Fundamentals of Preferential Rules of Origin 5th Edition Module 6. Origin Control and Prospects. Query Tools for the Correct Use of Rules of Origin
Fundamentals of Preferential Rules of Origin. 5th Edition
Module 6
Author: Inter-American Development Bank (IDB) (www.iadb.org), through its Integration and Trade Sector (INT) Course coordinators: Inter-American Development Bank (IDB) (www.iadb.org), through its Integration and Trade Sector, the Institute for the Integration of Latin America and the Caribbean (www.iadb.org/en/intal/), the Inter-American Institute for Economic and Social Development (INDES) (www.iadb.org/en/indes/). Module authors: Jeremy Harris, Specialist at the Inter-American Development Bank, Integration and Trade Sector, and Rafael Cornejo, Consultant at the Inter-American Development Bank, Integration and Trade Sector. The authors recognize valuable comments and suggestions from Colleen Brock. Teaching and editing coordination: The Inter-American Institute for Economic and Social Development (INDES) (www.iadb.org/en/indes/), jointly with the Economic and Technological Development Distance Learning Centre Foundation (CEDDET) (www.ceddet.org)
5th Edition 2017
Publication property of the Inter-American Development Bank (IDB). All rights reserved. Any partial or total reproduction of this document must be reported to: BIDINDES@iadb.org The opinions expressed herein are those of the authors and do not necessarily reflect the views of the Inter-American Development Bank.
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Contents Contents ..................................................................................... 3 Objectives ................................................................................... 4 Questions for This Unit ................................................................. 4 Unit I. Preferential Origin Controls ................................................. 5 Unit II. Post-Importation Origin Verification .................................. 10 Unit IV. Convergence Agreements ............................................... 22 IV.1. Features ......................................................................... 22 IV.2. What Is the Core of a Convergence Agreement Negotiation? 34 Unit V. Application of Extended Accumulation ............................... 36 Unit VI. Negotiating Rules of Origin ............................................. 40 VI.1. Extended Accumulation Based on Existing Agreements ........ 40 VI.2. Negotiating a New Regime................................................ 43 Unit VII. Rules of Origin Database and Analysis Tools .................... 50 VII.1. Specific Rules and Texts Databases .................................. 52 VII.2. Tools for Business .......................................................... 62 References ................................................................................ 76 List of Figures............................................................................ 77
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Objectives This module completes the examination of the activities related to origin control, and
briefly describes the
challenges posed
by
overlapping origin regimes and the possible solutions by means of the convergence of agreements. It also describes the operation of some of the IT tools developed by the IDB to run queries and apply rules of origin.
Questions for This Unit •
What types of origin controls are applied and in what circumstances?
•
What is origin accumulation like in Latin American
and
Caribbean origin regimes? •
How can convergence be defined?
•
What information on rules of origin is available on INTrade?
•
What functionalities does INTrade offer?
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Unit I. Preferential Origin Controls1
The previous unit looked into certification methods and briefly addressed origin verification. As discussed, certification systems fall basically
within
two
groups:
certification
by
third
parties
(governments or entities) and self-certification (producers, exporters, and importers). Both methods comprise three stages in which compliance with origin requirements is checked.
The first check is conducted by the producer/exporter when selecting the inputs and defining the production processes that will be used to manufacture the product. This may be a general check on the good’s entire production process at the plant (determining the countries and permanent suppliers of imported inputs) or a check specifically targeting a certain production stage. The purpose of this check
is
to
guarantee
the
goods
will
meet
the
origin
requirements set out in the agreement under which such goods are exported.
The second check is done prior to issuing and signing the origin certificate of the export batches of the good. This second check purports to guarantee that the goods being exported have been Sections 6.1-6.3 are partially based on Rafael Cornejo’s article “Considerations on Certification and Verification of Preferential Origin” (soon available in print) presented at the first meeting of the “Preferential Origin Experts Global Group,” held on 24 April 2013, in Doha, Qatar organised by the International Chamber of Commerce (ICC) based in Paris, and the Inter-American Development Bank (IDB). 1
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produced in accordance with the rules of origin laid down in the agreement. It is an important check, particularly when businesses import the same inputs from various countries, and as a result the same product may contain originating or non-originating inputs. Therefore, this check is closely connected with the first one, since both are conducted at the manufacturer’s premises and many times they
are
even
performed
by
the
same
person
or
corporate
department, or based on the same documentation.
The third check –done by both certification methods– is conducted by the importing country’s Customs authorities at clearance. This check seeks to ensure the right declaration and application of origin requirements
regarding
preparation
of
the
certificate,
tariff
classification, details of the operators involved, consistency with the remaining documents of the operation, other format-related aspects, and issuance dates. From the point of view of origin, this is basically a documentary and rather superficial or physical check, since consistency between the data in the certificate and what was actually done in the course of production is overlooked at this stage.
However, in the case of inconsistencies or doubts regarding the origin declaration Customs authorities may demand a guarantee, request origin verification or even deny origin, depending on the agreement. The actions that may be taken are set out in the Customs legislation and in the trade agreement serving as a framework for the origin declaration.
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In other words, the origin of the good is “administratively” checked on in an overall and much more limited fashion from the point of view of production. This is not an error or a failure in Customs controls, since further physical checks would often result in lengthy and unjustified clearance delays, and would prevent Customs services from fully performing one of the duties assigned to them in recent years: trade facilitation. In this context, the checks carried out by Customs authorities should be deemed “correct,” since releasing goods in these conditions does not preclude States from subsequently conducting other checks, such as origin verification.
Additionally, there are other highly relevant reviews or checks conducted by and/or assigned to different actors involved in the basic certificate issuance systems. Further checks include the additional requirements and procedures that the third-party certification system imposes on governments and/or entities, and post-importation origin verification, which, although shared by both certification systems, involves different actors and procedures.
Third-Party-Specific Checks: Governments or entities base their checks on a document that must be submitted by the applicant, called origin declaration, which details the inputs and the production processes used in the production of the goods that will be exported. This document amounts to an affidavit in accordance with which the certificate of origin form is filled in. The certificate validity varies depending on the agreement, but it is generally valid for a couple of 7
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years, during which time the link between the declaration and the certificate will remain unaltered unless the inputs or the production processes are subject to changes. In case of changes, the declarant must immediately inform the certifying entity or government.
The certifying government or entity must review and reliably verify the truthfulness of the information provided in the sworn declaration by means of visits and audits of the issuing agencies. It is worth noting that later, at the time of issuing certificates based on the sworn declaration previously verified, they may conduct additional visits or request further information to check that the production processes are still the same as those described in the sworn declaration.
Reviewing and checking on the accuracy of the origin declaration is the most significant contribution by the government/entity to the certification process, and represents the distinctive value added of this certification method. In certificates signed by a third party, the signature is preceded by a statement usually reading: “I hereby certify that the information in this declaration of origin is true and correct, to which I affix my signature and stamp.� This entails that to certify the truthfulness of any document, the information in it should have been previously certified. Therefore, this first visit and audit is a prerequisite for the smooth operation of the system. These steps add credibility to the certificate, since a third party, alien to the producing company, checks compliance with the origin requirements applicable to the exported goods. 8
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Failing to perform this visit undermines the “third-party guarantor� role and seriously weakens the certification process.
