Rules of Origin (ROO)

1.     What are the Rules of Origin?

Rules of Origin (ROO) are those laws, regulations and administrative determinations of general application to ascertain a product’s country of origin.

They are a set of principles to determine the economic content and nationality of a product.

 2.     What is the “country of origin”?

   “Country of origin” refers to the country where a product is obtained, produced or manufactured.

 

3.      What are the uses of Rules of Origin?

 

i.    To implement measures and instruments of commercial policy, such as anti-dumping duties, quotas, etc.;

 ii.    To determine whether imported products shall be subjected to a “most-favored-nation” (MFN) treatment or preferential treatment;

 iii.    For purposes of trade statistics and issuance of certificate of origin;

 iv.   For the application of labeling and marking requirements;

 v.    For public procurement; and

 vi.   For process patent.

 

4.       What are the types of Rules of Origin?

     The types of ROO are the Non-preferential and the Preferential ROO.

    Non-preferential ROO implements measures and instruments of commercial policy which include antidumping, safeguards, subsidy, trade statistics, labeling and marking.

    Preferential ROO determines whether a product is qualified to preferential tariff or the Most Favored Nation (MFN) tariff.

  

5.        What are the criteria in determining the rules of origin?

    The origin of a good can be determined by using the criteria on whether it is wholly obtained or has undergone substantial transformation.

    Substantial transformation criterion could be based on value added, change in tariff classification or process rule.

 

6.        What are considered wholly obtained goods?

     In general, the following categories of products are considered wholly obtained in the exporting country:

(a)    Agricultural products harvested there.

(b)    Animals born and raised there.

(c)    Products obtained from animals referred to (b) above.

(d)    Products obtained from hunting or fishing.

(e)    Products obtained of sea fishing and other products taken from the sea by its vessel.

(f)     Products made on board its factory ships exclusively from the products referred to in (e).

(g)     Mineral products extracted from its soil or its seabed.

(h)     Used articles collected there fit only for the recovery of raw materials.

(i)      Waste and scrap resulting from manufacturing operations conducted there.

(j)      Products obtained there exclusively from the products specified in (a) to (i) above.

     7.      What is the” value added” rule?

     The “value added” rule for the ROO can be expressed as follows:

 

§   A minimum value added content expressed in percentage of the total product cost; or

 

§   A maximum allowable cost percentage assigned to the value of imported material including those of undetermined origin.

 

 

        Value added can be determined either by:

 

Direct method

Method used by dividing the sum of the value of originating materials, overhead cost and profit, by the FOB value of the finished product, expressed in percentage; or

Indirect method

Method used to determine percentage by adding the values of imported materials, parts and components including those of unknown origin, divided by the FOB of the finished good.

9.        What are the terminologies used for change in tariff classification criterion in determining the origin of the goods?

 

I.  Change of Chapters (CC)

 

    This implies that for origin to be conferred, the material used for a good should be classified outside the chapter where the good which origin being determined is classified.

 

II. Change of Tariff Heading (CTH)

 

Connotes that to obtain origin, the material used to produce a good should have been classified in a heading, subheading, split heading or split subheading outside the heading where the good under consideration is classified.  Moreover, changes between the subheadings of the heading where the good is located will not confer origin under this rule.

 

III.   Change of Tariff Subheading (CTSH)

 

Suggests that to obtain origin, the material used for the good under consideration must come from a different subheading including the subheading within the same heading where the good in question is located.

 

IV.   Change of Tariff Heading Split (CTHS)

 

Same implication as CTH except that an existing HS heading is subdivided into two or more subheadings.

 

V.    Change of Tariff  Subheading Split (CTSHS)

 

Same effect as CTSH except that an existing subheading is subdivided into two or more tariff lines.

 

10.     What are the other rules that are also applied?

 

I.  Exception

 Prohibits a tariff shift from a particular classification, e.g., CC except from Chapter 47 (Paper).

 

II. Alternative Rules

 Would confer origin under two different circumstances, e.g., WO or Change from youth to maturity (Live horses).

