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1
RULES OF ORIGININ THE FOREIGN TRADE
WITH THE EU and within CEFTA
by Helmuth Berndt
03/2008
2
3
/ Pauza /
4
Reasons for rules of Origin
1.International division of labour = - “ global outsourcing” by - - global sourcing of materials and - - global manufacturing of components
2. Worldwide trade facilitations - Customs preferences for free-trade partners in
addition to the “ Most favoured nations rule” of the WTO-community
3. Multi-purpose apply for - Management of quotas,- National statistics - Anti-dumping measures
5
Positive Fallout of Rules of Origin
Financial advantage:
Preferential tariffs in the EU/donor state (reduced rates or dismantled rates down to zero)
Economic impact:
National image, sustainable trade
relations
6
Who should know about Rules of origin?
The exporter- origin is part of any foreign trade
operation- to benefit from Customs
preferences on international markets The importer
- to benefit from bilateral preferences for foreign goods ( i.e. EU, EFTA, US)
- for sale of the goods to a domestic - manufacturer or dealer
The manufacturer- for producing semi- finished or
finished goods- for local sale
The dealer- for sale of the goods to a local
manufacturer or another dealer
This means: Every businessman
7
“Seal of quality” for originating goods
- Upgrading of the Serbian
competitiveness on the EU Market -
8
Intensity of EU-PreferencesComplete integration: European Union
Customs Union: With Turkey
EU-EFTA Agreements:Norway, Iceland, Liechtenstein, Switzerland
“Europe Agreements”: No more countries(Bulgaria, Romania were the last)
ACP - Convention: 74 states
Mediterranean Agreements, :North Cyprus (Turkish part), Israel, PNA, 3 Maghreb states: Morocco, Tunisia, Algeria
Mashrek group: Egypt, Jordan, Syria, Lebanon, PNA
Stabilisation and Association Agreements with Croatia, Macedonia and Albania (as Interim Agreement)
Abroad: South Africa, Mexico, Chile
Autonomous and unilateral: 179 developing countries and West Balkan beneficiaries: BiH, S, CG,
Kosovo/UNMIK
9
System of Origin
Preferential definition
Non-preferentialdefinition
Commercial definition
EU-system System ofOther
countries
EU-definition
Worldwidedefinition
General system of Preferences
(UNCTAD)
Regional definition(“intra-trade”)
(CEFTA 2006)
Rules forspecifiedProducts(textiles)
or
Rules forall the restof products
Actually inprocess
Containselements of
the preferentialOrigin
Made-in origin
UK in 1887
Madrid-Agreement 1891
Madrid-Agreement 1958
National legislation
Most import. aspect TRIPS
WIPO-Geneva
Border measures(confiscation)
WTO mandate to WCO
bilateral
unilateral
10
2% 3%
10%
7% 7%
7%
7%
Japan
Free TradeAssociation
Customs Union
4%
Japan
11
Principles of Management
- Contractual accordance
- Documentation
- Exact bookkeeping
- Organizational impact
- Service providing
- Customs cooperation
12
What do you need for the definition of the origin ?
1. HS-heading of imported parts
2. HS-heading of finished goods
3. ex-works-price of the product
4. Customs value of imported materials per unit cost
5. Your share for the whole manufacturing process- Wholly obtainment- Sufficient processing - Non-sufficient processing- Minor treatment
6. Agreement to be applied - Possibility of accumulation?- - Which kind?
13
What should
be the
criterion for the Origin of goods?
14
Wholly
Obtainment
or
Sufficient
Processing
15
What is
“Wholly Obtained” ??
16
Tomatoes
0702
:Processing
Heading 2103
:EXPORT“WHOLLY OBTAINED”
ORIGIN BECAUSE
EXPORT:ORIGIN, BECAUSE RAWMATERIAL IS ALREADYWHOLLY OBTAINED (spices?)
Tomatoes1
17
Mineral productsExtracted from the
Soil
=
Originating Products
=======!!!
18
4403
4407
9504
4403WHOLLY OBTAINMENT
IS IT WHOLLY OBTAINED?
