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2.4 Origin and Preferences

Determining the origin of goods is important when trade-related measures apply according to the country in which the goods were made. Importers must therefore in some cases clarify the origin of their goods to determine if certain trade-related measures are applicable.

The country of origin is traditionally determined according to the following methods:

  • the technical or industrial criteria: This defines, with regard to specific types of products, the processes or operations which must have taken place in the country concerned to confer origin. This can also determine certain operations or processes which are considered as being insufficient for conferring origin.
  • added value or other economic criteria: Here, for example, the value of the imported materials does not exceed a certain percentage of the ex-works price.
  • a change of tariff heading or other customs classification criteria: The goods would be classified under a different heading as a result of the work conducted in the originating country of the imported materials.
  • the last substantial processing or working: The origin will be determined by the country where the substantial processing or working has taken place, provided it is economically justified and results in a new product or represents an important stage of manufacture.

Importers must distinguish between preferential and non-preferential origin.

2.4.1 Non-preferential Rules of Origin

The non-preferential rules of origin are used for determining the origin of products subject to all kinds of commercial policy measures (such as anti-dumping measures and countervailing duties, retaliatory duties, quantitative restrictions and import restrictions, surveillance of imports, export refunds and trade statistics). Other provisions, such as those related to public tenders or origin marking, are also linked with the non-preferential origin of the products.

The basic rules on non-preferential origin state that the goods originating in a country shall be those wholly obtained or produced in that country. When goods originate in more than one country, the origin will be determined on the basis of the substantial transformation test: goods whose production involved more than one country shall be deemed to originate in the country where they underwent their last, substantial, economically justified processing or working in an undertaking equipped for that purpose and resulting in the manufacture of a new product or representing an important stage of manufacture. Under the MCC, this is simply referred to as the country where “the last substantial transformation took place”.[18]

There are also specific rules applicable to origin of textiles and other products specified in the Implementing Provisions to the Community Customs Code. The origin of those products is determined according to the technical or industrial criteria, the added value criterion, or the change of tariff heading criteria.

2.4.2 Preferential Rules of Origin

Preferential origin confers certain benefits on goods traded between particular countries, namely entry at a reduced or zero rate of duty. Importers should refer to the rules laid down in the specific relevant legislation. Rules on the Generalised System of Preferences are contained in the Implementing Provisions to the Community Customs Code[19]. However, importers should look into the specific preferential trade agreements concluded between the EU and its trade partners for other preferential origin rules.

Preferential origin rules require the goods to be shipped directly to the EU and be accompanied by a certificate or invoice declaration proving that they satisfy the requirements to obtain originating status. For instance, the Generalised System of Preferences requires a certificate of origin Form A. The importer will be held liable for the incorrectness of the origin certificates.  The Form A certificate currently used under the Generalised System of Preferences will however be replaced by a system of electronic certification by registered exporters which should be applicable as of 1 January 2017.

Products wholly obtained in a beneficiary country are considered as originating in that beneficiary country. For other products, the working or processing required to be carried out on non-originating materials is generally set out in the relevant regulatory text. It usually relies on the technical/industrial criteria, the added value or the economic criteria, or the change of tariff heading. However, the abstract criterion based on the substantial processing is not usually taken into account for preferential origin.

It is, under certain conditions, possible to use material originating in a preferential partner country other than that from which the goods are exported. When only two partners of the preferential agreement are involved, this is called bilateral cumulation. In addition, manufacturing can take place under certain conditions within a regional group, leading to regional cumulation.

Importers should take into account that they can request Binding Origin Information from the EU customs authorities.[20] These decisions will be binding concerning the origin of the products. Binding Origin Information shall be binding on the customs authorities as against the holder for a period of three years. However, Binding Origin Information can be revoked under certain conditions specified in the Community Customs Code. Examples include its incompatibility with a judgment of the European Court of Justice or with a regulation adopted by the EU.