In fact, basing the issuance of a certificate exclusively on having received a current declaration sworn by the applicant distorts the system thus bringing about a hybrid certification procedure similar to self-certification, but lacking the facilities or benefits of either system.
Unit Summary This unit identified the different agents involved and the moments of origin control, regardless of which certification system is applied under a free trade agreement. The unit highlighted the conceptual and practical importance of these controls throughout the production and trading processes.
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Unit II. Post-Importation Origin Verification
As a rule, most countries’ customs regulations and many free-trade agreements grant the importing Customs authorities the power to check on the preferential origin of goods arriving into the country. Additionally, for a period ranging from 3 to 7 years depending on the agreement, Customs authorities are empowered to conduct “ex post verifications” (EPV) of the goods benefitting from preferential tariffs. This power is granted to safeguard the State’s rights to collect tariffs should the goods declared as originating prove not to be so, and to avoid delaying the release of the goods, as it is well known that origin verification may require at least several weeks or months. In case of doubt about the origin status of any good declared as originating, many legal frameworks also allow authorities to request a monetary guarantee for an amount equivalent to the uncollected tariffs with a view to protecting and safeguarding tax collection in the importing countries.
For several decades now, with more or less detail, trade agreements have provided for the right of authorities to carry out these EPVs. In general, it was long before most developing countries started implementing such a process, so for many years origin control was restricted to customs procedures during clearance; this meant that during customs control the goods could be detained in a bonded warehouse for quite a while. Furthermore, the functional area in the 10
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customs administration or the foreign trade ministry which was responsible for EPV-related procedures was usually not identified, nor were any resources allocated for this purpose. There were no efforts to systematise EPVs at federal level since, in practice, they were almost nonexistent.
The few developing countries that have attached importance and allocated resources to the administration of the rules of origin have not, in general, focused on preferential imports control. Instead, they have
frequently
prioritised
non-preferential
origin
control
and
participation in negotiations for preferential regimes. These countries have also prioritised responding to the few origin verification requests made by countries granting them tariff preferences for the products they export, within the framework of a Generalised System of Preferences (GSP).
In general, current GSPs establish that the exporting country’s certification authorities are responsible for these controls.
Since the early 60’s, the countries starting regional integration schemes in Latin America and the Caribbean, such as LAFTA-LAIA, the Andean Community, CARICOM, and MERCOSUR, used the European Union as a model and created a very similar legal framework, among
other
reasons
because
one
of their most
ambitious goals was to create a customs union. The EPV was also adopted. They promoted a third-party certification system and subsequent
verification
by
the
exporting
country’s
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authority, although verification procedures and even sanctions for origin infringements under these new integration schemes were regulated in broad and vague terms.
This was due, among other things, to the fact that preferential trade was hardly relevant to trade in many of these countries, and that the products exchanged usually consisted in raw materials extracted or produced domestically, or agricultural products of scant elaborated value added. Consequently, much of this scarce trade was wholly obtained.
In addition, the member countries of integration schemes were usually neighbouring countries, so they were aware of the production capacity and exportable supply of their partners.
For over four decades until the mid 90s, EPV-related procedures had very little
relevance
and
introduced
broad
regulations
in the
developing countries.
The turning point, at least in the Western hemisphere, was NAFTA. In addition to determining specific requirements about how and who was responsible for carrying out the EPVs, the text and Common Provisions of NAFTA were taken as a model and applied by NAFTA partners in their agreements with third countries.2
An example of this expansion is Mexico, a country which used NAFTA as a model in its agreements with Bolivia, Nicaragua, Costa Rica, and Chile. Something similar happened with 2
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Fundamentals of Preferential Rules of Origin. 5th Edition
The
two
basic
systems,
i.e.
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third-party
certification
or
self-certification, differ in their EPV approach; they assign the document review and control role to the authorities of different countries.
Under the third-party certification system, the EPV procedure is initiated
at
the
request
of
the
importing
country’s
customs
authorities, made either at random or because of a well-grounded suspicion. This request requires the exporting country’s authorities to confirm the accuracy of the importer’s declaration of origin. These procedures are generally in keeping with the rules and regulations in force in the exporting country; specifically, the imposition of sanctions is governed by the exporting country’s regime.
For their part, regimes based on self-certification have gradually changed the assignment of this task. In the case of the United States, under NAFTA the importing country’s authorities are responsible for origin control and verification. Subsequent US agreements have extended procedures by establishing a general origin verification regime, and a special regime for textile goods supplementing, and in some cases amending, the general system.
Canada and its agreements with Chile and Costa Rica, and with the United States and its agreements with countries in other continents, such as Singapore, Australia, Morocco, Jordan, Oman, Bahrain, and Korea, and with countries in the Americas, such as Colombia, Chile, Central America, Panama, and Peru.
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Under the general origin regime, the FTAs signed by the United States
regularly
entrust
the
importing
country
with
exports
verification. However, in the case of textile goods, the same agreements provide that the exporter will be responsible for origin verification if the importing party so requests, although the latter reserves the right to participate or assist in the process.
In practice, despite the above, the United States has clearly focused verification on textile and apparel products. Verification has not been delegated to the exporting country; instead it has been assigned to its own Customs and Border Protection officers.
However, in recent agreements with Korea and Panama, the United States has introduced a significant innovation into the origin verification procedure for textile and apparel products. The innovation consists in making it mandatory for partner countries to monitor and control the origin of their exported textile and apparel goods. Panama, for instance, has to establish and maintain a program to verify the accuracy of origin declarations relative to textile or apparel goods exported to the United States. Under the program, for each shipment of these products Panama has to require companies to keep records of production processes and of the number of people employed, and any other records and information allowing officials of each Party to verify the company’s production and exportation of textile or apparel goods, including various accounting and trade records.
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Figure 2.1. Verification of Textile Goods Over Time Under the US Self-Certification System
Undoubtedly, the development of such a significant aspect of the verification process brings the two basic certification systems closer, as both coincide in partially requesting the exporting country’s authorities to carry out verification. In fact, when it comes to textile products, not only will the United States keep on verifying origin, but also it has now established a systematic control to be performed by the exporting country, similar to that entrusted to their authorities whenever doubts arise as to a certificate of origin issued by an entity or government.
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Unit Summary This unit presented the concept of origin verification carried out after the good has cleared customs. Several considerations were given highlighting the growing importance that must be assigned to the task of developing national institutional capacity to carry out verifications of the
preferential imports
that
occur under the
agreements that have been signed.
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Unit III. Responsibilities in a Declaration of Origin
In any process claiming preferential treatment and declaring preferential origin there are two clearly identified responsibilities. The first, falling on the producer, consists in manufacturing goods in accordance with the origin requirements established in the trade agreement; the second is the responsibility of the importer which, upon claiming a tariff preference, becomes liable for the payment of exempted taxes if origin requirements are not fulfilled. The former requires the producer to be aware of the origin requirements applicable to its products; to keep production and accounting records for as long as established in the agreement; and to consent to receiving and responding, in due and timely manner, to an origin verification
procedure.