19
Wood in the rough
Pos. 4403
Wood sliced, chopped lengthwise
Width: 10 cm, Length: 150 cm
Pos.: 4407
Wood lengthwise veneer sheets
Width: 5 cm, Length: 150 cm
Pos.: 4408
Pencil
Pos.: 9609
Live Tree
Pos.: 0602
Wood Fuel
Pos.: 4401
Wooden Box
Pos.: 4415
20
Example for Obligatory Wholly Obtainment
Heading 1902, pasta If the pasta contains 20 or less % of meat, all the
cereals must be wholly obtained, If it contains more than 20% of meat , all cereals
and all meat or fish (chapters 2 and 3) must be wholly obtained.
21
What is A
Sufficient
Processing?
22
Basic principles :
Change of the HS-heading Percentage of used materials Processing procedure
23
List of Processing:
=
Annex to the
Origin Protocol
Column 3 and 4
Conditions only
refer to imported
materials
24
What is
The HS???
25
The Structure of the HS
01 04 20 90 00 10Chapter HS
Heading HS
Subheading HS
Subheading National Statistic(Combined Nomenclature)
NationalInternal
NationalInternal
26
The HS is divided into
21 SECTIONS
97 CHAPTERS
1241 HEADINGS
5016 SUBHEADINGS
SECTION/CHAPTER NOTES
SUBHEADING NOTESGeneral Rules I – V
----Changes of the system per 1.1.2007!---
27
Harmonized System
Legal Texts:Section NotesChapter NotesSubheading NotesText of the HeadingsText of the Subheadings
28
Not Legally Binding:
Title of sections Title of chapters Explanatory notes
But binding:
The “General Rules”
29
HS-production Principle (Example Textiles)
Raw materials Fiber, not prepared
First semi-product Yarn
Second semi-product Fabric
Finished product Textiles, clothes, apparel
30
What Means
“Ex chapter 20And
“Ex 2008”???
“Ex chapter 48”?And
“Ex 4811”??
31
Example for change of headings :Tomatoes
IMPORT FROM EGYPT
NON ORGINATING
PROCESSING
:EXPORT
ORIGIN BECAUSESUFFICIENTLY PROCESSED
(CHANGE OF HEADING)
Tomatoes 2
Heading 2103
Heading 0702
32
Example for restriction of used materials:
Heading 3822: "Diagnostics…..“
Foreign materials are allowed up to:
50 %, related to the ex works-price of the finished goods.
33
The percentage relates to the "Ex-works Price" of the finished goods.
34
The value of the used materials is their customs value.
So: Check the Customs value carefully!
Be aware of the exchange rate!
35
Example
for change of heading and restriction for the used materials:
Chapter 18
Cocoa and cocoa preparationsSemi colon reads = and !
36
Combined criteria - Medicine
HS headings 3003, 3004:
1. Tariff change of all used materials
But: materials of headings 3003 and
3004 only up to 20% ex-works
and
2. Used materials must not exceed 50% of the ex works-price.
37
• 40 % rule for imported parts
• Restriction of the value for special parts to the value of the originating materials
• Obligatory origin for special parts
- extremely restrictive -
Example for technical criteria:Sewing Machines of HS-
heading 8452
38
Example for
Exclusion of a heading, exclusion specific imported
materialsand restriction of imported materials:
Heading 1904, I.E. Corn Flakes
Question: Is it allowed to use imported mineral salts?
39
Example for minimum- input criteria:
Heading ex 2008 ..Nuts..
“Manufacture, in which the value of originating nuts and oil seeds …used exceeds 60% of the ex-works price of the product”
40
Other example for minimum- input of Serbian originating materials:
HS-heading 2402, … Cigarettes…:
At least 70% by weight of the used tobacco must be originating in the country
41
Heading 2309, preparations for animal feeding
All cereals, sugar, meat, milk must be originating products of
Chapter 3,
fish must be wholly obtained in Serbia
42
Example for necessary processing procedures:
Headings:
ex 4415
4816
7601
43
Example for Necessary Production Range:
1. Glass Mirrors of Heading 7009:
"Manufacture from materials of heading 7001”
7001 = waste and scrap
of glass, glass in the mass
44
2. Clothes and garments of chapter 61 and 62:
"Manufacture from yarn"
45
" Manufacture from animals of chapter 1”
3. Preparations of meatex Chapter 16:
Notice: Chapter 1 = Live animals!
