Rules Of Origin PDF

RULES OF ORIGIN MODULE 8 FINALS INTERNATIONAL TRADE ORGANIZATION, AGREEMENTS AND RULES OF ORIGIN Prof. CB Jhey May-As, MBA THE RULES OF ORIGIN Revised Kyoto Convention Definition (Specific Annex K) RULES OF ORIGIN means the specific provisions, deve...

RULES OF ORIGIN MODULE 8 FINALS INTERNATIONAL TRADE ORGANIZATION, AGREEMENTS AND RULES OF ORIGIN Prof. CB Jhey May-As, MBA THE RULES OF ORIGIN Revised Kyoto Convention Definition (Specific Annex K) RULES OF ORIGIN means the specific provisions, developed from principles established by national legislation or international; agreements “origin criteria”, applied by a country to determined the origin of goods. USES OF ROO  To implement measures and instruments of commercial policy such as anti-dumping duties (RA no. 9752) and safeguard measures;  To determine whether imported products shall receive most favored nation (MFN) treatment or preferential treatment;  For the purpose of trade statistics; and  For the application of labelling and marking requirements. TYPES OF ROO  Preferential ROO – are part of Preferential Trade Agreements (e.g. Free Trade and Economic Partnership Agreements) which provides for tariff concessions. The ROO determine what products can benefit from the tariff concession or preference. (Annex II to the WTO Agreement on ROO)  Non-Preferential ROO- are used in the application of MFN treatment, anti-dumping, countervailing, safeguard measures, origin marking requirements. (Art. 1(2) of the WTO Agreement on ROO). ROO AND PREFERENTIAL TRADE AGREEMENTS  Preferential Trade Agreements the Philippines is a Party to: AANZFTA ATIGA AANZFTA ATIGA ACFTA GSP AHKFTA PH-EFTA AIFTA PJEPA AJCEP RCEP AKFTA  Preferential ROO are patterned after the economic interest of the Parties in a Preferential Trade Agreements resulting in ROO provisions that are unavoidably individualistic and differ from agreement to agreement. ORIGIN CITERIA  The two (2) main origin conferring criteria are:  The Wholly Obtained or Produced Method; and  The Substantial Transformation Method ORIGIN CITERIA A. Wholly Obtained or Produced B. Substantial Transformation: 1. Value Added 2. Change in Tariff Classification 3. Specific Process Rules WHOLLY OBTAINED OR PRODUCED GOODS (ART. 27 OF ATIGA) Goods are generally considered to be wholly obtained when they are made entirely in the exporting country from materials produced in that same country. Unless specified otherwise in their respective Product Specific Rules (PSR), the following are considered as wholly obtained or produced goods. A. Plants and plant products grown, harvested, picked or gathered in a Party; Note: Under the PH-EFTA, goods are limited to vegetable products only. B. Live animals born and raised in a Party; C. Goods obtained from live animals in a Party; Notes: It is sufficient that goods are obtained from live animals in the exporting Member State which are not necessarily born and raised in that Member State. WHOLLY OBTAINED OR PRODUCED GOODS (ART. 27 OF ATIGA) D. Goods obtained from hunting, trapping, fishing, farming, aqua culture gathering or capturing in a Party; E. Minerals and other naturally occurring substances extracted or taken in a Party; F. Goods taken from the waters, seabed or beneath the seabed outside the territorial waters of that Party in accordance with international law; G. Goods of sea fishing and other marine products taken from the high seas by vessels registered with a Party and f. including those subsequently processed and/or made on board factory ships registered with a Party; H. Articles collected there which can no longer perform their original purpose nor are capable of being restored or repaired and are fit only for disposal or recovery of parts of raw materials, or for recycling purposes; I. Waste and scrap derived from: Production in the exporting Member States or used goods collected in the exporting Member State, provided that such goods are fit only for the recovery of raw materials; and J. Goods obtained or produced in the exporting Member State from products referred to in paragraphs (a) to (i). WHOLLY OBTAINED OR PRODUCED GOODS: SPECIAL PROVISIONS For the AKFTA:  Special provision to include goods taken from outer space obtained by a Party. For the PH-EFTA:  Special provisions to include goods obtained in a Party by using cell cultures, and goods falling under Chapter 29 to 39 obtained by fermentation. SUBSTANTIAL