Handbook on rules of origin and preferential treatment of imported goods

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Skatturinn - Iceland Revenue and Customs

Free trade agreements often require that a product be wholly obtained in the contracting states or undergo sufficient processing there in order to qualify for preferential treatment under the agreement. Rules of origin set out the conditions under which a product covered by a free trade agreement is considered an originating product. These rules are therefore necessary to distinguish products covered by free trade agreements and eligible for preferential treatment from products that are not eligible for such treatment, the so-called third-country goods.

An importer of goods that meet the rules of origin requirements under the relevant free trade agreement must submit proof of origin in the importing country in support of a claim for preferential treatment of the goods.

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Chapter 4

Goods covered by the product scope of a free trade agreement, cf. Chapter 3, are considered originating products if they are wholly obtained within the territories of the contracting parties to the relevant agreement under the conditions laid down therein. Goods that are not wholly obtained within the territories of the contracting parties may nevertheless qualify for preferential treatment if the conditions of the working or processing rules of the agreement are fulfilled.

These conditions relate, among other things, to the origin of the materials used in production and to the further working or processing of the goods. In other words, the working or processing rules determine whether materials originating in third countries may be used in production and the extent of processing required for the finished product (the manufactured product) to acquire originating status.

This chapter first explains the rules applicable to products considered wholly obtained within the territories of the contracting parties to a free trade agreement (see section 4.2).

Secondly, it explains the main features of the working or processing rules in free trade agreements (see section 4.3).

Thirdly, it discusses the 10% rule (see section 4.3) and the rules on diagonal accumulation of origin (see section 4.4), both of which constitute exceptions to the general rules described in sections 4.2 and 4.3.

The rules of origin and working or processing rules in free trade agreements are, in substance, largely identical, with the exception of the rules of origin in the free trade agreements between the EFTA states and Israel and Morocco, the Free Trade Agreement between Iceland and the Faroe Islands, and the Agreement between Iceland and Denmark concerning trade between Iceland and Greenland.

This chapter refers to the provisions of Protocol 4 to the EEA Agreement. Equivalent provisions apply under other free trade agreements unless otherwise specifically stated. However, the agreement with Greenland has certain special characteristics, and its main features are therefore discussed separately in section 4.5.

4.1 Definitions of terms

a) General

The basic unit of goods for classification under the Customs Tariff[1] is regarded as the unit of qualification used when determining whether goods qualify as originating products under the working or processing rules of a free trade agreement, cf. Article 7 of Protocol 4 to the EEA Agreement. It is the tariff classification of the basic unit (unit of qualification) that determines the applicable working or processing rule in the list rules.[2]

This rule means, firstly, that a manufactured product consisting of mixtures or composite goods which is regarded as a single unit and classified under one tariff heading in the Harmonized System is considered as one unit of qualification for the purposes of the working or processing rules. Secondly, where a consignment consists of several manufactured products of the same kind classified under the same tariff heading in the Harmonized System, each individual product must be considered separately when applying the working or processing rules.

Example:
A computer system intended for export consists of:

Product description	Tariff heading
Memory unit	8471
Keyboard	8471
Monitor	8528

Under the Customs Tariff, the completed computer system is classified under tariff heading 8471. If the parts of the computer system are exported separately, the result will be different.

Where a consignment consists of several manufactured products classified under the same tariff heading, each product must be considered separately when applying the working or processing rules.

b) Accessories, spare parts and tools

Protocol 4 also contains specific rules governing accessories, spare parts and tools, cf. Article 8 of the Protocol. Under this rule, accessories, spare parts and tools dispatched with equipment, machinery, apparatus or vehicles and forming part of the normal equipment thereof, and included in the price thereof, are regarded as part of the equipment, machinery, apparatus or vehicle concerned. However, for accessories, spare parts and tools dispatched separately, the general rule of Article 7 of the Protocol applies.

Example:
If a tool kit accompanies a passenger car on export, both the tool kit and the passenger car are classified under the same tariff heading. The working or processing rule applicable to tariff heading 8703 therefore applies to the entire product unit. If, however, the tool kit is exported separately, the working or processing rule applicable to tariff heading 8205 must be applied.

c) Sets

Article 9 of Protocol 4 concerns sets, cf. Rule 3(b) of the General Rules for the Interpretation of the Customs Tariff.