46
Rules for cotton products:
1.Natural cotton fibers, not prepared for spinning HS 5201
47
2. Cotton yarn, HS 5203
Manufacture from natural fibers, not prepared for spinning
48
3. Cotton Fabric HS 5208
Manufactured from natural fibers, can be prepared for spinning
49
Manufactured from YARN
Jeans HS 6203
50
Alternative 1/fabrics:
Printing of the raw fabric in Serbia
(Plus at least two finishing steps)
But: Value of the unprinted fabric only up to 47,5 % of the ex-works price of the goods
51
Alternative 2/clothing:
Embroidered clothing:
Manufacture from unembroidered fabric with a value of not more than 40 % of the ex-works price of the finished good
52
Sufficient working without a change of heading
Example:
Export of worked precious stones, heading ex 7103
Criterion: manufacture from unworked precious stones heading ex 7103
53
Reason for the Rule:
The working of a raw precious stones needs a high complex of processing input, esp. labor input, which is “sufficient” without a change of heading
54
Why is a
minor processing
not accepted as
origin???
55
Is "Mixing”
always a simple
operation ??
When will the "Mixing”be sufficient ??
56
Origin Rules for Sets:
All components must be originating, but
up to 15%
there may be non-originating material in the set
57
Example for Sets
Set of foodstuff for the preparation of spaghetti, containing:
Spaghetti Cheese Tomato paste
58
All this put up in a carton goes to HS Heading 1902 as Spaghetti
because this is the material which gives the essential
character (HS-rule 3b)- see also HS 9605 (traveller
sets) -
59
When should
you use the
alternative
criterion??
60
Fertilizers Ex - 3105
Standard rule col. 3: Manufacture, in which all materials used are
classified within a Heading other than that of the product.
However, materials classified within the same heading may be used, provided their value does not exceed 20% of the ex-works price of the product
61
And the value of all materials used does not exceed 50% of the ex-works price of the product
- COMPLICATE -
62
Alternative Rule Col.4:
Manufacture, in which the value of all the materials used does not exceed 40% of the ex-works price of the product
- Simple but restrictive -
63
Example Color Lakes
HS - heading 3205 Standard rules col.3
Manufacture from materials of any Heading, except
Headings Nos. 3203, 3204 and 3205.However, materials from heading No. 3205 may be used, provided their value does not exceed 20% of the ex-Works Price of the product
- Very complicate, large classification works -
64
Alternative Rule Col. 4:
Manufacture in which the value of all the materials used does not exceed 40% of the ex-works price of the product
Simple and allows products of heading 3205 up to 40%
65
Loudspeakers HS heading ex 8518Standard rule col. 3:
Manufacture: In which the value of all materials used
does not exceed 40% of the ex-works price of the product;
Where the value of all the non - originating materials used does not exceed the value of the originating materials used
Complicate and restrictive
66
Alternative Rule Col. 4:
Manufacture in which value of all the materials used does not exceed 25% of the ex-works price of the product
Simple but restrictive -
67
Classification of Parts
1. The heading of the principle good contains parts (94.01)
2. There are own headings for groups of goods (8708 for 8803, 8701 – 8705) 9305…….
68
3. The notes rule the classification of parts (note 3 chapter 95 / note 2 chapter 90)
4. If there is no solution by rule 1 – 3, then parts have to be classified after their own composition / nature (mast of a sailing boat / aluminum goes out of 89 Chapter 76)
69
The Use of Parts
If parts have the same HS-heading as the finished product, then there is no change of heading!
70
Example:
Dolls ex chapter 9502Origin criteria: change of heading of the used materials.
But parts have the same heading 9502!