TRANSFORMATION  Requires a product to be transformed into a different article;  The materials, parts or components used in the manufacture of the product have undergone SUFFICIENT WORKING OR PROCESSING; and  A product is originating in the country where it last underwent substantial transformation. VALUE ADDED RULE  This is the Qualifying Value Content (QVC) or the value added in the Parties of a PTA, expressed as a percentage of the end product’s pre-determined value;  Defines the degree of transformation required to confer origin on the good in terms of a minimum percentage of value that must come form the originating country or Parties. Regional Value Content (RVC) (Article 28 1(a)(i), ATIGA) RVC is the regional content threshold. RVC is at least 40% of the final value of goods must come from within the ASEAN territory.  VALUE ADDED RULE VALUE ADDED RULE  It is based on the FOB price of the export good (except under the PH-EFTA Agreement which is based on the EXW value of goods); CALCULATION OF QVC – DIRECT METHOD QVC = VOM/FOB X 100% WHERE:  QVC is the Qualifying Value Content, expressed as a percentage.  VOM is the Value of Originating Materials, which includes the value of material from the parties, direct labor and overhead cost, profit, and other cost.  FOB is the value of the goods free on board.  EXW is the value of all the materials used and all other costs related to its production, minus any internal taxes, which are, or maybe, repaid when the product obtained is exported. VALUE ADDED RULE INDIRECT METHOD WHERE: VNM is the Value of Non-originating Materials used in the production of a good. This is the CIF value at the time of importation of the materials.  Agreement using both Direct and Indirect Methods of computation: AANZFTA, AHKFTA, AIFTA, AKFTA, ATIGA, PH-EFTA, and RCEP  Agreements using only the Indirect Method of computation: ACFTA, AJCEP and PJEPA SAMPLE COMPUTATION A manufacturer produces household washing machines (HS 8450.11) in the Philippines. These washing machines are to be exported to Malaysia under the AFTA Agreement, with manufacturing cost as follows: Description Origin Origin Status Values in US Parts A PH Originating 20 Parts B PH Originating 20 Parts C USA Non-Originating 20 Parts D UK Non-Originating 25 Other Costs PH Originating 15 + Profit FOB Prices $100 (Includes labor and other costs) SAMPLE COMPUTATION Under the AFTA, the product specific rules for washing machines is “a regional value content of not less than 40 percent”. a. Direct Method ASEAN Material Cost + Direct Labor Cost+ Direct Overhead Cost + Other Cost + Profit RVC = ----------------------------------------------------------------------------------------------------------x 100% FOB RVC = 20+20+15/100 x 100% = 55% > 40% b. Indirect Method RVC = FOB – VNOM/FOB X 100% RVC = 100 – (20+25)/100 X 100% = 55% >40% Eligible for AFTA preferential tariff treatment when imported into Malaysia. SAMPLE COMPUTATION Article (Exported by Thailand to the Philippines): Mirror with Metal Frame HS code: 7009.92 FOB Value: $ 100.00 Non-Originating part – Metal Frame HS code: 8306.03 CIF Value: $ 65.00 Is the article originating under the ATIGA if the required RO criterion is RVC 40? RVC = FOB – VNOM/FOB X 100% RVC = 100-65/100 X 100% = 35% (Not Originating. Philippines MFN will apply)  MATERIALS USED IN THE MANUFACTURE OF THE EXPORT PRODUCT ORIGINATING MATERIALS are those sourced from within the PTA territory (not just the country of export) 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 mee the ROO. ✓Any material of UNKNOWN or UNCONFIRMED ORIGIN should always be treated as NON-ORIGINATING. CHANGE IN TARIFF CLASSIFICATION (CTC)  To qualify for originating status under the CTC rule, non- originating materials must have undergone a required level of tariff classification change:  The change in HS classification required can be on Chapter, Heading or Subheading Level. CHANGE IN CHAPTER (CC)  The HS classification of the Non-Originating Input Materials is different at the first two-digit level (Chapter) Final Product classification. CHANGE IN TARIFF HEADING (CTH)  The HS classification of the Non-Originating Input Materials is different at the first four-digit level (Heading) Final Product classification. CHANGE IN TARIFF SUBHEADING (CTSH)  The HS classification of the Non-Originating Input Materials is different at the first Six-digit level (SubHeading) Final Product classification. CHANGE