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Rules of Origin

Definition

Rules of Origin (ROO)

Tariff Commission 2007

Laws, regulations and administrative procedures that determine the origin of a good. Rules of origin may be designed to determine the eligibility of a good for preferential access under the terms of a free trade agreement, or they may be designed to determine a good's country of origin for good s various purposes. A decision by a customs authority on origin can determine whether a shipment falls within a quota limitation, qualifies for a tariff preference or is affected by an anti-dumping duty. These rules can vary from country to country and from purpose to purpose

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Rules of Origin

Rules of Origin 1. Preferential Rules of Origin

Country of Origin Refers to the country where a particular good is produced, produced manufactured or obtained

Regulations and administrative determinations of general application applied by any Member to determine whether goods qualify for preferential treatment Laws, regulations and administrative determinations of general application applied by any member to determine the country of origin of goods (Article 1.1 of the WTO Agreement on ROO)
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2. Non-Preferential Rules of Origin Non-

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Rules of Origin

Rules of Origin

Applications
Determine whether imported products shall be subjected to a mostmostfavored nation (MFN) treatment or preferential treatment.

Why do we need Rules of Origin?

Free Trade Agreements allows preferential for almost all goods traded within the region ROOs form the basis for determining what goods are eligible for preferential access under the Agreement Access to cheaper inputs Competitive advantage on exports
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Implement measures and instruments of commercial policy (e.g., antiantidumping, countervailing, safeguards).

tariffs

Trade statistics and issuance of certificate of origin. Application of labeling and marking Public procurement Process patent
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Rules of Origin
Two Basic criteria to determine the country of origin of goods:

Rules of Origin 1. WHOLLY OBTAINED (WO)

a. products which have been entirely grown or extracted from the soil, or b. harvested within the exporting country, or c. manufactured there exclusively by virtue of the total absence of the use of any imported components or materials, or such unknown origin.

1. Wholly obtained (WO)

and d

2. Substantial Transformation (ST)

VA
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CTC
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Process Rule Art07

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Rules of Origin WHOLLY OBTAINED GOODS

a. Mineral products extracted from its soil or from its seabed; b. Agricultural products harvested there; c. c Animals born and raised in that country; d. Products obtained from animals referred to (c) above; e. Products obtained from hunting or fishing; f. Products obtained of sea fishing and other products taken from the sea by its vessel;
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Rules of Origin WHOLLY OBTAINED GOODS

g. Products made on board its factory ships exclusively from the products referred to in (f); h. Used articles collected there fit only for the recovery of the raw materials; i. Waste and scrap resulting from manufacturing operations conducted there; and j. Products obtained there exclusively from products specified in (a) to (i) above.

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Rules of Origin

Rules of Origin

2. Substantial Transformation (ST)

Products manufactured from exporting country wholly or partly from imported materials or components, including materials of undetermined or of unknown origin, are considered as ORIGINATING in that country if these materials, materials parts or components have undergone sufficient WORKING OR PROCESSING there. The concept of sufficient working or processing has been defined in different ways. There are, however, three main criteria: - Value-Added (VA) rule; - Change in tariff classification rule (CTC);and - Process rule Art07
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Value-Added (VA) rule

DIRECT METHOD A minimum value added content, expressed in percentage of the total cost of product, is agreed by parties as threshold to result to an originating material for the exporting country ; or INDIRECT METHOD A maximum and allowable cost percentage is assigned to the value of imported materials, parts and components (or of unknown origin) which may be used in the manufacture of the export products
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Rules of Origin

Rules of Origin

Value-Added (VA) rule

DIRECT METHOD Value of Originating Materials + overheads + profits ----------------------------------------- = VA content FOB Price INDIRECT METHOD Value of non-originating materials, parts or produce and those of undetermined origin ----------------------------------------- = Import content = <X% FOB Price Art07
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Regional Value Content (RVC)

RVC is the regional content threshold.

= >X

RVC is used where it has been decided that the ROO should insist that a specified proportion of the final value of the good must come from within the FTA territory.