On
the
other
hand,
the
importer’s
responsibility includes ensuring that available or accessible origin information on the product is correct and sufficient to prove origin, and adopting adequate legal and contractual precautions to be able to demand compensation in the event of non―compliance with origin requirements. Both basic certification systems agree on the identification and allocation of responsibilities, which are the major components of an origin declaration and preferential access process.3
Third-party certification: See Article 23, Submission of Proof of Origin, in the Chile–EU FTA, paragraph 2. The requirements mentioned in paragraph 1 relating to translation and the statement by the importer shall not be systematic and should only be imposed with a view to clarifying the submitted information or to ensuring that the importer endorses the full responsibility for the declared origin. 3
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These responsibilities rest with operators from different countries, directly or indirectly related due to the goods purchase agreement. This agreement should include clauses protecting the interests of the parties involved. The importer, particularly, must include a provision dealing with the seller’s commitment to the purchaser regarding the origin of the goods. Indeed, apart from establishing the features, type, dates, quantity, packaging, and any other condition of the purchased
product,
the
importer
should
also
establish
origin
conditions in the contract. Thus, in the event of any difficulties with origin resulting in the payment of tariffs, the importer may claim adequate compensation from the exporter. The origin dispute between both operators should be settled in the same way as in any other reciprocal claim for non-compliance with the conditions agreed upon regarding the product or the transaction. Within this context, it may be concluded that: •
Origin concerns the operators performing the transaction.
•
The
state
does
not
participate
since,
in
the
event
of
non-compliance with origin requirements, its role is limited to collecting applicable taxes.
Self-certification: Colombia-US FTA, Article 4.19, paragraph 6 “Each Party may provide that the importer is responsible for complying with the requirements of paragraph 4, notwithstanding that the importer may have based its claim for preferential tariff treatment on a certification or information that an exporter or producer provided.”
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•
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A request for third-party certification is another service that is added to or regularly included in import/export procedures, like other services usually contracted for that purpose, such as custom brokerage, transportation, loading and unloading, among others. •
All these are services contracted by exporters and importers for trading purposes in order to sell and deliver their goods.
•
The
quality
of
the
origin
certification
service
and
the
consideration agreed upon with the third party issuing the certificate fall within the private sphere. •
Government participation as a certificate issuer does not provide any additional assurance to the importer, which will not be relieved of its responsibilities.
It is important that both operators are fully aware of this allocation of roles and responsibilities; otherwise, they may make mistakes or misinterpretations likely to lead to a lawsuit. In this connection, experience
has
shown
that
adequate
knowledge
of
these
responsibilities, their scope, and their consequences, is many times lacking. Instead, faced with difficulties of origin during customs clearance, the importer of the goods tries to ignore its responsibilities and pass them on to the certificate issuer, alleging that it acted in good faith and based on the certificate of origin delivered to it. Undoubtedly, private operators need to be trained in origin-related matters. Some countries have entered into a large number of trade agreements and put them into effect too swiftly to the detriment of a correct
and
adequate
interpretation
of
their
requirements.
Furthermore, the scarce or inadequate origin checks performed over 19
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the years have led operators to think that these declarations are never verified and that the only requirement or difficulty lies in counting on certificates of origin correctly issued. By the same token, sometimes operators and even some Customs agents or brokers do not know the exact requirements of each agreement because, among other reasons, they assume all agreements are alike so they tend to extrapolate requirements and facilities.
In this context, the challenge facing most countries is how to devise dissemination and training mechanisms to spread information on origin-related matters. Experience shows that this kind of training should
not
be
regarded
merely
as
a
prerequisite
to
the
implementation of a particular agreement. Instead, both the private and the public sectors should be periodically trained in matters of origin, and this presupposes the need for training programmes. These programmes should range from IT developments enabling operators to become familiar with, understand and apply rules of origin, to courses and seminars, given the generalised lack of knowledge about origin regimes.
Trade unions and business associations play a fundamental role, since they could organise –on their own or jointly with universities or other educational institutions– specialisation, graduate or postgraduate courses on origin-related matters to promote the training of trainers. 4
IDB organised a course on origin jointly with ANALDEX (Colombian National Association of Exporters and Importers), the Customs House, the Ministry of Trade, and Universidad Externado de Colombia. 4
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Facilitating
access
to
up-to-date
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information
regarding
the
requirements of rules of origin is also fundamental to ensure their successful implementation. As discussed in Module 2, the annexes on rules of origin are usually negotiated at a 6-digit level in a given version of the Harmonised System (HS). This version of the HS is generally updated by the WCO every four years. On account of the large number of trade agreements currently in force and since new agreements are being continually signed, countries fail to adapt these requirements to the new HS versions. This lack of up-to-date information hinders trade facilitation, brings about mistakes, reduces operation transparency and paves the way for corruption and Customs offences. Beyond any doubt, trade facilitation demands making progress in this field. Almost all countries signing trade agreements are lagging behind in this regard.
Unit Summary This unit considered the origin-related responsibilities of each of the participants in a trade operation that includes preferential tariffs. The unit highlighted in the end the demonstration of origin is an issue between private parties, in the sense that the buyer, in addition to specifying the physical characteristics of the product to be imported, must also specify that the good must be produced in such a way that it complies with the origin requirements. If the good then does not comply, then there are grounds for a complaint against the seller that the product is other than that which was purchased.
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Unit IV. Convergence Agreements5 IV.1. Features Convergence agreements are mechanisms seeking to expand and link the scope and effects of a network of existing trade agreements. Normally, trade agreements call for the application of origin regimes determining
the
production
requirements
that
the
goods
manufactured in a member country must meet to enjoy tariff privileges in other agreement countries.
Such regulation is indispensable, though usually complex and different from one agreement to another. This hinders preferential trade because the goods traded under one agreement must meet certain production requirements different from those set forth in other agreements.
As more trade agreements are signed in the region, the number of different regulations increases, and the companies and the authorities responsible for their implementation and oversight find their task more difficult and costly. Producers must afford increasing costs in terms of inventories and the management of origin requirements, so the regulatory maze turns into a serious problem for the Customs and control authorities in charge of their implementation and subsequent surveillance. Units IV, V, and VI are based on Rafael Cornejo’s unpublished article “Algunas Notas para la Convergencia del Arco Pacífico” (Notes Towards Convergence in the Pacific Arc). 5
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Overlapping trade agreements result in additional costs or obstacles: originating goods under one agreement cannot always be regarded as such by producers under other agreements signed by their country with other partners. Figure 4.1. Operation of Origin Regimes: Accumulation in Current FTAs
Furthermore, there are additional problems inherent in the origin regimes negotiated between the countries in the region, such as:
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•
The large number of different overlapping agreements.
•
The different treatments given to extended accumulation, which range from not taking it into account at all to regarding it as a possible future alternative whose implementation requires further negotiations.
•
The amount of information based on different and outdated versions of the Harmonised System.
•
A certain degree of vagueness in the current regulations.
•
The impact that the negotiations between a member country and third-party countries may have on an agreement.6
Opting for either of these alternatives is a sovereign decision resting with each country, and their results will depend on their objectives. Their implementation will even comprise the variations and combinations they may agree upon. Therefore, these two alternatives can merge into a single third halfway option. However, in this module they are regarded as independent so that their scope, requirements and results will be more easily understandable. 6
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Figure 4.2. Network, Overlappings and Perforations of Origin Regimes
Existing trade agreements within a region may be linked in two ways.
