13. Rules of Origin

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Rules of Origin

(ROO)

Art’07Copyright Copyright ® Tariff Commission® Tariff Commission

(ROO)

Tariff Commission

2007

Rules of Origin

Laws, regulations and administrative procedures thatdetermine the origin of a good. Rules of origin may bedesigned to determine the eligibility of a good for preferentialaccess under the terms of a free trade agreement, or theymay be designed to determine a good's country of origin for

Definition


may be designed to determine a good s country of origin forvarious purposes. A decision by a customs authority on origincan determine whether a shipment falls within a quotalimitation, qualifies for a tariff preference or is affected by ananti-dumping duty. These rules can vary from country toc o u n t r y a n d f r o m p u r p o s e t o p u r p o s e

Rules of Origin

Country of Origin

☻ Refers to the country where a particular good is produced


particular good is produced, manufactured or obtained

Rules of Origin

1. Preferential Rules of Origin☻ Regulations and administrative determinations Regulations and administrative determinations

of general application applied by any Member of general application applied by any Member to determine whether goods qualify for to determine whether goods qualify for preferential treatmentpreferential treatment


☻ Laws, regulations and administrative Laws, regulations and administrative determinations of general application applied by determinations of general application applied by any member to any member to determine the country of origin determine the country of origin of goods (Article of goods (Article 11..1 1 of the WTO Agreement on of the WTO Agreement on ROO)ROO)

22. Non. Non--Preferential Preferential Rules of Origin

Rules of Origin

Applications☻ Determine whether imported products shall be subjected to a mostDetermine whether imported products shall be subjected to a most--

favored nation (MFN) treatment or preferential treatment.favored nation (MFN) treatment or preferential treatment.

☻ Implement measures and instruments of commercial policy (e.g., antiImplement measures and instruments of commercial policy (e.g., anti--dumping, countervailing, safeguards).dumping, countervailing, safeguards).


☻ Trade statistics and issuance of certificate of origin.Trade statistics and issuance of certificate of origin.

☻ Application of labeling and markingApplication of labeling and marking

☻ Public procurementPublic procurement

☻ Process patentProcess patent

Rules of Origin

Why do we need Rules of Origin?Why do we need Rules of Origin?☻ Free Trade Agreements allows preferential tariffs

for almost all goods traded within the region


☻ ROOs form the basis for determining what goods are ROOs form the basis for determining what goods are

eligible for preferential access under the Agreementeligible for preferential access under the Agreement☻ Access to cheaper inputsAccess to cheaper inputs

☻ Competitive advantage on exports Competitive advantage on exports

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Rules of Origin

Two Basic criteria to determine the Two Basic criteria to determine the country of origin of goods:country of origin of goods:

Two Basic criteria to determine the Two Basic criteria to determine the country of origin of goods:country of origin of goods:

1. Wholly obtained (WO)

d


2. Substantial Transformation (ST)

and

VA CTC Process Rule

Rules of Origin

a. products which have been entirely grown orextracted from the soil, or

1. WHOLLY OBTAINED (WO)


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.

Rules of Origin

WHOLLY OBTAINED GOODS

c Animals born and raised in that country;

a. Mineral products extracted from its soil or from its sea-bed;

b. Agricultural products harvested there;


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;

Rules of Origin

WHOLLY OBTAINED GOODSg. 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.

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 parts or components have undergone sufficient


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

Rules of Origin

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

Value-Added (VA) rule☻ DIRECT METHOD

Value of Originating Materials Value of Originating Materials + overheads + profits + overheads + profits

---------------------------------------------------------------------------------- = VA content= VA content = = >X>X


☻ INDIRECT METHOD

FOB PriceFOB Price

Value of non-originating materials, parts or produce and those of undetermined origin

----------------------------------------- = Import content = <X%FOB Price

Rules of Origin

☻ RVC is the regional content threshold.

☻ RVC is used where it has been decided that

Regional Value Content (RVC)


☻ 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.

Rules of Origin

Under this criterion, imported materials, parts or components must undergo sufficient working or processing. The final product to be obtained must be

Change in Tariff Classification(CTC)


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.

Rules of Origin

☻☻ Important because it is the non-originating materials that have to satisfy the requirements of

☻ Non-originating material



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.

Rules of Origin

☻ Non-originating materials are:


•• Materials imported from a country outside the territory; orMaterials 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.

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

Rules of OriginChange in Tariff Classification

(CTC)

☻ a nona non--originating material that was sourced from outside originating material that was sourced from outside or within the FTA territory, which is used to produce a or within the FTA territory, which is used to produce a good m st not ha e the same classification nder thegood m st not ha e the same classification nder the


good, must not have the same classification under the good, must not have the same classification under the Harmonized System as the final good into which it is Harmonized System as the final good into which it is incorporated.incorporated.

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(CTC)• Product specific rules (PSR)

– The product specific rule applies to goods of a specific tariff classification.


p

– 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).