III. Supplementary Rule

 

There are requirements which could be in terms of production process or characteristics of the final product which are imposed in addition to another rule in order to complete the conferment of origin for a particular good.

 

IV.  Residual Rule

 

     This is to cover those goods to which the specific rules will not apply.

 

11.      What is the “ accumulation rule”?

    Products, which comply with origin requirements and are subsequently used in a Member State as inputs for a finished product eligible for preferential treatment in another Member State, shall be considered as products originating in the Member State where working or processing of the finished product has taken place.

•   Full Accumulation – Accumulation of the full value of the product from a party in an FTA territory.

 

•   Partial Accumulation – Parties are allowed to accumulate inputs with other member countries to hurdle the ROO criterion. Tariff preference is given to the final exporting country.

 13.      What is “de minimis”  in ROO?

 •   The FTA may incorporate a de minimis provision that allows a good to qualify as an originating good provided that  the total value of all non-originating materials which do not satisfy the CTC requirement does not exceed a set percentage of the FOB value of the final good.

 

•    The percentage set is usually within the range of 7-15%.

  

14.       What are the processes that do not confer origin?

 Regardless of criterion used to confer origin, the following are examples of operation/s considered to be insufficient working or processing that does not confer originating status to a product:

 a.   Operations to ensure the preservation of products in good condition during transport and storage (drying, chilling, adding salt, etc.);

 b.   Simple operations consisting of sifting, sorting, classifying or matching, washing, painting or cutting up;

 c.   Changes of packing and breaking up and assembling of consignment.

 

d.    simple slicing, cutting, and repacking or placing in bottle, flasks, bags, boxes and all other simple packing operations;

 

e.    The affixing of marks, labels or other like distinguishing signs on products or their packaging;

 

f.     Simple mixing of products;

g.    Simple assembly of parts of products to constitute a complete product;

h.    combination of two or more operations specified in (a) to (f), and;

i.     Slaughter of animals.

15.     What are considered indirect materials?

 

Indirect materials are materials used in the production but do not form part of the good. They are themselves considered originating, regardless of origin such as:

•    fuel;

•    tools, dies and moulds;

•    lubricants, greases, compounding materials and other similar goods;

•    gloves, glasses, footwear, clothing, safety equipment and supplies for any of these things; and

•    catalysts and solvents.

 16.    How about accessories and spare parts?

Accessories, spare parts and tools imported with originating goods will be treated as originating regardless of their actual origin if:

•    The accessories, spare parts and tools are not invoiced separately from the originating good that they are imported with; and

•    The quantities and value of the accessories, spare parts and tools is customary for the imported good

 17.    How are packaging materials and containers treated in ROO?

    If goods are packaged for retail sale, and the packing material or container in which the goods are packed for retail sale is classified with the goods in accordance with HS General Interpretative Rule 5, then the packaging material or containers are not required to meet the CTC requirement of the product specific rule that the originating good has to meet.  However, the costs of these materials and containers would be added in case the Value Added Rule is applied.

18.      What are the implications of origin conferment to industry?

         a.  cheaper input cost

         b.  price advantage on export

         c.  wider market access

    19.       What is the status of ROO in various FTAs?

 Concluded

1.  The Generalized System of Preferences (GSP)

2.  AFTA Common Effective Preferential Tariff (CEPT)

3.  ASEAN-China Free Trade Agreement (ACFTA)

4.  ASEAN-Korea Free Trade Agreement (AKFTA)

5.  Japan-Philippines Economic Partnership Agreement (JPEPA)

 Under Negotiation

1.  ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA)

2.  ASEAN-Japan Comprehensive Economic Partnership Agreement (AJCEP)

3.  ASEAN-India Free Trade Agreement (AIFTA)

20.     What is a “certificate of origin”?

 

Certificate of Origin (CO) is a declaration of the exporter as certified by the issuing authority, (Bureau of Customs), that the export product complies with the origin requirement as specified under bilateral, regional, or multilateral trading arrangement to which the Philippines is a party.  