Firstly, by means of a new trade agreement that brings together and replaces all the overlapping bilateral agreements signed by the countries in the region. This negotiation does not differ from any other conducted when signing a new agreement.
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However, it poses certain problems, such as a large number of participating partners, clashing interests regarding the benefits of entering into a new negotiation with countries with which agreements have already been signed, and difficulties arising from possible incompatibilities or frictions with existing bilateral negotiations. Participating countries may have conflicting interests regarding new agreements and it may prove difficult to reach the consensus needed for successful negotiations. This is so because some may have already achieved the expected benefits, whereas others may have not concluded negotiations with all the parties and their economic structures may still be reluctant to certain new developments. There are many examples in this respect, such as the difficult negotiations within the framework of the WTO, from the ambitious Doha Round to the specific rules of a non-preferential origin regime. At the regional level, the FTAA negotiations –lasting almost 10 years– evidence how difficult, costly, and frustrating a project requiring the consensus of many countries may be.
Secondly, trade agreements may also be linked by means of convergence agreements, an alternative rarely used so far.
Convergence agreements are
a
new and
incipient
type
of
negotiation. They aim at developing operating mechanisms that help to reduce the costs borne by participating companies and authorities by eliminating the segmentation or isolation of preferential trade caused by rules of origin, and by unifying them, thus facilitating their control and verification. 26
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Developing these operating mechanisms requires combining a set of actions ranging from the total or partial negotiation of only some disciplines among all the members involved in the convergence process, to identifying rules in existing agreements which could be introduced into this new type of agreement. The aim of combining new and old rules is to do away with the isolation of those disciplines that compartmentalise preferential trade –as is the case of origin regimes– and to simultaneously reduce the costs, difficulties and effort intrinsic to any new agreement. Figure 4.3. Advantages of Convergence
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Convergence:
Relationship
with
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Rules
of
Origin
and
Advantages The relationship between rules of origin and the convergence process is direct and significant because: A)
The rules of origin are applied in all preferential trade
transactions. B)
The rules of origin are in force throughout the term of an
agreement. C)
The rules of origin divide preferential trade in portions.
D)
In various sub-regions there are subheadings enjoying full tariff
elimination among all countries in the sub-region, but with restricted preferential trading: •
to leverage subheadings with coinciding full tariff elimination
schedules. •
to help advance multilateral negotiations.
Additionally, it is necessary to be realistic and pragmatic about the process and, at the same time, to set limited and consistent objectives for it; it would not do to try to attain, from the very beginning, goals that were desired but never achieved in existing trade agreements.
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This negotiation should cover minimum but essential points to accomplish
two
objectives.
First,
negotiations
should
aim
at
eliminating isolation in the safest, most operational and, to the extent possible, most equitable manner among the countries participating in the process. At the same time, they should set up customs procedures on the transit and origin of goods that may facilitate and standardise the requirements that operators must fulfil and that competent authorities must control and verify.
Certainty is also key. The rules to be implemented should seek to avoid triangulation and to establish a simple but precise regulatory framework preventing disparate interpretations and aiming instead at a consistent application across the countries participating in the process.
To be operational, the convergence process should: •
ensure greater simplicity of application and use by the companies, and of control by the authorities;
•
be compatible or coordinated with existing legislation, to avoid undermining
the
benefits
already
achieved
by
current
agreements; •
be strongly focused on negotiations to access goods markets, and possibly service markets if deemed advisable, since this is the most common area where progress has been made in Latin American agreements;
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•
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combine early results with sounder, definitive achievements in the medium term;
•
acknowledge sensitive areas so as to put in place mechanisms allowing a limited number of products to be denied free access to this extended market; and
•
last but not least, take into account the degree of tariff liberalisation already attained in the region.
AREAS OF CONVERGENCE IN LATIN AMERICA Trade convergence options in the Americas during the XXI century: - FTAA (abandoned). - Free Trade Space of LAIA (abandoned). - Pacific Arc (abandoned). - Pacific Alliance (active) • What step will the EU take once its negotiations with the Andean and Central American countries bear fruit? • What steps will the US and Canada take once the agreements already negotiated in Latin America come into force? • What is the relationship between these theoretical convergence scenarios? Are they mutually exclusive? Are they competitive? Will one of them prevail over the other? Or are they compatible?
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A priori, it could be assumed that they are not mutually exclusive or necessarily competitive, and that neither would be, as a matter of course, subordinated to the other. Furthermore, moving towards extended “cumulative regimes” among existing agreements would tend to simplify the Spaghetti Bowl of existing trade agreements. The hypothetical existence of a few convergence regimes –one (or more) in Latin America, another between one of these countries and the United States, and a third one with the European Union– would facilitate trade. One of the underlying differences between these three possible convergence agreements is the structural characteristics of the rules of origin negotiated for each agreement, since one party will always “mark the playing field” by imposing its own origin regime style.
These possible alternatives show that sooner or later there will be convergence areas in Latin America. The difference between such convergence areas could lie in the structure of their rules, but this would not necessarily make them incompatible.
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Ongoing Negotiations Outside Latin America There are currently two negotiations going on at a different pace, which are likely to impact on the variables above. The first such negotiation is the Trans-Pacific Partnership (TPP) involving a group of Asian countries (Vietnam, Brunei, Singapore, and Malaysia), Latin American countries (Chile, Peru, and Mexico), plus Australia, New Zealand, Canada, and the United States. Japan also joined the TPP midway through 2013. The TPP seeks to bring together countries, many of which are already linked by a free trade deal, under the umbrella of a single agreement. This would be a more substantial agreement that would create a large free trade area by consolidating already existing trade liberalisation efforts, combining the content and treatment of trade disciplines, and extending the scope of accumulation of origin. Sixteen negotiation rounds have already taken place at the TPP. The United States has a strong presence, and one of the documents analysed in connection with origin rules and regulations deals with the possibility of textile goods being monitored by the exporting country, a procedure similar to that already included in the United States agreements with Panama and Korea.
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Another deal that, due to the size of its partners, could have a great impact and even become a turning point in future negotiations, is the recent negotiation for a Transatlantic Trade and Investment Partnership (TTIP) between the United States and the European Union. This is not part of a convergence process since there are no prior agreements between the countries involved. However, the significance and weight of the parties makes this the biggest economies’ negotiation so far conducted at a multilateral level at the WTO. This scenario, which will undoubtedly result in trade liberalisation and the consequent negotiation of rules of origin, will for the first time put face to face the promoters of origin regimes that have served as reference for many agreements. If this negotiation is successful, there
will
be
undoubtedly
more
coincidence
or
a
greater
rapprochement between these regimes in the medium term, or at least,
the
coexistence
between
both
origin
certification
and
verification systems will be made easier.
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Fundamentals of Preferential Rules of Origin. 5th Edition
IV.2.
What
Is
the
Core
of
Module 6
a
Convergence
Agreement
Negotiation?
Although this negotiation is not without a large dose of subjectivity according to the interests and needs of each country during a convergence process, two items should essentially be present or addressed to make progress in this area: tariff liberalisation among the initiative’s member countries, and an adaptation of origin rules and regulations to allow for extended accumulation.