Result:The assembling of only the parts is not sufficient, the production line must start on a lower base which means production of the parts here
71
Levels of co-production 1. Bilateral accumulation
- needs originating products 2. Diagonal accumulation
- needs originating products 3. Pan-European accumulation
- needs originating products but with chances for
minor treatment 4. Pan-Euromed accumulation
- needs originating products of the partner states5. Full accumulation (so far only with the Maghreb states, the ACP –
states and within EEA (EU + EFTA without CH ) - includes all accumulations and minor treatment
72
PREFERENCEAREA
A
CONTRACTING
PARTY
B
Bilcum
Bilateral Accumulation
73
Conditions for bilateral accumulation
1. Origin of the materials to be documented
2. Treatment more than minor processing
- but may be less than sufficient processing
3. If only minor processing:
Origin will be retained
4. Non-originating materials have to be processed sufficiently
---actually: against EU only “donor content”,
within CEFTA 2006 possible---
74
MULTI - LATERALACCUMULATION
PREFERENCE
AAREA
CONTRACTING
BPARTY
C
CONTRACTINGPARTY
MULTILATACCUM
75
Conditions for diagonal accumulation with EU
1. Agreement with the EU for diagonal accumulation
2. Agreements with the partner states with identic rules of origin
3. Origin of the materials
4. More than minor processing - but less than sufficient processing will be allowed
5. Non-originating materials have to be processed sufficiently
---CEFTA 2006: Fully applicable---
76
Example for Diagonal Accumulation (Theoretically!)
Export product: woven fabric of wool, HS 5112, woven in Serbia for export to the EU
Input: yarn of wool of HS 5107, originating in Croatia and BiH
The weaving in Serbia is more than minor processing
77
Result: The fabric Is originating in Serbia
Condition: Croatia and BiH are contracting parties to the EU and to Serbia with the same rules of origin.
In case of minor processing in Serbia, the origin falls back to the country with the highest input.
--- Example applicable after SAP-Agreementsof Serbia and BiH
--- Example already applies within theCEFTA-2006 - zone ---
78
Pan- European accumulation
Origin in the EU Origin in partner state1. Processing of originating products:
(from the accumulation zone)- Processing more than minor treatment:
= Origin in this country (Compliance to list-criteria is not necessary!)
- Processing only as minor treatment = Origin in the country with the highest
value share
2. Processing of non-originating materials:= Origin only by sufficient working or
processing ( according to “list criteria”)
3. Unchanged sale of the materials:Goods retain their origin
79
Pan-European accumulation
- Agreements between all partner states providing the Pan-european accumulation / does not exist with the West Balkan states (but between CEFTA members)
- Originating materials
- No more separated bilateral or diagonal accumulation
- Minor treatment with originating materials possible - - Origin according to the highest input
- Non-originating materials need sufficient processing
80
Pan-European accumulationCase 1- Use of originating materials
- more than minor processing- Yarn ( HS 5204) origin: EU
Serbia for weaving intoraw fabric ( HS 5208)
origin: SerbiaEU for dyeing
origin: EU Sold from the EU to Switzerland
Weaving and dyeing not sufficient ( see list criteria for HS 5208!), but:Both processings are more than minor treatments within the pan-european accumulation Applied for: Bilateral trade with the EU and diagonal export of the raw fabric to Switzerland
- - example is actually theoretically- -
81
Pan- European Accumulation
Case 2 – Minor processing Jeans / Origin Serbia ( HS 6203)with EUR.1 to Bosnia for packing and export to the EU:
Values: Jeans 20.- Euro Packing costs 2.- Euro Plastic bag (Croatia) 0.5 Euro Other costs 2.5 Euro Prices ex works 25.- Euro
Added value in Bosnia: 5.-- Euro
Highest value input = Serbia Origin = Serbia
Preference in the EU for Serbia export to CEFTA??