Kinds of Certificate of Origin

 A. With Preferential Treatment:

1. Generalized System of Preferences GSP (Form-A)

2. ASEAN-Common Effective Preferential Tariff (Form-D)

3. ASEAN-CHINA Free Trade Agreement (Form-E)

4. ASEAN-KOREA Free Trade Agreement (Form-A)

 B. Without preferential Treatment: 

1. CO for General Merchandise (White C.O.)

    The Agreement on Rules of Origin is one of the agreements concluded under the Uruguay Round of the Multilateral Trade Negotiations of the WTO.  The Agreement aims to harmonize non-preferential rules of origin that are clear and  predictable and  are administered in a transparent, consistent, uniform, impartial and reasonable manner.

22.   Why is there a need to harmonize Rules of Origin?

         Rules of Origin are necessary in order to have a uniform  origin determining  criteria and interpretation.

        At present, countries apply different rules of origin which vary depending on basic considerations such as substantial transformation, value-added and/or manufacturing and processing systems.  The harmonization of these divergent rules would be in conformity with the WTO advocacy of free trade.

 23.    Why was the WCO chosen to do the harmonization?

    The WCO is the author and drafter of the Harmonized Commodity Description and Coding System  (HS) which is used by most countries worldwide in the classification of goods.  Hence, familiarity on the features of HS are the bases of CTC criterion.

 24.    Why use the HS as the basic working document?

    The HS is a systematic grouping into sections, chapters, headings and subheadings of products arranged in a progressive manner according to the degree of processing. 

    Since the primary origin rule is “substantial transformation”, the change in classification in the HS nomenclature, also known as “tariff shift” (e.g., change in chapter or heading level) determines the origin of the product.

25.     What is the present status of the Harmonized Rules of Origin?

 The overall architecture of the Non-Preferential Rules of Origin was completed and submitted by the World Customs Organization (WCO) Technical Committee on Rules of Origin to the WTO Committee on Rules of Origin in November 1999. To date there are still a number of product specific rules pending with the WTO-CRO for resolution.

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 THE WTO TECHNICAL COMMITTEE ON RULES OF ORIGIN

 1.   What is the Technical Committee on Rules of Origin (TCRO)?

         The TCRO is the Committee established pursuant to the WTO Agreement on Rules of Origin to carry out the technical work required under the said Agreement.

2.     What are the main functions of the TCRO? 

            Upon the entry into force of the WTO Agreement, the TCRO initiated the harmonization work program (HWP) for the rules of origin in conjunction with the WTO Committee on Rules of Origin (CRO) specifically dealing with:

i.   Provision of interpretations, opinions and definitions of what constitutes wholly obtained goods and minimal operations or processes in the manufacture of goods, and substantial transformation resulting in a change in tariff classification;

ii.   Elaboration on the use of supplementary criteria to determine whether substantial transformation of a product has indeed taken place in the country of origin; and

iii.   Discussion and development of the overall architecture, general rules and residual rules to govern the harmonized rules of origin including the categorization and arrangement of chapter notes in accordance with the Harmonized System and the section and chapter rules that will apply.

    The TCRO, in cooperation with the CRO, shall set up a mechanism to consider and propose amendments to the results of the HWP. This includes the revision of rules to make them more operational or updated taking into account new production processes.

    Upon request of the CRO, the TCRO shall refine or elaborate its work and/or develop new approaches to make the rules of origin more responsive to current requirements.

 i.   At the request of any member of the Technical Committee, to examine specific technical problems that may arise during the day-to-day administration of the rules of origin of Members and to give advisory opinions on appropriate solutions based upon the facts presented;

 ii.   To furnish information/origin and advice on any matters concerning the determination of origin of goods as may be requested by any Member of the Committee;

iii.    To prepare and submit periodic reports on the technical aspects of the operation and status of the Agreement; and

iv.    To review annually the technical aspects of the implementation and operation of the various disciplines governing the application of rules of origin and the procedural arrangements on notification, review, consultation and dispute settlement.

4.       What is the representation of WTO members in the TCRO?

 a)   Each Member has the right to be represented in the Technical Committee.  Each Member may nominate one delegate and one or more alternates to be its representatives. Representatives of members of the Technical Committee may be assisted by advisers at the Committee meetings of the Technical Committee.  The WTO Secretariat may also attend such meetings in an observer status.

b)    Members of the CCC (WCO) which are not Members of the WTO may be represented at meetings of the Technical Committee by one delegate and one or more alternates.  Such representatives attend Committee meetings as observers.  