Therefore, it becomes necessary to determine existing alternatives or ways to make progress in both tariff and origin-related matters bearing in mind the current limitations, such as the missing links in tariff liberalisation due to some pending bilateral negotiations, the different treatment of sensitive products, or the disparity in the implementation of current tariff elimination schedules. As regards origin, quick-to-implement mechanisms should be found for applying extended accumulation in the short term and, in parallel, rules should be negotiated to enable a generalised, broader, and better application of origin requirements in the region.
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Unit Summary This unit presented the concept and purpose of convergence agreements. The central objective of these agreements is to permit cumulation of origin among all participating parties. There are different mechanisms for achieving this extended cumulation, but to date
the
more
successful
cases
have
been
based
on
the
establishment of a single origin regime that covers all participating countries.
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Unit V. Application of Extended Accumulation
From the standpoint of origin regimes, a mechanism that helps agreements to converge is the application of extended accumulation. To date, what has the Latin American experience been like in terms of the application of extended accumulation? So far, Latin America has envisaged the application of extended accumulation by: •
its promotion;
•
its immediate application; and
•
its conditional application (See box below).
APPLICATION OF EXTENDED ACCUMULATION IN LATIN AMERICA i)
Promotion
of
extended
accumulation
is
illustrated
by
the
Mercosur-Bolivia Agreement (ACE 36), which provides as follows: “When both Contracting Parties have individually executed Free Trade Agreements with the same third LAIA member country (not a party to the Agreement that this Annex is part of), any necessary actions will be taken to apply the origin accumulation provided for in this Article to the third party’s originating materials incorporated into the exported product, provided said materials are subject to full tariff elimination in both Agreements.” •
Applicability Condition: LAIA products subject to full tariff
elimination
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Is it operational? No rule or supplementary protocol could be found to answer this question. When it is indeed operational, the following questions arise: –What rule applies to the material? –Who certifies? And how? –How are goods verified? What sanctions are imposed?...etc. ii) An example of immediate application is the MERCOSUR-Peru Agreement (ACE 58), or the Mercosur-Colombia-Ecuador-Venezuela agreement (ACE 59), providing as follows: •
For accumulation purposes, the goods from Bolivia and Peru will
also be considered as originating from the exporting signatory Party to this agreement (Ditto ACE 58 MERCOSUR-Peru, vis-à-vis Bolivia, Colombia, Ecuador, and Venezuela). •
Applicability condition: Geographical
Is it operational? Yes. In this case, the following questions arise: - What rule applies to the material? -How does the
entity certify
origin
when applying
extended
accumulation? -When is a certificate right or wrong? -How are goods verified? How are violations sanctioned? What is the applicable regime? iii) Finally, conditional application is found in, for instance, the Peru-Canada agreement, which provides as follows:
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Condition I: Trade agreements contemplated as such under the
WTO Agreement, entered into separately by Peru and Canada with the same third country.
Condition II: Both parties and the third country should be
governed by provisions with equivalent specific effects.
Scope: The agreement may be restricted to specific goods or
conditions. iv) Difficulties for extended accumulation: •
Different tariff treatment.
•
Co-existence of different origin regimes.
•
Method of application different from origin determination
criteria
Negotiating a convergence agreement requires, at least, defining the set of products to which extended accumulation would apply, and their applicable rules of origin. The determination of this set of products should be flexible, firstly, to remove the missing links deriving from the absence of bilateral agreements, and secondly, to remove the missing links from the supply chain, since subheading products that are essential to some sectors may be pending release.
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Unit Summary This Unit presented the concept of extended cumulation. Although this concept is tightly linked to convergence agreements, it can be applied in different ways even absent the framework of such an agreement. The application of extended cumulation can give rise to implementation
difficulties,
and
these
should
be
taken
into
consideration beginning at the negotiating stage of such policies.
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Unit VI. Negotiating Rules of Origin
Although several convergence attempts have been made –see the box on convergence attempts above– not all of them have been successful. In some cases, extended accumulation has merely been an objective set out in the provisions of a trade agreement, always falling short of implementation.7 When it comes to defining an origin regime in a convergence agreement, there are two alternatives: using the current agreements or creating a new regime.
VI.1. Extended Accumulation Based on Existing Agreements This
alternative
entails
amending
previously-signed
bilateral
agreements in order to allow for the use of inputs from third-party countries as if they were originating materials. To enjoy this benefit, these inputs should meet the origin requirements stipulated in the bilateral agreement signed by the countries deciding to use extended accumulation. In other words, the requirements of the origin regime in force among the countries that are trading goods are now extended
to
include
their
input
suppliers
from
third-party
non-member countries.
7
See the box on extended accumulation.
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The advantage of this mechanism is twofold: it produces quick results and offers a simpler set- up, since the interested countries negotiate at a bilateral level. From the legal viewpoint, in some cases it could be put into effect just by signing protocols supplementing the current agreements.8
This way of implementing extended accumulation would mainly benefit companies, enabling them to establish a cross-link between agreements and increase their input-supplier base so as to include partners which are not parties to their agreements. Under extended accumulation, their goods would not lose their originating status and would still benefit from tariff reductions.
Nevertheless,
this
alternative
is
not
free
from
difficulties
or
constraints. •
First, the number of requirements goes up and verification
procedures become more complex, because new procedures should be agreed upon for checking compliance with origin requirements by the third-party country supplying the input. •
This alternative does not foster the elimination of the tangle of
existing agreements, as it fails to put forward any action to that end. •
Even though these new procedures may have a backward
impact on the production chain, this possibility fades away when the production process becomes more complex and when additional materials from other countries are also used to produce the input This by no means entails a simple implementation process in every country, because in some cases these amendments must be approved by the legislature. 8
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Fundamentals of Preferential Rules of Origin. 5th Edition
purchased
from
third-party
countries.
Module 6
That
is
to
say,
longer
production chains considerably increase the sources of supply, thus making it more difficult to weigh up their impact and to implement controls. •
If a country signs agreements with two different regional
partners which have different rules of origin, the partner with the stricter rules might elude the origin requirements set out in its bilateral agreement by lawfully triangulating their trade through the third country. This becomes especially significant in Latin America, where there are two kinds of rules: very detailed rules negotiated on a product-by-product basis, which could be broadly described as “NAFTA-like,” and general rules with specific “LAIA-like” requirements and considerably different levels of requirements and flexibilities.9 Summing up, this is a step forward and it helps to achieve quick results in the implementation of extended accumulation; it might be regarded as a temporary measure while an extended accumulation origin regime is negotiated by all the member countries involved in the initiative.
Flexibilities such as the de minimis facility, short supply lists, adjustment to the value of materials and goods, and the different methods to calculate value content are just some of the origin regime variables that could have different impacts on trade and foster triangular operations in an attempt to make requirements more flexible. 9
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VI.2. Negotiating a New Regime Technically speaking, this option is a more thorough, but also more stringent, way to implement accumulation in the medium and long term, since it benefits both parties involved in the process (producers and participating authorities) and eliminates the abovementioned distortions.