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Rules of Origin

Rules of Origin

Change in Tariff Classification (CTC)

Under this criterion, imported materials, parts or components must undergo sufficient working or processing. The final product to be obtained must be classified in a tariff classification under the Harmonized System, which is different from those in which all the non-originating materials, parts or components used are classified.

Change in Tariff Classification (CTC)

Non-originating material
Important because it is the non-originating materials that have to satisfy the requirements of the product specific CTC ROO. Non-originating materials are materials that in their own right do not qualify as originating The concept of CTC applies only to non originating materials used to produce a good.

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Rules of Origin

Rules of Origin

Change in Tariff Classification (CTC)

Non-originating materials are:
Materials imported from a country outside the territory; or Materials produced in the territory but because of the requirements of the ROO fail to meet the ROO.

Change in Tariff Classification (CTC)

a non-originating material that was sourced from outside nonor within the FTA territory, which is used to produce a good, m st good must not have the same classification under the ha e nder Harmonized System as the final good into which it is incorporated.

Any material of unknown or unconfirmed origin should always be treated as non-originating.

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Rules of Origin

Rules of Origin

Change in Tariff Classification (CTC)

Product specific rules (PSR)
The product specific rule applies to goods of a p specific tariff classification. The product specific rules contain requirement that the good must satisfy to be an originating good, eg:
changes in tariff classification (CTC); and/or regional value content (RVC).
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Change in Tariff Classification (CTC)

Levels of Change in Tariff Classification
CC Change of Chapter Change to this Chapter from any other Chapters

CTH Change of Tariff Heading Change to this heading from any other headings CTSH Change of Tariff Subheading Change to this subheading from any other subheadings

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Rules of Origin

Rules of Origin Examples

Level at which ROO is set - heading level Tariff classification
0304

Change in Tariff Classification

Country of Origin of tincans
Country A Country B Country C

Slabs
Ch 72 Hdg. 72.07

HotHot-rolled coils
Ch 72 Hdg. 72.08

TMBP
Ch 72 Hdg. 72.09 Shdg. 7209.18.10
Source 7207.12.10 7208.39.00 7209.18.10 72.07, 72.08 72.09 CH. 72

Tin cans
Ch 73 Hdg. 73.10 Shdg. 7310.21.10

Description of goods
Fish f fillets and other fish meat (whether or not minced), fresh, chilled or frozen.

Product specific rule (PSR)

Change to C heading 0304 from any other heading.

Shdg. 7207.12.10 Shdg. 7208.39.00

ROO/CO CTSH/ABC

DESTINATION

7310.21.10

03.01 Live fish Art07

03.02 Fresh or frozen fish

CTH/ABC

73.10
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CC/C

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Rules of Origin Examples

Level at which ROO is set - subheading level Tariff classification
4016

Rules of Origin Examples

Exceptions to the CTC requirement

Description of goods
Other articles of vulcanised rubber other than hard rubber. - Of cellular rubber

Product specific rule (PSR)

Tariff classification
4816

Description of goods
Carbon paper, p p , self-copy paper and other copying or transfer papers

Product specific rule (PSR)

Change to g heading 4816 from any other heading except from heading 4809.

401610

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Change to subheading 401610 from any other subheading.

48.09 Carbon paper, self-copy paper and other copying or transfer papers (including coated or impregnated paper for duplicating stencils or offset plates), whether or not printed, in rolls or sheets. Art07
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Rules of Origin Examples

CTC plus certain provisions Tariff classification
420329

Rules of Origin Examples

RVC as an option to CTC Tariff Description of classification goods
841391 - Parts of pumps

Description of goods
Gloves, Gloves mittens and mitts: other.

Product specific rule (PSR)

Change to subheading 420329 from any other subheading , provided that the goods are both cut and sewn or otherwise assembled in the territory.

Product specific rule (PSR)

A change to subheading 841391 from any other heading; or A regional value content of not less than 45 percent whether or not there is a change in tariff classification.