Under this rule, sets are regarded as originating products when all the component products of the set are originating products. If the set consists both of originating products and products that are not originating products, the set as a whole is considered an originating product provided that the value of the non-originating products, i.e. their customs value on importation, cf. sections 4.1.7 and 4.1.5, does not exceed 15% of the ex-works price of the set.

In such cases, it must first be determined whether the individual component products fulfil the requirements of the applicable working or processing rule. Once this assessment has been made, Article 9 of the Protocol may then be applied.

Example 1:

Set component	Country of origin	Value (ISK)
Knife	Norway	30
Spoon	Spain	35
Fork	Denmark	35
Total		100

In this example, all components originate within the EEA and the set is considered an EEA originating product.

Example 2:

Set component	Country of origin	Value (ISK)
Knife	Norway	30
Spoon	Spain	35
Fork	Taiwan	35
Total		100

In this example, the value of the non-originating product (the fork from Taiwan) exceeds 15% of the ex-works price of the set. The set is therefore not considered an EEA originating product.

Example 3:

Set component	Country of origin	Value (ISK)
Knife	Norway	30
Spoon	Spain	45
Fork	Taiwan	15
Total		100

In this example, the value of the non-originating product (the fork from Taiwan) does not exceed 15% of the ex-works price of the set. The set is therefore considered an EEA originating product.

d) Packaging

Where packaging is regarded as part of the product for tariff classification purposes under Rule 5 of the General Rules for the Interpretation of the Customs Tariff, it must also be taken into account when determining origin, cf. Article 7(2) of Protocol 4.

Example:

Export of a laptop computer together with a carrying case. In this case, the computer and the carrying case are classified together under tariff heading 8471, and the applicable origin rule is the rule for heading 8471.
Export of a carrying case for a laptop computer. In this case, however, the product is classified under tariff heading 4202 and the origin rule applicable to heading 4202 must be applied.

e) Factors that do not affect origin

When determining origin, it is not necessary to take account of the origin of energy, the factory or its equipment, or the machinery and tools used in the manufacture of the product, cf. Article 10 of the Protocol.

The provision further states that materials used in production which do not become part of the finished product do not affect the determination of the origin of the final manufactured product.

For the purposes of the rules of origin, the customs value of goods is determined in accordance with the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994, cf. Article 1(e) of Protocol 4.

Customs value is governed by Articles 8–10 of the Customs Act and Regulation No. 374/1995 on customs value and customs valuation, cf. Regulation No. 457/1995 amending that Regulation.

Under the main rule set out in the aforementioned legislative and regulatory provisions, the customs value is the sum of the transaction value, the cost of transporting the goods to Iceland and the insurance cost. The provisions also list several additional elements, such as commissions and brokerage fees. Reference is made to those provisions for a more detailed definition of customs value.

Value added in a particular state means the ex-works price of the final manufactured product minus the customs value of the materials used in production that did not originate in that state, cf. Article 1(i) of Protocol 4.

Other free trade agreements

In other free trade agreements, reference is made to the territories of the contracting parties to the relevant agreement instead of the EEA territory. In other respects, the provisions are substantially identical, except for the EFTA agreements with Israel and Morocco and the agreement between Iceland and the Faroe Islands.

The EFTA Agreement with Israel does not contain definition provisions corresponding to those cited from Protocol 4 to the EEA Agreement. Furthermore, the term value added is not defined in the agreements with Morocco and the Faroe Islands.

4.2 Goods wholly obtained in the EEA

As previously stated, Article 2(1) of Protocol 4 to the EEA Agreement lays down the rule that products wholly obtained within the EEA are considered products originating in the EEA.

mineral products extracted from the soil or seabed of the EEA;
products of the plant kingdom grown there;
live animals born and raised there;
products obtained from live animals raised there;
products obtained by hunting or fishing carried out there;
products of sea fishing and other products taken from the sea outside the territorial waters of the contracting parties by their vessels;
products made on board their factory ships exclusively from products taken from the sea outside the territorial waters of the contracting parties by their vessels;
used goods collected there fit only for the recovery of raw materials, including used tyres fit only for retreading or use as waste;
waste and scrap resulting from manufacturing operations carried out there;
products extracted from the seabed or subsoil outside the territorial waters of the contracting parties, provided that they have exclusive rights to exploit those resources;
products produced in the EEA exclusively from the products referred to above.

