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Future Directions in Rules of Origin: Enhancing Trade Arrangements

This communication outlines the orientations for the future of Rules of Origin (RoO) in preferential trade arrangements. It presents a package of three pillars aimed at simplifying and making RoO more development-friendly, improving procedures, and ensuring a secure environment for legitimate trade. Legislative and operational actions are proposed, with the first application to the Generalized System of Preferences (GSP). The document suggests simpler rules for determining origin, focusing on wholly obtained fishery products and sufficiently worked or processed products using a Single Value Added Method. It also discusses the concept of cumulation, including regional cumulation and efficient procedures for managing origin claims.

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Future Directions in Rules of Origin: Enhancing Trade Arrangements

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  1. Commission CommunicationThe Rules of Origin in Preferential Trade ArrangementsOrientations for the futureCOM(2005)100 final16 March 2005 Presentation

  2. WHY? • A Communication? • to involve other relevant institutions in the process • to inform stakeholders and allow them to react • General orientations for PRO? • to give a follow up to the Green Paper consultation • to define a coherent approach of origin in individual arrangements and pave the way for specific changes

  3. WHAT? A package of three pillars • Simpler and more development-friendly rules for the determination of preferential origin and cumulation • More efficient procedures based on a better balance of responsibilities between trade and customs • Secured environment for legitimate trade through enforced rules

  4. HOW? • Legislative actions • Operational actions WHEN? • First application to GSP • Orientations to be used in ACP-EPAs negotiations • Progressive application to other arrangements

  5. Simplerand more Development-friendly Rules

  6. Determination of origin • Simplification of concepts and methods • Adjustment of origin requirements to development and market access needs • Clarification, simplification, appropriate relaxation of conditions and possible extension of cumulation facilities

  7. Wholly obtained fishery products • Simplified conditions for fishing vessels and factory-ships: • registration/recording and flag maintained • property maintained but appropriately simplified • Deletion of the crew condition • 'Cumulation' of conditions within a group of countries belonging to the same cumulation zone

  8. Sufficiently worked or processed productsA Single Value Added Method • Need to replace the current complex rules by simpler ones • Value Added Method is at the same time: • Simpler and across-the-board • Transparent • Flexible • Impact assessment and simulations to 'test' the method and the SPT for certain products

  9. Value Added Method is based on: • Net Production Cost = • Costs involved in the production of the exported product • Local Value Content = Value added to materials imported in a country • Sufficient Processing Threshold = • Minimum % of NPC required to consider a product as sufficiently processed

  10. Sufficient Processing – Local value Content Mexico If (GSP) Sufficient Processing Threshold = 50% NPC VNOM=45 Costa Rica LVC in Costa Rica = (120-45)/120x100 = 62,5% NPC > 50% Processing EC NPC=120 Product is originating in Costa Rica

  11. Cumulation • Scope and possible extension of cumulation: support to economic integration of coherent regional groupings, subject to identical RoO and appropriate legal framework for administrative co-operation • Regional conventions on origin: a single international instrument for countries belonging to the same cumulation zone but under separate FTAs • Possible extension of full cumulation with an ‘origin of the zone’ (not applicable to GSP)

  12. Cumulation – Allocation of Origin • Single Value-Added Method based on: • Net Production Cost of the exported product • Value Added in the country • Cumulation Thresholds expressed in % of NPC (in principle lower than the Sufficient Processing Threshold) • Cumulation Thresholds can be established for Bilateral, Regional or Diagonal cumulation • Impact assessment and simulations to 'test' the cumulation thresholds for certain products

  13. Regional Cumulation - Allocation of Origin (VA) If (GSP) Regional Cumulation Threshold = 25% NPC GSP Regional Cumulation Group II Panama VOMC=55 Value Added in Costa Rica = (120-55)/120x100 = 54% NPC > 25% Costa Rica Processing EC Product is originating in Costa Rica NPC=120

  14. EfficientProcedures

  15. Procedures to manage and control preferential origin A new breakdown of responsibilities • Declaration of origin by the Importer claiming the preference • Determination and Statement on origin by Registered Exporters • Control of the economic operators and of the origin of products by the Customs Authorities

  16. Summary of Procedures • Exporter • Is registered • Complies with rules • Accepts controls • Provides statements on origin • EX Authorities • Register and monitor exporter • Open and update register • Exclude exporter if failure • Assist IM Customs in controls commercial relation administrative co-operation relations authorities-economic operators • Importer • Verifies registration and • statements • Claims preference/declares • origin • Provides additional evidence • on request • IM Authorities • Accept claim for preference • Select declarations for control • Request additional evidence • Request subsequent verification • to EX Customs

  17. SecuredEnvironment

  18. Conditions for Compliance • Prior evaluation of administrative capacity: - Organisation/structures - Legal framework - Operational capacity to manage, control and assist the partner country • Information and training • Technical assistance

  19. Monitoring Compliance in Partnership • Monitoring compliance by the authorities with their obligations • Information and reporting system on the functioning of preferential arrangements • Targeted Monitoring Action Plan • Ensuring compliance by the economic operators: fight and mutual assistance against fraud on origin

  20. Precautionary Measures and Safeguard Mechanisms • Notice to importers • Suspension/withdrawal of preferences • Financial responsibility

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