2.4.3 Generalised System of Preferences

The EU has a general system of preferences in force whereby certain products of some beneficiary countries, including the Chinese mainland, can benefit from lower or zero import duties. In particular, Council Regulation 732/2008 contains the relevant GSP provisions which are applicable from 1 January 2009 to the end of 2011 (the “GSP Regulation”)[21]. In order to facilitate the interpretation of GSP rules, the Commission in December 2010 published a guide on how to interpret and implement the rules of origin that determine whether or not goods produced in the beneficiary countries are eligible for preferential tariff treatment under the EU's Scheme of General System of Preferences (GSP) for developing countries.[22]

a) Types of Preferences

The GSP Regulation provides for three specific arrangements: (i) a general scheme of preferences; (ii) the “Everything But Arms” special arrangement for least developed countries (LDCs); and (iii) a Special Incentive Arrangement for Sustainable Development and Good Governance (also known as “GSP Plus”).

i) General Arrangement

The General Arrangement offers tariff preferences in accordance with the sensitivity of the products concerned, depending on the situation of the sector manufacturing the same goods in the EU. Non-sensitive products benefit from duty-free access to the EU market, whereas sensitive products receive a reduction of the normal Most-Favoured-Nation (MFN) ad valorem duties by a flat rate of 3.5% (i.e. if the tariff duty was set at 15%, goods benefiting from the General Arrangement would be imposed an 11.5% import duty). Textile and clothing products enjoy a tariff reduction of 20%, calculated from the MFN duty rate (i.e. if the tariff duty was 15%, textile and clothing goods benefit from a reduction of 3%, receiving a final import duty of 12%), whereas on specific duties, the reduction amounts to 30% of the MFN duty rate.[23]

Where the rate of an ad valorem duty for an individual import declaration, reduced as a result of a tariff preference, is 1% or less, then that duty will be entirely suspended. Where the rate of a specific duty is likewise reduced to €2 or less, the duty will be entirely suspended.

ii) Everything But Arms Arrangement

The Everything But Arms Arrangement provides for a 100% suspension of customs duties on all imports into the EU, except those of Chapter 93 (arms and ammunition, parts and accessories thereof) originating in LDCs.

iii) GSP Plus

The Special Incentive Arrangement for Sustainable Development and Good Governance exempts from import duties all products benefiting from the GSP system originating in countries which have to adhere to several core conventions on human and labour rights, good governance and protection of the environment. A list of countries benefiting from GSP Plus is contained in Commission Decision 2008/938/EC of 9 December 2008 as amended by Commission Decision 2009/454/EC (excluding Venezuela) and Commission Decision 2010/318/EU (including Panama from 1 July 2010 to 31 December 2011).

b) Exceptions

Hong Kong exports to the EU have been excluded from the Generalised System of Preferences (GSP) Scheme since 1 May 1998, but selective exports originating in the Chinese mainland to the EU are still eligible for GSP benefits in the EU. However, those exporters who are shipping GSP-eligible goods originating in the Chinese mainland via Hong Kong to the EU, should note that all shipments are required to accompany a non-manipulation certificate confirming that the goods have not been further processed in Hong Kong issued by the China Inspection (HK) Co. Ltd. in Hong Kong.

i) Removal of Tariff Preferences

The GSP indicates that the tariff preferences will be removed in respect of beneficiary countries which are believed to have achieved sufficient competitiveness for the products contained in a section of the Common Customs Tariff (CCT). Such removal will occur where the average value of EU imports of products of a CCT section originating in the beneficiary country exceeds 15% of the value of EU imports of the same products from all beneficiaries listed in Annex I of GSP Regulations over three consecutive years, on the basis of the most recent data that was available on 1 September 2007 (for textiles the threshold is 12.5%). For example, the Chinese mainland is deemed to have achieved this in the clothing and textiles sector and, therefore, imports of those products into the EU no longer benefit from preferential treatment (see: table below in respect of all the product sectors removed if originating in the Chinese mainland).

List of Chinese Mainland Origin Product “Sections” in the GSP Regulation which will not Benefit from Tariff Preferences

Section

Description

Section VI

Products of the chemical or allied industries.

Section VII

Plastics and articles thereof; rubber and articles thereof.

Section VIII

Raw hides and skins, leather, fur skins and articles thereof; saddlery and harness; travel goods, handbags and similar containers; articles of animal gut (other than silkworm gut).

