Rules of Origin and Cumulation Explained sort of

Rules of Origin and Cumulation – Explained (sort of!) Ben Price ACITA NATIONAL – 06 February 2019 1 SC JOHNSON CONFIDENTIAL – DO NOT DISTRIBUTE

Disclaimer • Views expressed in this presentation represent my own views and not necessarily the views of my company • Rules of Origin is very complex and this is not meant to be an exhaustive explanation – focus today is on preferential rather than non-preferential • Dinesh asked me to be on a panel and then put me down as a main speaker (Thanks Dinesh!) 2 SC JOHNSON CONFIDENTIAL – DO NOT DISTRIBUTE

Why is origin even more crucial post Brexit? • Made in the UK is very different to UK Origin • Currently not a consideration for intra-EU trade as all goods considered free circulation – outside of the Customs Union this will matter • Currently under EU FTAs we benefit from cumulation with the EU and the FTA partner – On our own this is unlikely so a greater percentage of inputs and or value will need to be of UK origin • Ability of manufacturers to source UK components in the UK. Demand is likely to significantly outstrip supply in the short to medium term. 3 SC JOHNSON CONFIDENTIAL – DO NOT DISTRIBUTE

Current situation – INTRA EU Manufacturing Intra-EU Import and Onward Sale Intra-EU • Rules of Origin do not apply • All goods in free circulation considered originating for the purposes of intra EU trade 4 SC JOHNSON CONFIDENTIAL – DO NOT DISTRIBUTE

Current situation – EXTRA EU TRADE • • Rules of Origin apply For FTAs – EU origin goods (i. e. any components sourced from other EU countries count towards origin thresholds) 5 SC JOHNSON CONFIDENTIAL – DO NOT DISTRIBUTE

FUTURE UK TRADE • Rules of origin will apply to both exports to EU and to 3 rd Countries • Rules of origin are complex *CTH, CTSH or VA • Ability to cumulate with EU will be crucial to UK Exports under existing FTA rules if extended 6 SC JOHNSON CONFIDENTIAL – DO NOT DISTRIBUTE

DIAGONAL CUMULATION 25% Preferential 0% 10% 25% • • • Preferential 0% 20% The Pan Euro Med Agreement (PEM) – Allows for diagonal cumulation across multiple FTA Partners Can help obtain origin thresholds where VA applies The 23 Contracting Parties to the PEM Convention are: the EU; the EFTA States (Switzerland, Norway, Iceland Liechtenstein); the Faroe Islands; the participants in the Barcelona Process (Algeria, Egypt, Israel, Jordan, Lebanon, Morocco, Palestine, Syria, Tunisia and Turkey); the participants in the EU's Stabilisation and Association Process (Albania, Bosnia and Herzegovina, the former Yugoslav Republic of Macedonia, Montenegro, Serbia and Kosovo, the Republic of Moldova. 7 SC JOHNSON CONFIDENTIAL – DO NOT DISTRIBUTE

EXAMPLE RULES • Change of Tariff Heading – – Chapter X + Chapter Y = Chapter Z • Change of Tariff Sub Heading – – Sub Heading X(i) + Sub Heading X(ii) = Sub Heading X(iii) • Value Added (Illustrative) FTA – PEM – – Manufacture from materials of any heading, except that of the product. However, materials of the same heading as the product may be used, provided that their total value does not exceed 20 % of the ex-works price of the product; or – Manufacture in which the value of all the materials used does not exceed 40 % of the exworks price of the product – Components originating in the pan-Euro-Mediterranean zone can be counted as originating, Non originating materials cannot exceed 10% of the EXWs price 8 SC JOHNSON CONFIDENTIAL – DO NOT DISTRIBUTE

Reflections • Origin and your ability to determine it will become more important in a post Brexit environment • Write to suppliers to ensure you have supporting evidence for origin determination (e. g. Long Term Suppliers Declaration) and cleanse master data in ERP systems • Review contribution of UK origin components to your global supply chain and assess dependence on EU origin goods for UK manufacturing • Ability to cumulate as widely as possible will be critical to whether UK can take advantage of any future FTAs in the short to medium term 9 SC JOHNSON CONFIDENTIAL – DO NOT DISTRIBUTE

QUESTIONS? Ben Price ACITA NATIONAL – 06 February 2019 10 SC JOHNSON CONFIDENTIAL – DO NOT DISTRIBUTE