The terms their vessels and their factory ships apply only to vessels that fulfil all of the following conditions, cf. Article 4(2) of Protocol 4:

the vessel is registered in a Member State of the European Community or in an EFTA State;
the vessel sails under the flag of a Member State of the European Community or an EFTA State;
the vessel is owned to at least 50% by nationals of Member States of the European Community or EFTA States, or by a company having its head office in one of those states, provided that the manager or managers, chairman of the board of directors or supervisory board, and the majority of the members of those boards are nationals of Member States of the European Community or EFTA States; furthermore, in the case of partnerships or limited companies, at least half of the capital must be owned by those states, public bodies thereof, or nationals of the said states;
the master and officers of the vessel are nationals of Member States of the European Community or EFTA States; and
at least 75% of the crew are nationals of Member States of the European Community or EFTA States.

Special attention is drawn to the fact that all of the above conditions must be fulfilled for a vessel or factory ship to qualify as a vessel of a contracting party.

The corresponding provisions in the EFTA Convention and the free trade agreements of the EFTA states provide that goods are considered wholly obtained in an EFTA State or in the relevant contracting state if the same conditions described above are fulfilled, except in the case of the EFTA Agreement with Israel.

For example, fish is considered wholly obtained in Poland if it is caught within Polish territorial waters. Fish caught within Polish territorial waters is regarded as originating in Poland even if it is taken from the sea by a Brazilian vessel.

However, fish taken from the sea outside Polish territorial waters is considered to originate in Poland only if the above conditions relating to the vessel and its ownership are fulfilled. For example, fish is considered of Polish origin if it is caught by a vessel sailing under the Polish flag and registered in Poland, provided that the ownership requirements involving EFTA States and Poland are fulfilled and that the crew consists of nationals of EFTA States and Poland.

The EFTA Agreement with Israel does not contain an equivalent definition of their vessels and their factory ships. Explanatory Note 3 to the rules of origin under the Agreement provides that the above rules shall apply to their vessels and their factory ships. In other respects, the provision is identical, namely that goods are considered wholly obtained in a contracting state if they are obtained in the manner specified in the provision.

Goods are considered wholly obtained in Iceland or the Faroe Islands if the corresponding provisions are fulfilled.

Under Article 2(1) of Protocol 4 to the EEA Agreement, a manufactured product may acquire EEA originating status if it undergoes sufficient working or processing within the EEA.

Further provisions on what constitutes sufficient working or processing are set out in Article 5 of Protocol 4. That provision states that products which are not wholly obtained within the EEA are considered sufficiently worked or processed if the conditions laid down in Appendix II to Protocol 4 are fulfilled.

Appendix II to Protocol 4 contains the working or processing rules, commonly referred to as the list rules or the working or processing list.

Other free trade agreements

Equivalent provisions concerning sufficient working or processing of materials that are not wholly obtained within the territories of the contracting parties are contained in the EFTA Convention and the free trade agreements of the EFTA states.

A manufactured product that is not wholly obtained in an EFTA State is considered originating in that state if it undergoes sufficient working or processing within its territory in accordance with the list rules of the relevant free trade agreement. Similarly, a product that is not wholly obtained in Bulgaria is considered originating in Bulgaria if it undergoes sufficient working or processing within Bulgarian territory in accordance with the list rules.

Under the bilateral agreement between Iceland and the Faroe Islands, a product that is not wholly obtained in Iceland or the Faroe Islands is considered originating there if it undergoes sufficient working or processing there in accordance with the provisions of the agreement.

Under Article 2(1) of Protocol 4 to the EEA Agreement, goods are considered EEA originating products if they are wholly obtained within the EEA or have undergone sufficient working or processing there, cf. Articles 4 and 5 of the Protocol.

However, products may undergo various forms of treatment within the EEA that are regarded as insufficient working or processing under Article 6 of the Protocol and therefore do not confer originating status, regardless of whether the requirements of Article 5 have been fulfilled.

Examples of insufficient working or processing include simple operations such as sorting products, assembling sets of products, washing, painting, changing packaging, bottling, packing into sacks or boxes, attaching marks, labels or other distinguishing signs, or simple mixing or assembly of parts, see Article 6(1)(a)–(f). It is irrelevant in this respect whether two or more such operations are carried out, cf. Article 6(1)(g).