Furthermore, even if this means adding a new regime, it would be the only one that could help to simplify the existing network of agreements by introducing a more similar operation methodology into a larger area, with a wider scope, comprising all the countries involved in the initiative. With time and depending on their use, bilateral regimes could be left aside or replaced by this new regime. This alternative would by no means replace the existing regimes; on the contrary, it would consist in a new regime aimed at facilitating the use of a larger number of inputs from the region by eliminating the subdivision or segmentation resulting from the origin regimes set forth in trade agreements on preferential trade.10 This biggest disadvantage of this alternative is that it is more laborious and time-consuming, because it requires countries to negotiate as a group. Negotiators should aim at agreeing on product-specific rules for the set of products to which extended accumulation and the verification system are to be applied. For further details about this linkage and the reasons to maintain the current regimes, see the article by Cornejo and Harris. 10
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In this respect, it is worth mentioning that: a)
Once the applicable set of goods has been determined for tariff
purposes, rules of origin must be negotiated. b)
A mechanism making this negotiation more flexible offers
countries the possibility to choose to leave a product outside the sphere of the accumulation regime. This flexibility could help to deal with certain sensitive products, but it should be restricted to a limited number of subheadings. c)
Another aspect to be taken into account is the possibility to
include in the set of products those subheadings comprising inputs from important sectors which have not been significantly liberalised so far. The introduction of these missing links would facilitate regional production chains. d)
The origin regime of a convergence agreement could, if
necessary, regard existing regimes as supplementary. Consequently, if an issue is not tackled by the new regime, the existing bilateral agreement regime will be applied. In the absence of a bilateral agreement, the parties could include an annex explaining how this issue will be dealt with. e)
This supplementary nature of existing origin regimes represents
a big advantage to speed up the negotiation process of convergence agreements, since countries can thus avoid negotiating issues expected to be thorny or intricate at the regional level. Indeed, if there are any significant differences, for example regarding the issuance of certificates of origin, countries could avoid negotiating this point as a whole and adopt the mechanism already agreed upon 44
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in their bilateral agreements. Thus, countries can rest assured that the current mechanism will not undergo modifications and will still be used in the same way; in other words, goods will still be imported into their territory accompanied by certificates of origin issued exclusively by operators approved under their existing agreements. f)
It is worth mentioning that the above comment on certificates
refers only to the signer and not to the issuance method, whether electronic or written. Again, moving towards electronic certification is a significant step forward that should in fact be taken, since it facilitates trade, strengthens Customs authorities’ origin verification capabilities, and ensures safer and more transparent preferential trade.
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Figure 6.1. Operation of the General Origin Regime (GOR)
Full Cross-cumulation In its recent free trade agreements (FTAs), Canada has negotiated a form of extended accumulation which is set out in process or full cross-cumulation provisions, which build linkages between FTAs that would otherwise operate independently. Its main benefit is to provide producers with more options for sourcing input materials. Unlike the European diagonal accumulation approach, full cross-cumulation is
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more flexible as it does not require that the free trade agreements among the participating countries incorporate the same rules of origin. Canada has supported full cross-cumulation, on the condition that it is reciprocal - that is, that Canadian content could count towards the production of originating goods in the other Party to the FTA or any third country with which both Canada and the other Party have FTAs, now or in the future. This would mean that a material sourced, or process carried out, in any country with which both Canada and the other Party have or will have an FTA could count towards the production of an originating good in any of these countries under any of the FTAs. All of this, of course, would be dependent on all these countries taking part in such an endeavor; that is, cross-cumulation must be reciprocal so that all countries may benefit from this provision. In order to ensure that the benefits of a cross-cumulation provision are available reciprocally to all countries that are eligible to take part in implementation of cross-cumulation, it would be necessary that each eligible country wishing to participate in cross-cumulation incorporate into its FTAs, and implement into its related domestic legal authority, provisions specifically enabling cross-cumulation for purposes of determining the origin of goods.
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As well, if the application of cross-cumulation between a Party and a non-Party were to be limited to certain goods, the other Party to the FTA should be able to limit its application of cross-cumulation to the same goods. However, the cross-cumulation provisions would need to be sufficiently generic so as to permit broadening the application of cross-cumulation to other goods, should that be agreed between all Parties and non-Parties concerned. Under the Canadian approach to cross-cumulation, the “free trade area� of an FTA would be expanded to include all countries that are party to the cross-cumulation endeavor. Accordingly, the free trade area of one FTA, e.g., the Canada-Peru FTA, could be expanded to include, for example, Colombia, as well as any other country with which Canada and the other Party both have an agreement that includes cross-cumulation provisions. Consequently, in the example given, any production done on a material in any of these countries would count towards the originating status of a good for export from Canada to Peru or to Colombia. Similarly, any production done on a material in any of these countries could count towards the originating status of a good for export from Peru to Canada or to Colombia. In other words, the only rule of origin that would come into play in determining the origin of the final good would be that of the FTA between the country from which the final good is exported and the country into which the final good is imported. While it is not considered necessary to include provisions in the FTAs on the procedures necessary to implement cross-cumulation, a provision could be included in the Customs Procedures chapter of an FTA, or in any agreement or understanding related to crosscumulation implementation, to provide for cooperation in developing 48
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customs procedures for goods considered originating as a result of cross-cumulation. This provision would simply act as a marker to add clarity and permission to create procedures for the administration of cross-cumulation, if required. However, if cross-cumulation provisions are included in the rules of origin chapter, the customs procedures related to the rules of origin would apply; accordingly, additional procedures would not really be necessary.
Unit Summary This unit considered the negotiation of convergence agreements, the different forms that these may take, and the benefits and difficulties that accompany the different options.
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Unit VII. Rules of Origin Database and Analysis Tools
The IDB makes available several databases on integration and trade as
part
of
its
information
system:
INTrade
(www.iadb.org/INTradeBID). They provide information about rules of origin, dealing with both specific rules and origin chapters, and offer various tools that render rule application, analysis, and queries much easier.
INTrade is organised so as to provide direct access to basic data, grouped by topic. The information is divided into three big sections: Legal Framework, including a list of trade agreements either in force or being negotiated in the Western hemisphere, official documents, and many other additional databases containing the indexed
text
of
non-preferential
the tariff
agreements; data,
Market
information
Access, about
containing
sanitary
and
phytosanitary measures, tariff elimination schedules, tariff quotas, and rules of origin; and Statistics and Indicators, comprising import and export data at the tariff-line level, and integration and trade indicators for the countries in the Americas. Additionally, INTrade provides a set of tools specifically developed to offer customised access to different kinds of users, such as Business, Negotiators, and Analysts.
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To access the data on rules of origin users just click on “Tariff Elimination Schedules, Tariff Quotas and Rules of Origin� in the Market Access dropdown menu, as shown in Figure 7.1. Figure 7.1. INTradeBID Home Page and Access to Data on Rules of Origin
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VII.1. Specific Rules and Texts Databases Within this option, the first step is to identify the agreements to be included in specific searches. Since the list of agreements is quite long and there are generally no standard names by which the agreements are known, selection is divided into three parts. First, users have to identify a signatory country to the agreements they want to review. Second, the system offers a list only of the agreements executed by any of the countries selected as signatory in the first step. In the third step, users choose between enquiries about rules of origin and enquiries about tariff elimination schedules. For instance, to review some of the agreements signed by Chile, users must select Chile in the first step, and press “Continue.” In the second step, only Chilean agreements will be listed to choose from. Users then select Chile-Australia, and EU-Chile, and press “Continue.” In the last step, selecting “Rules of Origin” and pressing “Finish” activate the search tools (see Figure 7.2). However, if Costa Rica and Chile were selected in the first step, both the agreements signed by Chile and by Costa Rica would be listed in the second step. (The list would NOT be restricted to the Chile-CACM agreement, but it would include all the agreements signed by Chile or by Costa Rica).