Rules of OriginChange in Tariff Classification (CTC)

Levels of Change in Tariff Classification

☻ CC – Change of Chapter – Change to this Chapter fromany other Chapters

☻ CTH Change of Tariff Heading Change to this heading


☻ CTSH – Change of Tariff Subheading – Change to this subheading from any other subheadings

☻ CTH – Change of Tariff Heading – Change to this heading from any other headings


SlabsSlabs

Country of Origin of tincans

HotHot--rolled coilsrolled coils TMBPTMBP Tin cansTin cans

Country A Country B Country C

Ch 72 Ch 72 Ch 73Ch 72


Hdg. 72.07

ROO/CO DESTINATION Source

CTSH/ABC 7310.21.10 7207.12.107208.39.007209.18.10

CTH/ABC 73.10 72.07, 72.0872.09

CC/C CH. 73 CH. 72

Shdg. 7207.12.10Hdg. 72.08

Shdg. 7208.39.00 Shdg. 7209.18.10Hdg. 72.09

Shdg. 7310.21.10Hdg. 73.10

Rules of OriginExamples

Level at which ROO is set - heading levelTariff classification

Description of goods

Product specific rule (PSR)

f C


0304 Fish fillets and other fish meat (whether or not minced), fresh, chilled or frozen.

Change to heading 0304 from any other heading.

03.01 – Live fish 03.02 – Fresh or frozen fish


Level at which ROO is set - subheading level

Tariff classification




4016 Other articles of vulcanised rubber other than hard rubber.

401610 - Of cellular rubber

Change to subheading 401610 from any other subheading.


Exceptions to the CTC requirementExceptions to the CTC requirement




4816 Carbon paper, Change to

Art’07Copyright Copyright ® ® Tariff CommissionTariff Commission

p p ,self-copy paper and other copying or transfer papers

gheading 4816 from any other heading except from heading 4809.

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.

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CTC plus certain provisionsCTC plus certain provisions




420329 Gloves mittens Change to subheading


420329 Gloves, mittens and mitts: other.

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

RVC as an option to CTCRVC as an option to CTC





841391 Parts of pumps A change to subheading


841391 - Parts of pumps 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.

CTC or an optional less CTC plus an RVCCTC or an optional less CTC plus an RVC





732111 - Cooking A change to subheading


732111 - Cooking appliances and plate warmers: for gas fuel or both gas and other fuels

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

Rules of OriginProcess 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

☻ The Bureau of Customs is responsible for the implementation and administration of the ROO.

Who implements the ROO in the Philippines?


☻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.

☻ After ascertaining compliance to the ROO requirements, exporters must file C.O. applications to the Bureau of

Securing for Certificate of Securing for Certificate of Origin (C.O.)Origin (C.O.)


ppCustoms

☻ BOC evaluates applications and issues C.O. or rejects applications

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Certificate of Origin (CO) - is a declaration ofthe exporter as certified by the issuingauthority, the Bureau of Customs, that theexport product complies with the origin

DOCUMENTARY REQUIREMENTS


export product complies with the originrequirement as specified under bilateral,regional, multilateral trading arrangement towhich the Philippines is a party.

Kinds of Certificate of Origin

A. With Preferential Treatment:1. Generalized System of Preferences GSP Form-A2. ASEAN-Common Effective Preferential Tariff CEPT Form-D3. ASEAN-CHINA Free Trade Agreement Form-E4 ASEAN KOREA Free Trade Agreement Form AK


B. Without preferential Treatment:1. CO for General Merchandise (White C.O.)

4. ASEAN-KOREA Free Trade Agreement Form-AK5. Japan-Philippine Economic Partnership Agreement Form-JP

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 The adoption of the 4040% Regional Value Content % Regional Value Content (RVC) across product sectors did not lead to:(RVC) across product sectors did not lead to:


☻ substantial and sustained increase in the utilization of substantial and sustained increase in the utilization of CEPT-AFTAa.)a.) RVC is biased against lowRVC is biased against low--cost inputs cost inputs

manufacturing countries (ASEAN)manufacturing countries (ASEAN)b.)b.) high nonhigh non--ASEAN import content of exports ASEAN import content of exports

exceeding exceeding 6060% of FOB price (i.e., electronics, % of FOB price (i.e., electronics, textile products)textile products)

☻ reduction of ROO related implementation issuesreduction of ROO related implementation issues

a.)a.) high variability of cost elements used in the high variability of cost elements used in the calculation of RVCcalculation of RVC

b.)b.) contestability of costing basis and contestability of costing basis and vulnerability to volatile foreign exchange vulnerability to volatile foreign exchange rates and materials pricesrates and materials prices

Cont.


rates and materials pricesrates and materials prices

☻ improved trade facilitation capacity in the ROO improved trade facilitation capacity in the ROO implementationimplementationa.)a.) efficient record keeping and accounting efficient record keeping and accounting

requirements biased against SMEsrequirements biased against SMEsb.)b.) higher cost of administration than other higher cost of administration than other

ST criteria (i.e., CTC and process rule)ST criteria (i.e., CTC and process rule)

The Philippines ROO Objectives

☻ Adopt alternative ROO criteria/methods for conferment of Adopt alternative ROO criteria/methods for conferment of origin to import dependent export products while origin to import dependent export products while maintaining minimum ST thresholds for strategic and maintaining minimum ST thresholds for strategic and sensitive productssensitive products

☻ Adopt a lower VA threshold for accumulation of ASEAN


pmaterials

☻ Establish an ROO regime that is TRADE FACILITATING and Establish an ROO regime that is TRADE FACILITATING and EASY TO IMPLEMENTEASY 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 20072. Other remaining products without PSRs – 1 January 2008

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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)

Updates


– The ASEAN-Korea Free Trade Area (AKFTA)– Japan-RP Economic Partnership Agreement

☻ Under Negotiation– ASEAN-Australia/New Zealand FTA– ASEAN-Japan FTA– ASEAN-India FTA

Thank YouFor your kind

attention


Any Questions?

Artemio D. BernardinoTariff Commission

2007

Documents

13. Rules of Origin