- the example export to the EU is actually theoretically - -
82
Pan-european accumulationCase 3 – actually not applied against EU
Assembling of a ball point pen of HS 9608- All used parts are of HS 9608:- Cartridge, origin EU, value 2.—€- Plastic parts, origin Macedonia, value 1,-- €- Clip, origin Bosnia value 1.-- € Ex-works price in Serbia value 5.--€ Export → Croatia, Origin is EU ( highest share) The “ List” does not apply!
If: Cartridge is of origin Serbia: Origin of the pen will be SerbiaIf: Cartridge is of origin Bosnia: Origin of the pen will be BosniaIf: Clip is of origin China: No preferential origin for the pen No Certificate EUR.1 - 10%-tolerance rule does not apply:- - - Minor treatment is given and - - - 10%-tolerance is exceeded
83
Actually: „Donor content“ of the EU: - Materials originating in the EU
count as originating in Serbia- But: Materials originating in
Serbia do not count as
originating in the EU = „unilateral concession“
84
No Draw Back rule
General background Which goods are concerned? Example: TV tube Origin : South Korea Value not exceeding 25% of the ex -
works price of the TV (HS 8528)
85
Clearing of the tube as
1. Inward processing without levying of duties or
2. Levy of duties for free circulation
86
Export of the finished TV to EU with EUR.1 Consequences:
1. Duty free access of the Korean TV tube to the EU - market,
2. Disadvantage for European producers against Serbian producers because
of customs duties to be paid by the European producer to the EU
market.
87
Result :
No draw back for the paid duties or levy of duties for the tube in case of inward processing in the moment of exportation of the finished TV
- - - The no-draw back rule is not applied actually! But standard in all new
Agreements of the EU (and in CEFTA 2006!)
88
Example The Bagatelle Rule
Principle: Up to 10% of prohibited materials are allowed.
Product: Zippers of heading 9607, ex-works price 60 CSD.
Used materials:- Cotton ribbon of heading 5806- Artificial yarn of heading 5404- Mechanical parts of heading 9607 from
Taiwan, value 5 CSD
89
List condition:
Change of heading for all used materialsBut mechanical parts have the same heading!
Solution:
5 CSD do not exceed 10% of the ex-works price. The Zipper is originating.
---This 10%-tolerance does not apply for goods of Chapters 50 - 63 and for “minor treatments”
90
Impact of the rules of origin
on the internal structure
of your company :
91
Purchase Supplier
PreferenceSection
PlanningDevelopingProduction
Storage ofMaterials
and FinishedProducts
Export/Dispatch
Shipment
CALCULATI
ON
Calculation 1
92
Purchase
Production Calculation
Case WorkerPreferences
SalesMarketing
Calculation 2
93
Formal simplification: - Invoice declaration for
- all shipments up to 6.000.- € or - as „Approved Exporter“
--- in future: „Approved Economic Operator“---
94
Details for the approved exporter: - Legal base in the Agreement- Irrespective of the value- Origin declaration by typing, stamping or printing on the
invoice or any commercial doc.- Wording must be according to the legal text - The declaration must be signed ( principle)- Non-originating goods indicated only on the invoice - Written application and basic audit- Frequent shipments, knowledge of rules of origin - Proper records and stock accounts- Full responsibility by the exporter - Regular audits by the Customs- Withdrawal of the authorization in case of non-
compliance
95
Supplier‘s declaration: - Simplification for the - - proof of origin of goods - - status of non-originating goods - For single shipments and
as long term declaration
- Responsibility and auditing - ---Actually applied within the EEA and between
EU, Turkey and the Maghreb states---
96
Selected Customs duties for textile products in the EU (as per 2007/8):
Silk yarn 2,9 – 5% Wool yarn 3,2 – 4% Cotton yarn 4%
Silk fabric 5,3 – 6,9% Wool fabric 7,2 – 8% Cotton fabric 8%
Apparel and Clothing: Knitted and crocheted: 12% Not knitted or crocheted: 12%
97
Thank you for the attention!
Helmuth Berndt
Senior Customs Advisor
Tel: + 49 30 8240 7657
Mobile: + 49 177 203 7508
E-mail: berndt_consult@gmx.de
LV-roo-serbia-2008
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