Manufacturing and Customs: The Compliance Layers That Affect Margins

Across manufacturing supply chains, customs decisions affect cost at every stage — from the duty rate on incoming materials to the origin status of finished goods leaving the plant.

Chris Stennett

09 Jun, 2026
7 min read

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Duty Management Manufacturing Supply Chain

Manufacturing and Customs: The Compliance Layers That Affect Margins

Contents:

Tariff classification: the starting point for every cost decision
Preferential origin: a strategic lever or a silent liability?
Customs procedures: suspending or eliminating duty on goods
Sustainability obligations now affecting manufacturing supply chains
Why this matters for your business
How Customs Support Group can help you compete

Tariff Classification: The Starting Point for Every Cost Decision

The commodity code determines the import duty rate, the origin rules, and any trade restrictions or licences that apply. Get it wrong, and every calculation downstream is built on an incorrect foundation.

For manufacturers, customs classification is rarely straightforward. Raw materials become alloys. Alloys become parts. Parts are assembled with polymers, electronics, and fasteners from multiple countries.

At each stage, determining the correct classification and customs origin depends on asking the right questions. For example:

Is the processing sufficient enough to warrant a classification change?
Is the main character of the component, or the purpose, a deciding factor?
Do the rules for that commodity mean it changes origin, or does it inherit the main origin of its parts?
Does the application of a special procedure here affect a preference claim downstream?
Is this the same in every destination country, or do they interpret it differently?

The wrong answers, or a lack of evidence for those answers, is where classification errors accumulate, quietly, across product ranges. This is what makes classification an ongoing operational discipline – it is too important and changes too often for it to be a one-time exercise.

Preferential Origin: A Strategic Lever or A Silent Liability?

Many manufacturers know that trade agreements can lower duty costs. However, awareness and formally verifying whether goods qualify are two different things. Moreover, when goods do qualify, do you hold the documentation to reliably prove it?

For manufacturers and other traders of parts, unassembled items, and components with various origins, there is an additional layer to consider: the Maximum Non-Originating Material (MaxNOM) threshold.

The MaxNOM threshold is a common reason for a product not qualifying for preferential origin, even though the customs origin is a country for which preference can be obtained.

Consider a product which is assembled in the EU with the following composition by value:

30% Chinese origin
30% Vietnamese origin
40% EU origin

The customs origin of the product can be determined as EU due to the assembly location and the makeup of the composition. However, the country of import may determine that the MaxNOM must be 50% – so the EU composition must be 50% or above – for the goods to qualify for preferential origin.

Furthermore, these MaxNOM requirements do not necessarily apply only to the product as a whole.

A good example of this is in electric vehicles, where the battery must also meet its own MaxNOM criteria in order to qualify for preferential origin under the EU-UK Trade and Cooperation Agreement (TCA). From 2027, this agreement adds another layer of complexity by addressing cathode active material origin as well.

In practice, any claim for preferential origin which does not have sufficient classification infrastructure behind it is an accumulating risk. You must be able to both make the right decisions and then defend them under scrutiny.

Customs Procedures: Suspending or Eliminating Duty on Goods

Importing a material, part, or component doesn’t mean that the product it goes into will remain in the country – so it isn’t always necessary to release it into free circulation (and pay the taxes).

Inward Processing Relief (IPR) allows goods imported for processing to enter without duty being paid, provided the processed goods are subsequently exported within the right timeframes. The duty is suspended, not cancelled, and the procedure requires authorisation and accurate record-keeping.

Even if your goods are destined to stay in the country, the cashflow benefits of suspension are not exclusive to those using the processing procedure. Customs bonded warehousing is an option for storing goods locally and then paying the taxes only at the point of sale or consumption.

Due to the time constraints of IPR, many manufacturers import their goods under a customs warehousing procedure for release into IPR at the time of processing.

This flexibility brings significant cashflow and/or margin benefits, but it requires procedural discipline. Incorrect or incomplete records expose the warehouse holder to duty recovery — and to the loss of the authorisation itself.

Sustainability Obligations Now Affecting Manufacturing Supply Chains

CBAM: Carbon Costs on What You Import

The Carbon Border Adjustment Mechanism (CBAM) applies to imports into the EU of steel, aluminium, cement, fertilisers, hydrogen, and electricity. Having moved through a transitional reporting phase, CBAM now operates as a full system.

Manufacturers importing qualifying products must hold a CBAM authorisation and ensure embedded carbon costs are accounted for across the supply chain.

(Related: Classification and CBAM)

EUDR: Deforestation Rules and Your Components

The EU Deforestation Regulation (EUDR) applies to products derived from cattle, cocoa, coffee, oil palm, rubber, soy and wood – and some of their derivatives. This is currently a live mechanism in the EU, and the UK is following in 2027.

The obligation is due diligence and a formal statement of compliance – not just a declaration, but a documented supply chain trace.

For manufacturers, the question is whether their components containing timber, leather, or natural rubber fall within scope. Furthermore, does the country of origin mean that more information is required?

Battery Regulation: New Requirements for EV Manufacturers and Their Suppliers

The EU Battery Regulation (Regulation (EU) 2023/1542) introduces mandatory requirements for batteries placed on the EU market. These include carbon footprint declarations, recycled content thresholds, and supply chain due diligence for cobalt, lithium, nickel, and natural graphite.

Requirements phase in progressively, but the direction is clear: batteries entering the EU market must be traceable, and their environmental footprint must be documented inside their digital passport. For UK manufacturers exporting electric vehicles to the EU, this sits on top of the TCA origin challenge.

The battery is often the highest-value component in an electric vehicle and the one subject to the most overlapping obligations: origin rules, carbon footprint reporting, recycled content thresholds, and critical mineral due diligence. Managing that intersection effectively is the key to reducing both risk and cost.

Why This Matters for Your Business

Although the considerations above differ in concept, they all rely on two fundamental things: data and expertise. Classification accuracy, origin compliance, procedure management, and regulatory declarations all require a robust data infrastructure that can be used as a single source of truth, and the expertise to use it.

Another area of concern that we see with our work is broker fragmentation – multiple customs partners who are working independently of each other. When there is no central oversight, inconsistent decision-making, and different versions of the same process running in parallel, exposure can quietly accumulate.

Whilst the commercial case for getting this right is clear – duty savings, cash flow protection, and more competitive landed costs – the cost of getting it wrong is more immediate.

Retrospective duty recovery, penalties, and a customs investigation are consequences a procurement function cannot absorb without boardroom attention. The businesses managing customs well treat it as more than a core compliance function, and turn it into a key strategic lever.

How Customs Support Group Can Help You Compete

Customs Support Group works with manufacturers across the EU and UK to:

Classify goods correctly across complex multi-material and multi-stage product ranges
Map and claim preferential duty rates under applicable trade agreements
Implement and manage inward processing relief and other special procedures
Support CBAM reporting and authorisation requirements for manufacturers importing regulated materials
Advise on EUDR due diligence obligations and Battery Regulation compliance for EV supply chains
Conduct customs compliance reviews that identify retrospective exposure before authorities do

It all begins with a customs compliance scan, where our experts assess your operation and return actionable insights. Contact us to arrange yours.