Example:

A company imports starch glue in 20 kg packages (tariff heading 3505) from the United States at a price of 100 ISK per kg. The glue is repackaged into 0.5 kg containers (tariff heading 3506) and exported to Sweden. The price of the glue in the 0.5 kg containers is set at 200 ISK, i.e. 400 ISK per kg.

When considering only the optional list rule in column 4 of the list rules (see Chapter 35), the value of the non-originating materials is within the applicable value limits. The value of the third-country materials is less than 40% of the ex-works price of the manufactured product.

However, it must also be considered that the imported material has not undergone sufficient working or processing under Article 6(1)(c)(ii). Consequently, the product cannot qualify for preferential treatment upon importation into another EEA State.

Non-originating materials

The list rules in Appendix II to Protocol 4 govern the working or processing of materials that are not of EEA origin. In other words, the rules in the list apply only to non-originating materials from third countries used in the manufacture of products covered by the EEA Agreement.

Under the EEA Agreement, materials originating in countries outside the EEA are regarded as third-country materials for the purposes of the list rules. However, the rules on diagonal accumulation of origin allow materials from certain additional countries to be treated as originating materials when applying the list rules; see section 4.4 for further details.

It is also important to note that where a product of EEA origin (an originating EEA material) is used as a material in the manufacture of another product, the value of any third-country materials that may have been used in the manufacture of that originating material is not taken into account when applying the list rule to the finished product.

Example

Manufacture of plastic bottles, tariff heading 3923, ex-works price 100 ISK.

Materials	Origin	Tariff heading	Value (ISK)
Plastic raw material	United States	3903	50
Plastic caps	EEA	3923	10

The Swedish caps are manufactured from plastic raw material originating in the United States. However, that raw material has undergone sufficient working or processing within the EEA to acquire EEA origin. The value of the non-originating material represents 45% of the value of the cap, i.e. 4.50 ISK.

According to the applicable list rule for the finished product, no more than 50% of the value may consist of third-country materials, i.e. a maximum of 50 ISK. If the value of the third-country material contained in the caps were included, the total value of non-originating materials would be 54.50 ISK, exceeding the 50% limit.However, the second part of Article 5(1) provides that the cap is considered an originating material. Third-country materials incorporated into an EEA-originating product that is subsequently used in the manufacture of another product are therefore not counted again in the calculation.

Full accumulation

Under the rule of full accumulation, it is permissible to take into account the value of third-country materials that have undergone some working or processing within the EEA when applying percentage-based list rules. In other words, account may be taken of the value added through working or processing already carried out within the EEA, even if that processing was not sufficient by itself to confer EEA originating status.

This rule derives from Article 2 of the Agreement, which provides that the territories of the contracting parties, including their territorial waters, are to be regarded as a single territory for the purposes of the rules concerning wholly obtained products and sufficient working or processing.

Example – Full accumulation of value

The ex-works price of the finished product is 1,000 ISK. The value of non-originating materials is 550 ISK. According to the applicable list rule, the total value of all materials used in production may not exceed 50% of the ex-works price of the finished product. One of the materials used underwent processing in another EEA State. Although that processing was not sufficient in itself to confer EEA origin, the value added through that processing amounted to 50 ISK. The Icelandic manufacturer may count the value of that processing towards compliance with the rule, provided that the manufacturer can demonstrate that the processing took place within the EEA. If this can be proven, the 50% requirement is satisfied.

Structure of the list rules

The list rules in free trade agreements are based on the Harmonized System (HS). The rules specify the required working or processing for each tariff heading. When consulting the list, reference must be made to the tariff heading of the finished product, cf. section 4.1.4 on units of qualification.It should be noted that this handbook uses the term material, whereas the list rules themselves use the term materials.

The list rules are arranged in four columns:

Column 1 contains chapter and tariff heading numbers from the Harmonized System.For example, if Chapter 46 and tariff heading 4602 are consulted in the list rules in Appendix II to Protocol 4, the rule applies to all products classified within Chapter 46, including heading 4602. By contrast, if Chapter 48 and tariff heading 4811 are consulted, the word “ex” appears before the heading number. This indicates that the rule applies only to certain products classified under that heading.
Column 2 contains the product description. It is important to review this carefully whenever a rule applies only to part of a chapter or tariff heading, indicated by the prefix “ex”.
Column 3 contains the applicable working or processing rule.
Column 4 contains an alternative rule for certain chapters and tariff headings. Where rules appear in both columns 3 and 4, the exporter may choose whichever rule is more advantageous. Compliance with either rule is sufficient.

