, and shape suitable for retail sale. As consistently cutting it to this specific weight, size, and shape would be impossible by hand. As such, the cutting can go beyond ‘simple’, because the machine provides the cheese with its exact size, weight and shape which is an important characteristic and property for retail sale.

The cheese is flow wrapped which requires specialised machinery to create a modified atmosphere while packaging and provides a seal to the final product to maintain quality. This operation could not be done without machinery and so is not ‘simple’ packaging’.

Outcome

Both operations do go beyond ‘simple’ and so are not insufficient production. Therefore, bilateral cumulation can apply to the final product.

What can change the outcome

If the business is just using a machine to cut the cheese for efficiency, given the scale and volume of the operation, this processing would not be considered as going beyond ‘simple’ as the operation could be done by hand, but it would just take longer.

Published 6 October 2021
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