Preferential agreement

What is a preferential agreement? Definition

A preferential agreement is a trade agreement concluded between two or more countries or territories, or a preferential arrangement granted unilaterally, which allows for more favourable tariff conditions for certain goods exchanged between the parties. These preferences can take the form of a reduction in or exemption from customs duties, subject to compliance with the conditions set out in the agreement.

Preferential agreements operate on the principle of differentiated pricing: goods originating from signatory countries benefit from a reduction in or exemption from the customs duties applicable to third-country goods. To access these preferences, the imported product must satisfy precise rules of origin defining the percentage of local content or the nature of the processing operations carried out. A preferential agreement generates substantial tax savings for operators capable of proving the eligibility of their goods.

The regulatory framework for preferential agreements is part of the WTO (World Trade Organization) standards and is applied in a harmonised manner within the European Union. Each preferential agreement imposes precise access conditions, specific supporting documentation and full traceability of the origin of the goods. Mastering preferential agreements is essential to optimise customs taxation for import-export flows.

Context of use

Preferential agreements apply to many trade flows between geographical areas:

• Imports from countries benefiting from preferential agreements with reduced applicable duties
• Exports to destinations covered by agreements conferring tariff advantages
• Movements of semi-processed products circulating between signatory countries of agreements including cumulation clauses
• Multinational value chains exploiting cumulated rules of origin between several countries
• Qualifying operations under agreements requiring formal proof of processing or origin

Practical challenges

The use of preferential agreements involves significant administrative obligations:

• Verification of eligibility: each item of goods must be checked to confirm its eligibility for preferences according to the criteria of the applicable agreement.
• Complex rules of origin: origin criteria vary by agreement and require a precise demonstration of the percentage of local content or processing stages.
• Certificates of origin: each shipment may require a certificate of origin or a declaration of origin certifying the preferential status of the product.
• Supporting documentation: the operator must keep proof of provenance, supplier invoices and processing certificates.
• Compliant customs declaration: the customs declaration must correctly identify the goods as benefiting from the agreement, otherwise full tariff duties apply.
• Risk of loss of preferences: classification errors, lack of proof of origin or ineligibility lead to the application of non-preferential duties with the possibility of retroactive regularisation.
• Declarant’s responsibility: it is the importer who assumes responsibility for justifying the claimed preferences.

How TARIFF via conex™ facilitates the processing of preferential agreements

TARIFF via conex™ centralises the management of preferential agreements and their rules of origin:

• Identification of applicable agreements
• Verification of origin criteria
• Calculation of applicable preferential tariffs
• Integration with customs declarations

With TARIFF via conex™, you optimise your access to tariff preferences. You master your commercial advantages; we secure your tariff classificationTariff classification involves assigning a code to a good in order to determine the applicable customs duties, taxes, an… [+].

Associated terms

• Rules of origin
• Customs tariff
• Tariff classification
• Tariff preferences