IN CHAPTER (CC)  The HS classification of the Non-Originating Input Materials is different at the first two-digit level (Chapter) Final Product classification. CHANGE IN TARIFF HEADING (CTH)  The HS classification of the Non-Originating Input Materials is different at the first four-digit level (Heading) Final Product classification. CHANGE IN TARIFF SUBHEADING (CTSH)  The HS classification of the Non-Originating Input Materials is different at the first Six-digit level (SubHeading) Final Product classification. PROCESS RULES  This rule requires the goods to undergo a specific manufacturing or processing operation in the exporting Party to confer originating status; and  Generally covers certain chemicals, textiles and fabrics and their articles. EXAMPLE: Polyethylene from Malaysia exported to the Philippines under ATIGA Raw Material: Ethylene (non-originating from USA) converted to polyethylene in Malaysia ROO PSR COMPARISON HS CODE FTA Description 5105.31 Fine animal hair of Kashmir goats, carded or combed ATIGA RVC(40) or CC or Process Rule for textile Products ACFTA Obtained from animals raised in ACFTA AJFTA CC AANZFTA RVC (40) OR CC AKFTA RVC (40) OR CC PJEPA CC SAMPLE EXERCISES Rice Flour classified under HS code 1102.30 were made by milling/grinding rice harvested from Central Luzon. Question: Were the rice flour considered Philippine originating under the AKFTA Agreement when exported to Korea? Answer: Yes SAMPLE EXERCISES Bicycles made in China classified under HS code 8712.00 are fitted with wheel rims originating from the US classified under HS code 8714.92. Question: If the preferred ROO criterion for the bicycles was CTH, were the goods China originating under the ACFTA Agreement when exported to the Philippines? Answer: YES OTHER ORIGIN CONFERRING PROVISIONS OF ROO A. Accumulation Rule  A good originating in a Party, which is used in another party as input for a finished good eligible for preferential tariff treatment, shall be considered to be originating in the latter Party where working or processing of the finished good has taken place. TYPES OF ACCUMULATION FULL ACCUMULATION – Accumulation of the full value of the originating product from a party in an FTA territory. PARTIAL ACCUMULATION – Parties are allowed to accumulate imputes with other Member states even if the value is less than the required RVC (ATIGA: below 40% but 20% and above) OTHER ORIGIN CONFERRING PROVISIONS OF ROO FULL ACCUMULATION ID Content in Product “A” = $40 PH Content in Final Product = $50 Using the Direct Method to Compute the RVC: RVC = $40/$100X100% = 40% (Originating ID Content) RVC = $100+$50/$200X100% = 75% (Originating PH Content) - Product “A” is exported to PH as input for the Final Product - Final product is then exported to TH, eligible for ATIGA rate OTHER ORIGIN CONFERRING PROVISIONS OF ROO PARTIAL FULL ACCUMULATION ID Content in Product “A” = $30 PH Content in Final Product = $50 Using the Direct Method to Compute the RVC: RVC = $30/$100X100% = 30% ( Non-Originating ID Content) RVC = $30+$50/$200X100% = 40% (Originating PH Content) - Product “A” is exported to PH as input for the Final Product - Issued CO Form D (With box partial Cumulation CHECKED – MFN rate applied) - Final product is then exported to TH, eligible for ATIGA rate OTHER ORIGIN CONFERRING PROVISIONS OF ROO B. DE MINIMIS  The requirement of the ROO CTC criterion is for all non originating materials used in the production of the good to undergo the required change in tariff levels (or a tariff shift) for the export good to be considered as originating:  However, the de minimis provision of the ROO allows those non-originating materials that did not undergo the required CTC to be considered as originating as long as the overall value of such materials does not exceed certain percentages (ATIGA – does exceed 10% of the FOB value of the good)  Specific percentage and goods applicable for the de minimis differs in accordance with each preferential trade agreement; and  Note that the de minimis provision does not apply under the Value-Added Rule. PROOFS OF ORIGIN FROM VARIOUS PTA Preferential Trade Agreement Proof of Origin AANZFTA FORM AANZ ACFTA FORM E AHKFTA FORM AHK AIFTA FORM AI AJCEP FORM AJ AKFTA FORM AK ATIGA FORM D AND ORIGIN DECLARATION GSP FORM A PH-EFTA ORIGIN DECLARATION PJEPA FORM JP RCEP FROM RECEP AND DECLARATION OF ORIGIN BY APPROVED EXPORTER OTHER CERTIFICATE OF ORIGIN (CMO 27-2004) White CO (Without Preferential Trade Agreement)  A Certificate of Origin issued for products that do not qualify or not eligible under schemes with preferential tariff treatment. A CO for General Merchandise. APPLICABLE TARIFF RATES TARIFFS  Tariffs are taxes levied on goods entering (import tariffs) or exiting (export tariffs) a country;  Tariffs are imposed in order to protect domestics producers (protective tariffs), or to raise revenue for the government (revenue tariffs); There are three types of tariffs:  Specific Tariffs – levy a fixed duty on good, e,g., a $100 per kg tariff on a meat.  