Section IX

Wood and articles of wood; wood charcoal; cork and articles of cork; manufactures of straw, of esparto or of other plaiting materials; basket ware and wickerwork.

Section XI

XI(a) textiles and XI(b) textile articles.

Section XII

Footwear, headgear, umbrellas, sun umbrellas, walking sticks, seat-sticks, whips, riding-crops and parts thereof; prepared feathers and articles made therewith; artificial flowers; articles of human hair.

Section XIII

Articles of stone, plaster, cement, asbestos, mica or similar materials; ceramic products; glass and glassware.

Section XIV

Natural or cultured pearls, precious or semi-precious stones, precious metals, metals clad with precious metal, and articles thereof; imitation jewellery; coins.

Section XV

Base metals and articles of base metal.

Section XVI

Machinery and mechanical appliances; electrical equipment; parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles.

Section XVII

Vehicles, aircraft, vessels and associated transport equipment.

Section XVIII

Optical, photographic, cinematographic, measuring, checking, precision, medical or surgical instruments and apparatus; clocks and watches; musical instruments; parts and accessories thereof.

Section XX

Miscellaneous manufactured articles.

In sum, Chinese traders can benefit under the GSP scheme in respect of all the other products, i.e. those listed in Annex II of the GSP Regulation as sensitive or non-sensitive. However, a number of mainland products, such as certain chemicals, plastic items, toys, textiles and textile articles, footwear, jewellery, consumer electronics and watches and clocks as listed above are outside the preference list.

ii) Temporary Withdrawals and Safeguards

The GSP Regulation also provides for temporary withdrawal of preferences in the event of certain circumstances arising. These include the serious and systematic violation of principles laid down in specific International Conventions, serious shortcomings in customs controls on the export or transit of drugs (illicit substances or precursors), serious and systematic unfair trading practices and failure to comply with international conventions on money laundering. Moreover, where a product imported from a beneficiary country causes or threatens to cause serious difficulties to an EU producer, normal customs duties on that product may be reintroduced at any time.

c) Rules of Origin

As already explained above, there are two basic types of rules of origin for products entering the EU from third countries: non-preferential and preferential.[24] In the case of the GSP, the EU’s preferential rules of origin apply.

The possibility for regional cumulation of origin makes it possible in a GSP-benefiting country concerned to cumulate with originating materials from another country within the same regional economic group under certain conditions. Groups benefiting from regional cumulation are:

  • Group I: Brunei-Darussalam, Cambodia, Indonesia, Laos, Malaysia, Philippines, Singapore, Thailand, Vietnam;
  • Group II: Bolivia, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Nicaragua, Panama, Peru, Venezuela;
  • Group III: Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, Sri Lanka.
  • Group IV: Argentina, Brazil, Paraguay and Uruguay.

 


[18] See Article 36 (2) of the MCC.

[19] The preferential rules of origin contained in the Implementing Provisions to the Community Customs Code have been amended in their entirety by Commission Regulation (EU) No 1063/2010 of 18 November 2010 amending Regulation (EEC) No 2454/93 laying down provisions for the implementation of Council Regulation (EEC) No 2913/92 establishing the Community Customs Code, OJ [2010] L 307/01.

[20] See footnote 12 above.

[21] Council Regulation (EC) No 732/2008 of 22 July 2008 applying a scheme of generalised tariff preferences for the period from 1 January 2009 to  31 December 2011  OJ 6 August 2008, L 211/1 as amended by Commission Regulation (EU) No 1236/2009 of 10 December 2009 amending Annex I to Council Regulation (EC) No 732/2008 applying a scheme of generalised tariff preferences for the period from 1 January 2009 to 31 December 2011, OJ 17 December 2009, L 332/38.

[22] The guide and its annexes can be downloaded from the Commission’s GSP website at http://ec.europa.eu/taxation_customs/customs/customs_duties/rules_origin/preferential/article_839_en.htm

[23] The tariff preference for a number of products listed in Annex I of the GSP Regulation has, however, been removed for the Chinese mainland, as explained further below.

[24] See the section of this Guide concerning rules of origin.

Content provided by Hong Kong Trade Development Council
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