New challeges in rules of origin

1. New challeges in rules of origin Rafael Cornejo Word Bank Videoconference Washington DC june 16, 2005

2. Latin-American capacity in rules of origin (I) • The Latin American countries have capacity for negotiation in R.O.

3. Latin-American capacity in rules of origin • However, there does not exist in these countries capacity in origin verification • The necessity of origin verification is directly proportional with the volume of negotiated trade and the geographic dispersion of the agreement • The more of a country’s trade is covered by preferential agreements, the more disadvantaged is the trade with the rest of the world (greater risk of triangulation) • The USA is a distribution center for products from outside the hemisphere.

4. Challenges of the new USA agreement in origin verification • Some changes in the new agreement with the USA create new challenges in the process of origin verification; among them: • CAFTA has two different regimes of origin and 3 sets of rules of origin by product • Certification by importers • Remanufactured products

5. Certification by importers: Dificulties • Will be possible for the importer to obtain information? It will not be eassy. Why: • Different importance of the markets. • Impact of fraudulent imports • Arbitrariness of at customs in the importing (Andean) countries.

6. Certification by importers:Worries • What is the real capacity of the latin American customs for checking the origin of the good in this new context? What will an importer who can’t get information do? Spontaneously pay the duty? • How many importer will declare that their product is not originating? • With that in mind: What does “reasonable reliance” mean in terms of information regarding origin?

7. Remanufactured Goods:Definition • remanufactured goods means goods that: • (a) are entirely or partially produced with recovered goods; and • (b) have a similar life expectancy and enjoy a factory warranty similar to such a new good; • recovered goods means materials in the form of individual parts that are the result of: • (a) the disassembly of used goods into individual parts; and (b) cleaning, inspecting, testing, or other processes as necessary for improvement to sound working condition;

8. Remanufactured Goods: Scope • Agreements with Chile and Singapur include 45 subheadings from chapters 84, 85, 87 and one from chapter 90 plus two heading from chapter 87. • CAFTA and the agreement with Australia include all subheadings from chapters 84, 85, and 87 and 3 subheadings from chapter 90, except 2 headings from 87 (around of 870 subheadings). • An increase of almost 2,000%.

9. Worries -Location/development of the subject in the agreement -Remanufactured goods create the possibility to import used goods. Not all the countries allow this -Is verification of the recovered good possible? NO - Could it be possible to export recovered goods under the agreement? -Restrictions on the analysis of components. -Do the countries have legislation or regulation regarding the sale of this kind of product after customs.

10. Current situation of origin verification • Current status of origin verification in Latin America • Latin American reality and available resources. • Fiscal consequences of the absence of verification.

11. Unavoidable future challenges • Assign resources for origin verification with a view to: * Create areas specialized in origin verification * Train the public sector (including legislators and judges) * Train the private sector

12. Consequences of a policy of origin verification • It is NOT protectionism • It IS correct application of the agreement that was negotiated • It IS fair competition for local industry in the context of the agreement

13. Activities of the IDB in verification of origin • Mapping the current status of origin verification in the region • Technical cooperation with the latin american countries in the CAFTA • Development of software.

14. Mapping of the current status of origin verification • We started to work on this issue almost three years ago • First we produced studies about best practices in verification of origin in Canada, the European Union, Mexico, and other Latin American countries. • In 2003/2004 We organized 3 Workshops in C. American, the Andean Community and Mercosur about the status of Verification and certification in the hemisfere and presented the study on best practices, plus national workshops.

15. Technical Cooperation on verification of RO for CAFTA (I) • We started in September 2004 • Thus far we have had four workshops on topics including: - Canadian experience in Verification. - Mexican experience in verification. - in both cases we include the point of view of both the public and private sectors - we are working on a study to design a model of the structure for a verification unit (resources, activities, manual, personnel, etc) It will be ready in August 2005.

16. Technical Cooperation on verification of O for CAFTA (II) • We translated from English to Spanish: All the chapters on verification of origin from the “Manual For trade Verification” of the Canadian Customs authorities. Also we translate all the forms that they use to require information about rules of origin in the verification process We also gathered the some information from the Mexican authorities.

17. Technical Cooperation on verification of RO for CAFTA Topics for the next workshop: • Verification of textile products. • Risk Analysis in verification of origin • Application of new technologies in RO (chips, bar-codes etc) At the end of the cooperation we will prepare one CD with all the papers about best practices, all the presentations of the different workshops and translated documents.

18. Software development • I) Software with the chapters of origin from about 30 free trade agreements. It is ready and it includes: • Comparative Analysis of Regimes • Regimes in force or in process of ratification. . Codification of Product Specific Rules of Origin (PSRO). More than 160.000 rules. • II) Software “Understanding and using rules of origin” In this software we rewrite the rules of origin of each subheading and we try to present the rules in an easier way. We hope to be ready in September • III “Early warning” Software

19. Future Activities • As some of you know when the Andean community countries finishes the negotiation of the agreement with the USA we will start to transfer to them all of this experience. • In addition this year we will organize another workshop for the Andean countries about verification of origin. • Also we are working in the rules of origin chapter of the new agreement AC-Mercosur and the rest of the ALADI REGIMES because for us this is also a very important issue.

20. FIN