Common list rules

(1) “The value of all materials may not exceed 50% of the ex-works price of the finished product.”

Example
The ex-works price of the finished product is 1,000 ISK.

Value of non-originating materials: 500 ISK
Value of EEA-originating materials: 200 ISK
Value added through processing: 300 ISK

Because the value of non-originating materials does not exceed 50% of the ex-works price, the product qualifies as an EEA-originating product.

(2) “Manufacture from materials classified in tariff headings other than that of the product.”

Example
The finished product is ice cream classified under tariff heading 2105. All non-originating materials must therefore be classified under tariff headings other than 2105, such as:

Butter – heading 0405
Sugar – heading 1701
Plastic container – heading 3923
Plastic spoon – heading 3924

(3) “Manufacture from materials classified in tariff headings other than that of the product. However, materials classified under the same tariff heading may be used provided that their value does not exceed 20% of the ex-works price of the product.”

Example
The finished product is a 34% aqueous ammonia solution (ammonium hydroxide) classified under tariff heading 2814.All non-originating materials must therefore be classified under tariff headings other than 2814, such as hydrogen and nitrogen classified under heading 2804.However, non-originating materials classified under heading 2814, such as ammonia gas, may also be used, provided that their customs value does not exceed 20% of the ex-works price of the ammonia solution.

(4) “Manufacture:

from materials classified in tariff headings other than that of the product; and
in which the total value of the materials does not exceed 40% of the ex-works price of the product.”

Example
The finished product is a conveyor belt scale classified under tariff heading 8423. Its ex-works price is 120,000 ISK. All non-originating materials must therefore be classified under tariff headings other than 8423, and the total customs value of non-originating materials must not exceed 40% of the ex-works price.

Material	Origin	Value (ISK)
Printed circuit boards (PCBs)	EEA	-
Display	United States	10,000
Electrical components	EEA	-
Software	United States	22,000
Sensors	EEA	-
Other metal parts	Japan	15,000
	TOTAL:	47,000

The value of non-originating materials represents 39% of the ex-works price.The display and software are classified under tariff headings other than 8423. If all metal parts from Japan are also classified under tariff headings other than 8423, the conveyor belt scale qualifies as an originating product.However, if any of the metal parts are classified under tariff heading 8423, for example weighing components, the product does not qualify as an originating product.

Other free trade agreements

Third-country materials

Under the EFTA free trade agreements, the general rule is that materials originating outside the country of manufacture are treated as third-country materials. For example, an Icelandic material is considered a third-country material when applying the list rules to a product manufactured in Bulgaria.The rules on diagonal accumulation of origin in the EFTA agreements, with the exception of the agreements with Israel and Morocco, provide important exceptions to this rule by allowing materials from a wider range of countries to be treated as originating materials. The accumulation provisions in the agreements with Israel and Morocco are considerably more limited; see section 4.4 for further details.Under the Free Trade Agreement between Iceland and the Faroe Islands, materials not wholly obtained in Iceland or the Faroe Islands are treated as third-country materials when applying the list rules.

Full accumulation

The principle of full accumulation does not apply under the EFTA agreements, including the EFTA Convention, nor under the Free Trade Agreement between Iceland and the Faroe Islands.These agreements allow only the accumulation of value relating to originating materials, i.e. materials that have already acquired originating status.

Structure of the list rules

The structure of the list rules in the EFTA Convention and the EFTA free trade agreements is the same as that of the list rules contained in Appendix II to Protocol 4.

The list rules under the EEA Agreement apply only to third-country materials used in the manufacture of products covered by the Agreement, cf. section 4.3.3 above. The rules on diagonal accumulation of origin constitute an important exception to this principle.

Under these rules, materials originating in Bulgaria, Poland, Hungary, the Czech Republic, Slovakia, Romania, Lithuania, Latvia, Estonia, Slovenia, Switzerland, Liechtenstein or Türkiye, in accordance with the rules of origin contained in the free trade agreements concluded by the EFTA States and the European Union with those countries, are considered to originate in the EEA when they are incorporated into a product manufactured within the EEA.

In such cases, materials originating in those countries are not treated as third-country materials when applying the list rules.