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Figure 7.2. Agreement Selection to be Included in the Search
The queries include “Rule Description,” which makes it possible to search the texts of rules applicable to each of the goods negotiated in the agreements included in the database. The “Consult Notes” option is used for searching the general interpretation notes of specific rules, and the section and chapter notes that change the application of the rules. The “Chapter Text” option is for searching the general provisions of the origin chapters in the agreements included in the database. To make a “Rule Description” query users need to enter the tariff code of the product of interest. The Harmonised System code must be entered as a 2-, 4-, or 6-digit number.
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When users do not know the code, they may press the magnifying glass icon to open up the Help menu with the HS descriptors. Once the code is entered, users press “Run” to make the search. Figure 7.3. Product Selection by Means of the "Rule Description" Option
The “Rule Description” option produces a table, as shown in Figure 7.4. The first column of the table identifies the agreement (included among the agreements listed when filtering the search), the HS version on which the rules are based, the description of the product under the relevant tariff code, and the official text of the rule defined for that product. This is a verbatim copy of the rule set forth in the agreement’s annex or appendix on specific rules.
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Figure 7.4. Results of a Rule Description Search
When the rule defined in the agreement provides more than one alternative to qualify goods as originating, the table will include additional columns, separating the alternatives under the headings “TEXT 1”, “TEXT 2”, etc. These results are illustrated in Figure 7.5.
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Figure 7.5. Search Results for a Rule Description Containing Alternatives
The second option in the Rules of Origin database is the “Consult Notes.� The annexes to rules of origin in many agreements, though not all, include some general or introductory notes providing an interpretation of the rules contained. Sometimes, other notes are included at the Harmonised System Section level to regulate application of the rules to the products of that Section.
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In some other cases, notes are included at chapter level explaining some alternative ways for the products in that HS to qualify as originating, or establishing additional requirements to the rules specified for each chapter heading or subheading. To search the “Consult Notes,� users have to indicate the type of notes they are interested in first (General, Section, or Chapter), and then select the agreement(s) to be included in the search. The list of agreements will contain those selected when first filtering the search. Figure 7.6 shows the screen that is displayed. If users are looking for Section or Chapter notes, there will also be a list of HS Sections or Chapters to restrict the search. Figure 7.6. Consult Notes
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The results returned by “Consult Notes� are shown in Figure 7.7. Quite simply, the first column lists the agreement(s), and the second the text of the note(s). If the search is for Section or Chapter notes, an additional column is included showing the Section or Chapter to which the note applies. Figure 7.7. Consult Notes Results
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The third option is to search for “Chapter Text.” Selecting this option displays a list of topics typically dealt with in the origin chapter provisions of the trade agreement (see Figure 7.8a). Many of these concepts
comprise
several
subtopics
in
the
tree
structure
(Figure 7.8b). To run a search, users select topics and/or subtopics from the list (selecting one topic will automatically select all related subtopics), and then press “Run.”
Figure 7.8a. Search for Origin Chapter Text
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Figure 7.8b. Search for Origin Chapter Text
The results from a “Chapter Text” search are shown in Figure 7.9. Each selected subtopic is identified by its respective topic, below which there is a table indicating the agreement and the treatment the agreement establishes for the identified topic or subtopic. In the event the topic or subtopic is not contemplated by any provision in the origin chapter of the agreement, the tool will return the message “** Concept not covered in this agreement**.” The application makes it
possible
to compare and
review treatment
similarities and
differences between topics related to origin rules from different agreements. The index of topics and subtopics covers the entire
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chapter on rules of origin, as well as topics dealing with origin-related customs procedures. Figure 7.9. Results of an Origin Chapter Text Search
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VII.2. Tools for Business INTrade also offers a set of tools specially designed for the private sector to facilitate the interpretation and implementation of rules of origin. These tools can be accessed using the “Rules of Origin Tools” link in the "Data and Tools for Business" menu. Figure 7.10. Rules of Origin Tools for Business
By clicking this link a new screen opens up featuring two tabs at the top: “Rule of Origin Query” and “Fulfilment Calculator.” The Rule of Origin Query lists the origin requirements for the good selected by the user under the relevant trade agreement.
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The Fulfilment Calculator is an interactive tool allowing users to enter the inputs used to produce a good in order to find out whether such good can be considered originating pursuant to the terms of the selected agreement. To use either tool, users just need to enter three variables: 1) the exporting country; 2) the importing country; and 3) the HS code or position for the product. As for the third variable, the “Search� buttons (with the magnifying glass icon) can be used to search goods by position or by description, thus allowing users to check out the HS descriptors and find the right codes. Once these three variables have been entered, the system will identify the applicable agreement and rules of origin. Should there be more than one applicable origin regime, the rule query will list all the available options and the calculator will allow users to choose the regime against which the production structure must be validated. Figure 7.11 shows these three variables used in the rule of origin queries. Figure 7.11. Rule of Origin Queries for Business
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Once these three parameters have been defined, the system will show data as seen in Figure 7.12. By clicking on the hyperlinked texts, users will access a glossary with the term definition or some other tool providing additional information. Figure 7.12. Results of a Business Rule of Origin Query
The information is divided into four columns. The first lists the applicable agreement, the HS version where the rules are defined, the tariff code and a description of the product, and the official text of the rule. If the agreement sets out rules for by-products in an HS subheading (or heading), a star (*) will appear before the code, and the description will detail the products specifically covered by the rule.
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The second column explicitly lists the inputs that must obligatorily be originating materials for the good produced with them to be considered originating. These are the “Non-permitted Non-originating Inputs.�
When
the
rule
requires
a
simple
change
in
tariff
classification, this column will show the code and a description of the good to be exported and the required change. Therefore, if the rule requires a subheading change, users will see the same subheading as in the good; in the case of a heading change, the good’s heading will be displayed; and in the case of a chapter change, the chapter will appear. If the rule requires a change with exceptions, this column will display the codes of the input exceptions. The third column shows the working or processing requirement as per the rule. Thus, the user is informed that there are non-permitted non-originating inputs and that the identified production processes must be carried out within the territory of one (or more) of the agreement countries. In some cases, users will also see a list of additional requirements arising from the chapter or section notes. The fourth column describes the available flexibilities, which in most cases will be the de minimis facility. In certain cases, other flexibilities are included, such as extended accumulation provisions or others.
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Finally, there are two more columns (not shown in Figure 7.12), which
only
show
up
when
necessary.