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Harmonized Rules of Origin *
*  from the World Customs Organization Website, (15 September 1999)*

What are the Harmonized Rules of Origin ?

· Concept of the Rules of Origin

According to the WTO Agreement on Rules of Origin effective from 1995, Rules of Origin are defined as those laws, regulations and administrative determinations of general application applied by WTO Member countries to determine the country of origin of goods provided such rules are not related to contractual or autonomous trade regimes leading to the granting of tariff preferences going beyond the application of the relevant Articles of GATT 1994.

· The Harmonized Rules of Origin and Trade Facilitation

"Harmonized Rules of Origin" mean the coherent rules concerning origin determination which are expected to be set out by co-operative efforts between WTO Member countries and applied to non-preferential commercial policy instruments. When they are completed, the Rules will be appended to the Agreement with the objective of contributing to the facilitation of international trade.

· Scope and Guiding Principles of the Harmonized Rules of Origin

The Harmonized Rules of Origin shall cover all rules of origin used in non-preferential commercial policy instruments relating inter alia, to Most Favoured Nation "MFN" treatment, anti-dumping duty, safeguard measures, origin marking, tariff quotas.  They shall also cover government procurement and trade statistics. They should :

· be applied equally for all the above-mentioned non-preferential purposes;
· be objective, understandable and predictable;
· not be used as instruments to pursue trade objectives directly or indirectly;
· be administrable in a consistent, uniform, impartial and reasonable manner;
· be coherent and based on a positive standard.

    The international institutions carrying out the Programme have been the WTO Committee on Rules of Origin (CRO) which reports to the WTO Council for Trade in Goods, and the WCO Technical Committee on Rules of Origin which was established under the auspices of the WCO to undertake the technical work. Membership of both Committees is limited to Members of the WTO; however, the TCRO admits as observers those WCO Members that are not WTO Members, as well as some international organizations including WTO, OECD, UNCTAD the UN Statistical Division, the UN Law of the Sea Convention Secretariat and the International Chamber of Commerce.

What will be the main contents of the Harmonized Rules of Origin ?

· General Rules (Architecture)

    The Harmonized Rules of Origin will consist of Definitions, the General Rules, Appendices 1 and 2.  In Appendix 2, Rules for the application of Appendix 2 are followed by the matrix rules covering goods classified in Chapters 1 to 97 of the Harmonized System. At the beginning of each Chapter, the negative standard, the primary rules, the residual rules and definitions may be set out. The architecture will set out the principles under which the various rules are applied and will result in the final results for applying those rules to specific cases.

· Appendix 1 (Definitions of Wholly Obtained Goods)

This Appendix sets forth the definitions of the goods that are to be considered as being wholly obtained in one country. It provides for the origin determination of live animals born and raised in that country, and plants and minerals harvested or taken in that country.

· Appendix 2 (Product Specific Rules of Origin)

    This Appendix sets forth rules for determining the country of origin of a good when the origin of the good is not determined under Appendix 1. It will provide for the rules necessary for origin determination, including the primary rule and residual rule and their application. There are still differing opinions concerning the concept of de minimis, intermediate materials, fungible goods and putting up in sets.

What benefits can be expected from the successful completion of the Harmonization Work Programme ?

· Contribution to Trade Facilitation

    Harmonization means that a single origin can be determined for all non-preferential commercial policy purposes. Both private and public sectors can anticipate being able to know a clear and predictable origin outcome by application of a single set of Rules of Origin. Customs officers and traders may face a significant task in implementing the Harmonized Rules of Origin once they are operational. However, in the long run, the benefits of harmonization will be widely appreciated in the same way as the Harmonized System Nomenclature.

· Providing overall consistence in origin determination

    The Harmonized Rules of Origin are expected to prevent discrepancies in origin determination between WTO Member countries because they do not allow any loopholes in origin determination and they should confer one origin to one good.

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