However, materials from these countries may be treated as originating materials only if the working or processing carried out within the EEA goes beyond the operations regarded as insufficient working or processing under Article 6 of Protocol 4 to the EEA Agreement.

Where the processing carried out within the EEA is not sufficient under Article 6 of Protocol 4, the product may nevertheless acquire EEA origin if the value added within the EEA exceeds the value of the materials originating in any of the above-mentioned countries.

Example 1: Insufficient working or processing

Salted cod fillets originating in Latvia are imported into Iceland (EEA), where they are trimmed, brine-salted, graded, labelled and packed into boxes.

The processing carried out on the Latvian material does not go beyond the operations regarded as insufficient working or processing under Article 6. The product therefore cannot be regarded as an EEA-originating product.

Example 2: Value added

In the example above, the ex-works price of the finished product is 1,000 ISK. The customs value of the imported material from Latvia is 450 ISK.

The value added within the EEA is greater than the value added in Latvia. Consequently, the product may acquire EEA origin even though the processing carried out on the material is regarded as insufficient.

Other free trade agreements

The EFTA free trade agreements contain corresponding provisions on diagonal accumulation of origin, with the exception of the agreements with Israel and Morocco.

Under these provisions, materials originating in Bulgaria, Iceland, Norway, Switzerland, Liechtenstein, Hungary, Poland, the Czech Republic, Slovakia, Romania, Slovenia, Estonia, Latvia, Lithuania, Türkiye or the European Economic Area, in accordance with the rules of origin contained in the free trade agreements between those countries and the EFTA States or the European Union, are considered to originate in an EFTA State or the relevant contracting state when they are incorporated into a product manufactured there.

The same requirements regarding sufficient working or processing apply under the EFTA agreements as under the EEA Agreement. Accordingly, materials originating in these countries may be treated as originating materials only if the working or processing carried out in the contracting state goes beyond the operations regarded as insufficient working or processing under the relevant agreement.Where the processing carried out in the contracting state is not sufficient under the provisions on insufficient working or processing, the product may nevertheless acquire originating status if the value added through its manufacture in the contracting state exceeds the value of the materials originating in the European Union or any of the countries listed above.

The EFTA Agreement with Morocco contains accumulation provisions that are considerably more limited than the rules described above in the other EFTA agreements, cf. Articles 3 and 4 of Annex B to the EFTA-Morocco Free Trade Agreement.There are no provisions on accumulation of origin in the EFTA Agreement with Israel or in the Free Trade Agreement between Iceland and the Faroe Islands.

Article 5(2) of Protocol 4 to the EEA Agreement contains the general tolerance rule, commonly referred to as the 10% rule. Under this provision, non-originating materials may be used in the manufacture of a product, regardless of the requirements of the list rules, provided that the total value of such materials does not exceed 10% of the ex-works price of the product. The use of these materials will not cause the product to lose its originating status.

The application of this provision is, however, subject to the following limitations:

It does not relax the percentage limits set out in the list rules. Where a list rule permits non-originating materials to account for up to 40% of the ex-works price of the product, that percentage remains the maximum allowed if the product is to acquire originating status under the Agreement.
The 10% rule does not apply to products classified in Chapters 50 to 63 of the Customs Tariff (textiles and textile articles).
The rules on insufficient working or processing always take precedence over both the list rules and the 10% rule. Accordingly, the processing carried out must go beyond the operations regarded as insufficient working or processing under Article 6 of Protocol 4 in order for the product to acquire originating status.

Example

Where a list rule requires all non-originating materials to undergo a change of tariff heading, as is the case under the rule for Chapter 46, Article 5(2) of Protocol 4 nevertheless permits the use of up to 10% non-originating materials that do not undergo the required tariff shift, provided that the processing carried out on those materials goes beyond the operations regarded as insufficient under Article 6 of the Protocol.
Shrimp – cooked, peeled and frozen
Shrimp of Icelandic origin and shrimp of third-country origin (within the 10% tolerance limit) are mixed together and then cooked, peeled and frozen. Cooking alone constitutes sufficient working or processing under Protocol 4. In the view of the Ministry of Finance and Economic Affairs,[4] shrimp of Icelandic origin and shrimp of third-country origin may only be mixed if the entire mixture passes through the processing line as a whole, including the cooking stage and subsequent operations, in order for the finished retail product to qualify as an Icelandic originating product. The mixing must therefore take place at the beginning of the production process. Consequently, shrimp packaged in retail units will not qualify as an Icelandic originating product, even if each package contains 90% Icelandic shrimp and 10% third-country shrimp, where the mixing takes place only after the cooking process has been completed.
Lumpfish roe
The export product is a knife classified under tariff heading 8211, with a value of 500 ISK.
Knife
The export product is a knife classified under tariff heading 8211, with a value of 500 ISK.