One
is
for
permitted
non-originating inputs. These are more often seen in a second compliance alternative, which allows for a change from subheading X as long as the regional value content or any other production process requirement is met. This serves to underscore that the alternative explicitly allows the use of certain originating inputs. The second optional column shows if there is any regional value content requirement. It also shows the applicable calculation method and the (minimum or maximum) limit, as defined by the value content requirement. The second tool available for business is the “Fulfilment Calculator.� The initial steps are the same as for the rule of origin query: users enter the importing and exporting countries, and the six-digit tariff code of the good. This is illustrated in Figure 7.13. Figure 7.13. Fulfilment Calculator for Rules of Origin
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When this tool is executed, the system opens up a new window where users must specify the inputs used to produce the good to be exported (see Figure 7.14). The software is designed so that only the basic details need to be entered to conduct the fulfilment analysis. When the rule involves a change in tariff classification, only the non-originating inputs have to be specified, since only the use of a non-permitted non-originating input could prevent a good from being classified as originating. No further details about the originating inputs are required because, whichever they might be, they cannot alter the fulfilment analysis when rules are based on a change in tariff classification criterion. Users will not be asked to specify the value of the inputs either, since this information is also irrelevant. Figure 7.14. Fulfilment Calculator: Input Specification
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Specifying the value of the inputs will only be required when the rule has a regional value content requirement. If the calculation method is based on the value of the originating materials, users will have to enter details only about those inputs. Information about all the inputs will be required only in very few cases, for example when the rule combines a change in tariff classification with a regional value content requirement based on originating inputs. Figure 7.15. Fulfilment Calculator: Compliance Validation
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Once the required input data has been entered, clicking “Next Screen” in the bottom right-hand corner of the window will take users to the “Result of the compliance validation” screen as seen in Figure 7.15. Should the rules of origin require some kind of production process, an intermediate screen will open up, where users will be asked to enter the processes carried out in the country. The system will inform users whether the production structure meets the rule requirements. If it does not but the rule offers some flexibility, such as the de minimis facility or adjustments to the value of the inputs used, this screen will indicate so and activate the option to enter additional data to determine whether such adjustment can lead to a change in the non-originating classification. To justify the system determination, a detailed report is also supplied by clicking on the link below the image. The report includes all the information that was entered, and identifies which materials comply and do not comply with origin requirements and the change in tariff classification. In the case of RVC-based rules, it indicates the way in which each material contributes or not to compliance. For an example of the report see Figure 7.16.
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Figure 7.16. Fulfilment Calculator: Report
Finally, in respect of a small set of agreements, self-contained sites have been created for the DR-CAFTA countries, Colombia, and Peru. The Rules of Origin Tools for Business page includes links to these sites,
which
are
also
www.OrigenCaftaBID.org,
available
at
the
following
addresses:
www.OrigenTLCColombiaBID.org;
and
www.OrigenTLCPeruBID.org, respectively. On the whole, these sites offer exactly the same information as above insofar as the Rule of Origin Query and the Fulfilment Calculator are concerned, except that they only include the agreements signed by the respective countries. A significant difference is the inclusion of an additional tool, the Rule of Origin Guide.
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The Rule of Origin Guide explains all the rules of origin requirements, alternatives, and flexibilities for a product under a trade agreement. It identifies and explains all alternatives, as well as the possibilities of accumulation and
de minimis. Figures 7.17a, 7.17b, and 7.17c
provide an example of exporting the 8402.11 product between Costa Rica and Guatemala under the DR-CAFTA rules. As can be seen, the rule allows for three different compliance alternatives, each of which is explained by clicking on the respective alternative, in the first part of the guide. The first alternative (Figure 7.17a) is a simple change in tariff classification at heading level, and the guide indicates which non-originating inputs are not permitted, the operation of accumulation, and the application of the de minimis rule. The second alternative combines a change in tariff classification with regional value content, explained in this system as a “Value Test.” It is clarified that it is permitted to use “Parts” of sub-heading 8402.90, but not non-originating materials of the remaining 84.02 sub-headings, explaining again the accumulation and de minimis concepts. The value criterion based on originating materials (build-up method) is explained in detail. The third alternative (Figure 7.17c) is similar to the second, save for a value requirement based on non-originating materials (build-down method).
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Figure 7.17a. Rule of Origin Guide – First Alternative
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Figure 7.17b. Rule of Origin Guide – Second Alternative
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Figure 7.17c. Rule of Origin Guide – Third Alternative
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Unit Summary This unit presented the features of the Rules of Origin databases in the INTrade system. The queries and tools of the system can be useful in the negotiation, implementation, and interpretation of preferential rules of origin. Many of the concepts that have been covered in this course can be studied in the rules of origin included in this database, and be better understood through the use of the interpretation tools that the system provides.
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References •
Cornejo, Rafael and Jeremy T. Harris. (2007). “Convergence in the Rule of Origin Spaghetti Bowl: A Methodological Proposal.” INTAL-INT Working Paper 34. Inter-American Development Bank.
•
Estevadeordal,
A.,
J.
T.
Harris,
and
K.
Suominen.
(2009).“Harmonizing Preferential Origin Regimes around the World.” In R. Baldwin and P. Low (eds.), Multilateralizing Regionalism:
Challenges
for
the
Global
Trading
System.
Cambridge: Cambridge University Press. •
Estevadeordal, A., and K. Suominen. (2009). Bridging Regional Trade Agreements in the Americas. Special Report on Integration and Trade. Washington, DC: Inter-American Development Bank.
•
Granados, Jaime and Rafael Cornejo. 2006. “Convergence in the Americas: Some Lessons from the DR-CAFTA Process” The World Economy. Volume 9, Issue 7.
•
Harris, Jeremy T. (2009). “Rules of Origin for Development: From GSP to Global Free Trade” IDB Working Paper Series #IDB WP-135. Inter-American Development Bank
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List of Figures Figure 2.1. Verification of Textile Goods Over Time Under the US Self-Certification System Figure 4.1. Operation of Origin Regimes: Accumulation in Current FTAs Figure 4.2. Network, Overlappings and Perforations of Origin Regimes Figure 4.3. Advantages of Convergence Figure 6.1. Operation of the General Origin Regime (GOR) Figure 7.1. INTradeBID Home Page and Access to Data on Rules of Origin Figure 7.2. Agreement Selection to be Included in the Search Figure 7.3. Product Selection by Means of the "Rule Description" Option Figure 7.4. Results of a Rule Description Search Figure
7.5. Search Results for a
Rule
Description Containing
Alternatives Figure 7.6. Consult Notes Figure 7.7. Consult Notes Results Figure 7.8a. Search for Origin Chapter Text Figure 7.8b. Search for Origin Chapter Text Figure 7.9. Results of an Origin Chapter Text Search Figure 7.10. Rules of Origin Tools for Business
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Figure 7.11. Rule of Origin Queries for Business Figure 7.12. Results of a Business Rule of Origin Query Figure 7.13. Fulfilment Calculator for Rules of Origin Figure 7.14. Fulfilment Calculator: Input Specification Figure 7.15. Fulfilment Calculator: Compliance Validation Figure 7.16. Fulfilment Calculator: Report Figure 7.17a. Rule of Origin Guide – First Alternative Figure 7.17b. Rule of Origin Guide – Second Alternative Figure 7.17c. Rule of Origin Guide – Third Alternative
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