Rules of Origin in Trade Agreements

Rules of Origin

• Rules of Origin (ROO) are specific provisions, developed from national and international agreements, used to determine the origin of goods.
• ROO criteria are applied by a country to determine the origin of goods.
• ROO is used in commercial policies, such as anti-dumping duties (RA no. 9752) and safeguard measures.

Uses of ROO

• Implement commercial policies like anti-dumping duties and safeguard measures.
• Determine whether imported products receive most favored nation (MFN) or preferential treatment.
• Used for trade statistics.
• Used for labeling and marking requirements.

Types of ROO

• Preferential ROO: Part of preferential trade agreements (e.g., Free Trade, Economic Partnership Agreements). Determine which products benefit from tariff concessions. (Annex II to the WTO Agreement on ROO)
• Non-preferential ROO: Used in the application of MFN treatment, anti-dumping, countervailing, safeguard measures, and origin marking requirements. (Art. 1(2) of the WTO Agreement on ROO)

ROO and Preferential Trade Agreements

• The Philippines is a party to several preferential trade agreements, including AANZFTA, ACFTA, AHKFTA, AIFTA, AJCEP, AKFTA, ATIGA, GSP, PH-EFTA, PJEPA, and RCEP.
• Preferential ROO provisions are based on the economic interests of the parties. Specific ROO provisions will vary based on specific agreements.

Origin Criteria

• The two main origin conferring criteria are the Wholly Obtained or Produced Method, and the Substantial Transformation Method.
• Substantive Transformation criteria include Value Added, Change in Tariff Classification, and Specific Process Rules.

Wholly Obtained or Produced Goods

• Goods are considered wholly obtained if they are entirely made in the exporting country using materials from that same country.
• Plants and plant products grown, harvested, picked or gathered in a party are considered wholly obtained goods (there are limitations under specific agreements such as the PH-FTA which restricts this to vegetables only)
• Live animals born and raised in a party, also goods obtained from live animals in a party are considered wholly obtained (Note: Animals not necessarily born and raised in the exporting country are still considered under this rubric).
• Other categories of wholly obtained goods include goods obtained from hunting, trapping, fishing, farming, aqua culture and minerals and other natural resources.

Wholly Obtained or Produced Goods: Special Provisions

• AKFTA: includes goods taken from outer space.
• PH-EFTA; includes goods from cell cultures and falling under Chapter 29 to 39 of fermentation.

Substantial Transformation

• Requires a product to be transformed into a different article.
• Materials used in the production must have undergone sufficient working or processing.
• The product must originate in the country where it last underwent substantial transformation.

Value Added Rule

• Qualifying Value Content (QVC) is the value added within the countries of a Preferential Trade Agreement (PTA), expressed as a percentage of the final product's pre-determined value.
• Defines the amount of transformation needed to classify a good as originating in a country.
• Regional Value Content (RVC) is the regional content threshold. (ATIGA Article 28 1(a)(i))
• RVC must be at least 40% of the final value of goods within the ASEAN territory.
• Calculation methods include direct method (QVC=VOM/FOB x 100%) and indirect method (QVC = FOB – VNM/FOB x 100%). VOM = value of originating materials; FOB= free on board value of the good; VNM = value of non-originating materials

Materials Used in the Manufacture of the Export Product

• Originating materials: Sourced from within a PTA territory (not just the exporting country).
• Non-originating materials: Imported from outside the territory or produced in the territory, but do not meet ROO requirements. Unknown or unconfirmed origin materials are automatically considered non-originating.

Change in Tariff Classification (CTC)

• Non-originating materials must undergo a required degree of tariff classification change.
• Change can be in Chapter, Heading, or Subheading level of the Harmonized System (HS) classification.
• Different classifications for input and final products are needed for CTC determination.

Process Rules

• Requires goods to go through a specific manufacturing process in the exporting country for classifying them as originating.
• Generally covers chemicals, textiles, fabrics, and their related products.

ROO PSR Comparison

• Provides a comparison of Product Specific Rules (PSRs) across different FTAs for specific HS Codes.

Sample Exercises

• Examples of determining whether a product meets ROO criteria to qualify for preferential tariff treatment in specific FTAs.
• Demonstrates how to use the formulas and methods to compute the RVC.

Other Origin Conferring Provisions

• Accumulation Rule: Products using originating materials from a member state will get originated status from the member state where that part was used.
• Types of Accumulation: full accumulation and partial accumulation. Partial accumulation allows for originating materials from multiple FTA members, as long as the required RVC is met.

Proofs of Origin

• Provides a list of required documents for different FTAs.

Other Certificate of Origin

• Identifies non-preferential trade certificates of origin used for goods not qualifying under preferential tariff treatment schemes. Specific document number/name is CMO 27-2004.

Applicable Tariff Rates

• Tables showing applicable tariff rates (MFN, AANZFTA, ACFTA, AIFTA, AJCEPA, AKFTA, ATIGA, PJEPA, AHKFTA, and RCEP), noting different rates for different scenarios

Tariffs

• Taxes imposed on goods entering or leaving a country.
• Types of tariffs include Specific, Ad-valorem, and Compound.

Tariff Quotas

• Two-tiered quota system combining tariff and quota characteristics.
• Tariff rate quotas allow a certain quantity of a good to enter at a lower rate; and an additional quantity to enter at a higher rate once the initial quota has been reached.

Tariff Distortion

• In general, tariff levels are proportionate to the degree of processing of a good.
• Least developed/processed goods have lower tariffs.
• Fully processed goods have higher tariffs.
• Tariff distortion exists when this criteria is not met

Export Duties

• Export duties, with exemptions/exceptions for logs, are calculated based on FOB (free on board) value at the time of shipment and the prevailing exchange rate.

Exceptions to the MFN Treatment

• Reciprocal Preferential Tariffs: applies only to goods traded within the same region, or between specific parties.
• Non-Reciprocal Preferential Tariffs: allows developed countries to lower tariffs for developing countries (GSP beneficiaries).

Availing the Preferential FTA Rate of Duty

• Originating goods.
• In compliance with the ROO list of the FTA.
• Covered by a proof of origin

Reciprocal Tariff Rate Treatment under ACFTA and AKFTA Agreements

• Provisions allowing for lower tariffs than MFN rates for certain goods.
• Includes exceptions ( sensitive track ) for specific products.
• Includes the applicable executive order and details.

Jewelry Industry Development Act of 1998

• Provides tariff incentives for jewelry importers. This covers raw materials, capital equipment, spare parts, and tools.

Examples 1 & 2 (Tariff Calculations)

• Demonstrates practical applications of calculating duties when various countries are exporting. This includes China, Philippines, and additional countries. Showcases the import duties, ROO, and CO forms for different countries. Calculation for value of originating content (RVC) is included.

ACFTA Rate of Duty

• Details of executive orders covering tariffs for ACFTA goods. Includes normal track lists, sensitive lists, and highly sensitive lists.

PH-EFTA Rate of Duty

• Details on how preferential trade works with goods between the Philippines and EFTA. Includes Executive order that pertains.

AHKFTA Rate of Duty

• Details about executive orders covering goods under the AHKFTA lists. Similar scenarios, details across the order numbers are included.

AIFTA Rate of Duty

• Covers goods imported under AIFTA from different nations. Executive order detail is included.