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Rules of Origin Examples

CTC or an optional less CTC plus an RVC Tariff Description of classification goods
732111 - Cooking appliances and plate warmers: for gas fuel or both gas and other fuels

Rules of Origin Process or Technical Requirement Rule

This criterion requires the product to undergo certain manufacturing operations in the exporting country (e.g., chemical reaction rule) It may however require or prohibit the use of certain inputs and/or the use of certain process in the production of the good

Product specific rule (PSR)

A change to subheading 732111 from any other heading; or A change to subheading 732111 from subheading 732190 whether or not there is also a change from any other heading, provided there is a regional value content of not less than 35 percent

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Who implements the ROO in the Philippines?

The Bureau of Customs is responsible for

Securing for Certificate of Origin (C.O.) After ascertaining compliance to the ROO requirements, exporters must file C.O. applications to the Bureau of pp Customs BOC evaluates applications and issues C.O. or rejects applications

the implementation and administration of the ROO.

BOC ensures that the benefits of the FTAs

are accorded to those who comply with the ROO fully, and that goods that do not meet the requirements of the FTA do not receive preferential tariff treatment.
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DOCUMENTARY REQUIREMENTS
Certificate of Origin (CO) - is a declaration of the exporter as certified by the issuing authority, the Bureau of Customs, that the export product complies with the origin requirement as specified under bilateral, regional, 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 CEPT Form-D 3. ASEAN-CHINA Free Trade Agreement Form-E 4. ASEAN-KOREA 4 ASEAN KOREA Free Trade Agreement Form AK Form-AK 5. Japan-Philippine Economic Partnership Agreement Form-JP B. Without preferential Treatment: 1. CO for General Merchandise (White C.O.)

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Cont.

Before 2004, ROO in ASEAN was almost unchanged even with the 1992 decision to migrate from the PTA to the AFTA: adoption of RVC 40% as a general rule The adoption of the 40% Regional Value Content 40% (RVC) across product sectors did not lead to: substantial and sustained increase in the utilization of CEPT-AFTA a.) RVC is biased against low-cost inputs lowmanufacturing countries (ASEAN) b.) high non-ASEAN import content of exports nonexceeding 60% of FOB price (i.e., electronics, 60% textile products)
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reduction of ROO related implementation issues a.) b.) high variability of cost elements used in the calculation of RVC contestability of costing basis and vulnerability to volatile foreign exchange rates and materials prices

improved trade facilitation capacity in the ROO implementation a.) efficient record keeping and accounting requirements biased against SMEs b.) higher cost of administration than other ST criteria (i.e., CTC and process rule)
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The Philippines ROO Objectives

Adopt alternative ROO criteria/methods for conferment of origin to import dependent export products while maintaining minimum ST thresholds for strategic and sensitive products p Adopt a lower VA threshold for accumulation of ASEAN materials Establish an ROO regime that is TRADE FACILITATING and EASY TO IMPLEMENT

Realizing the Philippines objectives in ASEAN and the Dialogue Partners: Status of ROO negotiations CEPT-AFTA
From the prevalent 40% RVC rule for all products, the AFTA Council mandated the introduction of PSR/ST rules as alternative and co-equal rules (request-basis for priority sectors) and the Partial Accumulation Scheme at 20% RVC threshold To date, product sectors with PSRs: 1) textiles and garments products [process criterion, 1996] 2) wheat flour products [CTC, 2004] 3) wood-based products [CTC,2005] 4) iron and steel products [CTC, 2005] 5) aluminum products [CTC, 2005] AFTA Council mandated the implementation of alternative PSRs for all Products with the following timelines: 1. PIS Products 1 January 2007 2. Other remaining products without PSRs 1 January 2008
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Updates
Negotiations of Preferential Rules of Origin: Concluded and Under Negotiations Concluded
The ASEAN-Common Effective Preferential Tariff (CEPT) The ASEAN-China Free Trade Area (ACFTA) The ASEAN-Korea Free Trade Area (AKFTA) Japan-RP Economic Partnership Agreement
Under Negotiation

Thank You For your kind attention

Any Questions?
Artemio D. Bernardino Tariff Commission 2007
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ASEAN-Australia/New Zealand FTA ASEAN-Japan FTA ASEAN-India FTA

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