Ad-valorem Tariffs – are based on a percentage of the value goods value, e.g. 20% of the value of the motor vehicle’ and  Compound Tariffs – are a combination of specific and ad valorem tariffs, e.g. a fixed $100 duty plus 10% of the value of every imported motor vehicle. TARIFF QUOTAS  Are a two-tier quota system that combines characteristics of both tariffs and quotas;  Under a tariff rate quotas system, an initial quota of a good is allowed to enter the country and levied a lower duty rate. Once this quota is reached, imports are not stopped instead, more of the goods may be imported, but are levied a higher tariff rate;  The Philippines uses TRQs for many agricultural products, including: Rice, Corn, Pork, Chicken meat, Sugar, Coffee, Potatoes, and Poultry products  A tariff rate quota system is issued to strike a balance between market access and the protection of domestic industry. TARIFF DISTORTION  In general, the level of tariff assigned to a good is proportionate to the goods degree of processing:  Least or not developed goods = low tariffs  Goods slightly processed or are meant to be incorporated into another good = the same tariff level as raw materials or slightly higher  Finished goods = high tariffs  The logic behind this is for locally produced finished goods to be protected with a high tariff while the imported raw materials needed to manufacture said goods are levied lower tariffs;  Tariff distortion exists when the criteria above are not me; EXPORT DUTY  CMTA Sec. 1612. tariff Nomenclature and rates of Export Duty – The provisions of TCCP Sec. 514 on Export Products subject to duty and rates, specifically providing for the export products subject to duty and rates, shall still apply and shall supplement this Act;  Export duties on all export products (except for logs) were abolished under E.O 26 (s. of 1986); Logs = 20% export duty  Export duty is based on the gross FOB value at the time of shipment and on the prevailing exchange rate. EXCEPTIONS TO THE MFN TREATMENT RECIPROCAL PREFERENTIAL TARIFFS  Countries can set up an FTA that applies only to goods traded within the region (regional integration with preferential tariff treatment) or between parties – discriminating against goods outside; from a nonparty. NON-RECIPROCAL PREFERENTIAL TARIFFS  Generalized System of Preference (GSP)  Where developed countries can give developing countries special access to their markets. GSP exempts WTO members from MFN for the purpose of lowering tariffs for the developing countries (GSP Beneficiaries), without also lowering tariffs for developed countries (GSP Donors). AVAILING THE PREFERENTIAL FTA RATE OF RATE OF DUTY To avail of the preferential FTA Tariffs, the imported products must be:  Originating and in compliance with the ROO of the FTA;  In the inclusion list (legal enactment); and  Covered by a Proof of Origin RECIPROCAL TARIFF RATE TREATMENT UNDER THE ACFTA AND AKFTA AGREEMENTS  Both the ACFTA and AKFTA Agreements have provisions for “Reciprocal Tariff Rae Treatment”;  These provision enable a good placed in the Sensitive Track (ST) List of the exporting Partner to have an applied rate that is lower than the MFN rate of the importing partner;  The conditions for the Reciprocal Tariff Rate Treatment are laid out under Annex 2 Paragraph 6 of the ACFTA TIG Agreement and Annex 2 paragraph 7 of the AKFTA TIG Agreement;  The Philippines impellent these provisions under: E.O No. 618, s. of 2007 for the ACFTA Agreement and E.O. No. 638, s. of 2007 for the AKFTA Agreement. RECIPROCAL TARIFF RATE TREATMENT UNDER THE ACFTA AGREEMENTS Country A (Exporting Party) Country B (Importing Party) Applicable ACFTA Tariff Rate EHP EHP rate of Country B EHP NT NT rate of Country B ST ST/MFN Rate of Country B EHP EHP Rate of Country B NT NT NT Rate of Country B ST ST/MFN