Materials	Origin	Tariff heading	Value (ISK)
Knife blade	EEA	8211	150
Sheath	Korea	8211	40
Wooden handle	EEA	4417	120
		Total:	310

The processing carried out consists of sharpening, varnishing and other operations. The processing therefore goes beyond what is regarded as insufficient working or processing.

In this case, the applicable list rule for tariff heading 8211 requires manufacture “from materials classified in tariff headings other than that of the product. However, knife blades and handles of base metal may be used.”This condition is not fulfilled with respect to the material originating in Korea, since the sheath is classified under the same tariff heading as the finished product. However, the 10% rule may be applied.As the value of the sheath is less than 10% of the value of the finished product, the knife is nevertheless considered an originating product.

Other free trade agreements

The general tolerance rule also applies under the EFTA free trade agreements, with the exception of the agreements with Israel and Morocco.The Free Trade Agreement between Iceland and the Faroe Islands does not contain a general tolerance rule.

4.4 Repayment or remission of import duties

Where customs duties on non-originating materials from third countries have been repaid or remitted when those materials are used in domestic manufactured products, the finished product may not qualify for preferential treatment under the EEA Agreement, cf. Article 14 of Protocol 4.

Article 14 does not apply to materials that fall outside the product scope of the EEA Agreement, cf. Chapter 3.

The right to exemption from customs duties on inputs used in the manufacture of industrial products is provided for in Chapter II of Regulation No. 719/2000 on exemption from import charges on inputs used in various business activities, cf. Regulation No. 791/2000 amending that Regulation, and in Rules No. 172/1985 on customs duty refunds relating to shipbuilding and ship repairs.

Other free trade agreements

A corresponding rule is contained in the EFTA free trade agreements, with the exception of the agreement with Morocco, and in the Free Trade Agreement between Iceland and the Faroe Islands.

The rule has not yet entered fully into force except under the agreements with Türkiye, Israel and the Faroe Islands. It is envisaged that the rule will enter into force in relation to the other countries on 31 December of the current year unless the transitional period is extended.

[1] The Icelandic Customs Tariff is based on the International Convention on the Harmonized Commodity Description and Coding System. Under the Customs Tariff, goods are classified into 97 chapters and approximately 1,300 tariff headings. Each tariff heading consists of four digits.

[2] Classification under the Customs Tariff must follow specific rules of interpretation. Reference is made to the Customs Tariff for details of those rules.

[3] The fifth General Rule for the Interpretation of the Customs Tariff provides as follows:

“In addition to the foregoing provisions, the following rules shall apply in respect of the goods referred to below:

Camera cases, musical instrument cases, gun cases, drawing instrument cases, jewellery boxes and similar containers, specially shaped or fitted to contain a specific article or set of articles, suitable for long-term use and presented with the articles for which they are intended, shall be classified with such articles. This rule does not, however, apply to containers that give the whole its essential character.

Subject to the provisions of Rule 5(a), packing materials and packing containers presented with the goods therein shall be classified with the goods if they are of a kind normally used for packing such goods.”

[4] Cf. letter from the Ministry of Finance, dated 26 October 1998.

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Handbook on rules of origin and preferential treatment of imported goods

Chapter 4

4.1 Definitions of terms

4.1.1 Materials

4.1.2 Production

4.1.3 Product

4.1.4 Unit of qualification

4.1.5 Customs value of goods

4.1.6 Originating materials

4.1.7 Value of materials

4.1.8 Ex-works price

4.1.9 Value added

4.2 Goods wholly obtained in the EEA

Products considered wholly obtained in the EEA

Definitions of the terms vessels and factory ships

Other free trade agreements

4.3 The working or processing rules and related provisions

4.3.1 Sufficient working or processing

4.3.2 Insufficient working or processing

4.3.3 The list rules

4.3.4 Diagonal accumulation of origin

4.3.5 General tolerance rule (the 10% rule)

4.4 Repayment or remission of import duties

Other free trade agreements