Rate of Country B  RECIPROCAL TARIFF RATE TREATMENT UNDER THE ACFTA AGREEMENTS Country A (Exporting Party) Country B (Importing Party) Applicable ACFTA Tariff Rate EHP MFN rate of Country B ST > 10% NT MFN rate of Country B ST ST/MFN Rate of Country B EHP EHP Rate of Country B or ST Rate of Country A, whichever is HIGHER (MFN Rate of Country B is applied if it is lower than ST Rate of Country A) ST < 10% NT NT Rate of Country B or ST Rate of Country A, whichever is HIGHER (MFN Rate of Country B is applied if it is lower than ST Rate of Country A) ST ST/MFN Rate of Country B EXAMPLE 1 EXPORTING COUNTRY: CHINA IMPORTING COUNTRY: PHILIPPINES GOODS Crude Palm Oil (AHTN 1511.10.00) NG COUNTRY: PHILIPPINES ROO: Wholly obtained with CO form E TARIFF RATES: CHINA: 9% MFN rate; 9% ACFTA ST rate PHILIPPINES: 15% MFN rate; 0 ACFTA NT Rate (EO 814 s. 2009) What is the applicable import duty rate? EXAMPLE 2 EXPORTING COUNTRY: CHINA IMPORTING COUNTRY: PHILIPPINES Goods: Product A (AHTN Code 2111.10.00) ROO: Wholly obtained with CO form E TARIFF RATES: CHINA: 10% MFN rate; 8% ACFTA ST rate PHILIPPINES: 7% MFN rate; 0 ACFTA EHP Rate (EO 814 s. 2009) What is the applicable import duty rate?  RECIPROCAL TARIFF RATE TREATMENT UNDER THE AKFTA AGREEMENTS Country A (Exporting Party) Country B (Importing Party) Applicable AKFTA Tariff Rate NT NT NT rate of Country B ST ST/MFN Rate of Country B NT MFN Rate of Country B ST > 10% ST ST/MFN Rate of Country B ST < 10% NT NT Rate of Country B or ST Rate of Country A, whichever is HIGHER (MFN Rate of Country B is applied if it is lower than ST Rate of Country A) ST ST/MFN Rate of Country B EXAMPLE 1  Under the AKFTA, Korea decided to export its originating product with CO form AK under its ST list with ST rate of 7% to TH which classified the product under its NT list with NT rate of 5% and MFN rate of 20%.  What is the applicable import duty rate? EXAMPLE 2  Under the AKFTA, Korea decided to export its originating product with CO form AK under its ST list with ST rate of 7% to PH which classified the product under its NT list with NT rate of 5% and MFN rate of 6%.  What is the applicable import duty rate? JEWELTRY INDUSTRY DEVELOPMENT ACT OF 1998  These laws provide tariff incentives, among others, to specific importers, domestic industries and enterprises:  Jewelry Act – is an act to promote the development of the jewelry manufacturing industry, by granting qualified jewelry enterprises entitlement to zero duty on imported raw materials, capital equipment, including spare parts and tools thereof. EXAMPLE EXPORTING COUNTRY: INDONESIA IMPORTER: Renato Jewelry Store a local enterprise accredited and registered with the BOI. Product: Powered Platinum (AHTN 7110.11.10) Tariff rates: PH: 0 ATIGA rate, 3% MFN rate What is the applicable rate of import duty? ACFTA RATE OF DUTY Applicable to goods imported from any ASEAN Member State or China and qualified for preferential tariff treatment under the ACFTA Agreement; Recent Executive Orders on ACFTA tariffs:  E.0. No, 72s. Of 2012 – Covering goods under Sensitive Track list and the transfer of certain goods from the ST list to the Normal Track List.  E.O. No. 71 s. of 2012 – Covering goods under Highly Sensitive List  E. O. No. 485 s. of 2005 – Covering goods under the Early Harvest Program.  E. O. No. 613 s. of 2005 – Covering goods under the NT list.  E. O. No. 618 s. of 2007 – Granting of Reciprocal Tariff Rae Treatment on goods under the ST list. PH-EFTA RATE OF DUTY  Applicable to goods imported from any one of the EFTA states and qualified for preferential tariff treatment under the PH-EFTA Agreement;  Recent Executive Order on PH-EFTA tariffs:  E.O. No. 61s of 2018 – Covering goods in the PH-EFTA inclusion list. AHKFTA RATE OF FUTY  Applicable to goods imported from any ASEAN member states or HK, China and qualified for preferential tariff treatment under the AHKFTA Agreement;  Recent Executive Order on AHKFTA tariffs:  E.O. No. 102 s. of 2020 – Covering goods in the AHKFTA inclusion list.  E.O. No. 52 s. of 2011  E.O. No. 895 s. of 2010  E.O. No. 812 s. of 2009  E.O. No. 639 s. of 2007  E.O. No. 638 s. of 2007 AIFTA RATE OF DUTY  Applicable to goods imported from any ASEAN member states or India and qualified for preferential tariff treatment under the AIFTA Agreement;  Recent Executive Order on AIFTA tariffs:  E.O. No. 25 s. of 2011 – Covering goods in the AIFTA inclusion list. END OF DISCUSSION