1. Seminar on Rules of Origin in the CEFTA 2006 – Agreement Shkodra/Albania, Nov. 2010
Helmuth Berndt
© 2010

2. Period of re-orientation and transition
CEFTA 1992:
Period of re-orientation and transition

3. Poland 1992 2004 Hungary 1992 2004 Czechoslovakia (then) 1992 2004
CEFTA Member states:
Entry: Leave (EU):
Poland Hungary Czechoslovakia (then)
Visegrad Goup
Slovenia
Romania
Bulgaria
Croatia
Macedonia

4. Stabilisation- and Association Pact
1999 Cologne
40 participants: All participants of CEFTA 2006,
EU, Canada, Switzerland, Russia, Japan, USA,
IMF, World Bank, OECD; NATO, UN, Turkey et alt.

5. Targets of the Stability Pact: 3 „working tables“ -. Democracy -
Targets of the Stability Pact: 3 „working tables“ - Democracy - Economy - Security

6. „Working table economy“:
To assist economic development by trade liberalisation
in the region and
in the trade with partners of the European Economic Area (EEA)

7. on Trade Liberalisation and Facilitation Key targets:
2001 Memorandum of Understanding
on Trade Liberalisation and Facilitation
Key targets:
- Bilateral Free Trade Agreements
- Enhance the WTO accession
- Stimulation of the EU accession process

8. 2003 – 2005:
Network of 32 bilateral Free Trade Agreements („Matrix“)
„Virtual Free Trade Zone“

9. Elements of the Free Trade Agreements:
Liberalisation of at least 90% of the trade within 6 years
- Application of preferential rules of origin
- Harmonisation of legal regulations with the EU legislation (Customs nomenclature, phyto- and sanitarian protection, tax system etc.)
- Protection of intellectual property rights
- Approximation of laws with WTO-rules

10. Joint Declaration of June 2006:
Creation of a single modernised and improved CEFTA (1996) Agreement in
- full conformity with the WTO rules
- and establishing a zone of diagonal accumulation

11. Agreement on Amendment of the CEFTA (1996) Agreement:
Agreement on Amendment of the CEFTA (1996) Agreement

12. Conditions for the accession:
WTO-membership (in case of non-membership a committment to application of WTO-rules mutatis mutandis is imposed, actually relevant for Serbia, BiH and UNMIK/Kosovo)
Free Trade Agreement with the EU
Free Trade Agreements with all member states of CEFTA

13. Structural elements of the Agreement:
Preamble -with reference to EU-accession and WTO compliance-
Objectives
Industrial products
Agricultural products
Technical barriers
General provisions
New trade issues - with reference to „TRIPS“
Joint declaration – containing WTO-Annexes 1 A, B, and C

14. Main targets of CEFTA 2006 (trade related):
Free trade in the area
Trade facilitation by
- Customs preferences
- - In general duty free trade
- - Support for technical co production
- Modern and harmonised Customs Law
- Lesser technical barriers
- Harmonisation of standards

15. Customs preferences in detail:
- Abolition of quantitative restrictions
- No export duties
- No new import duties
- Industrial goods:
- - Duties abolished at entry into force
(exceptions in Annex 2/dismantling)
- Agricultural goods:
- - Duties abolished, reduced or retention of MFN-tariff (Annex 3)

16. Conditions for Customs preferences:
- Goods are eligible or preferences - Goods are originating in the country of exportation - Technical conditions are met

17. The cornerstone: Rules of Origin
Different trade within a
Free Trade Zone
and a
Customs Union

18. Free Trade
Association 3% 2% 4%
10%
Japan
Japan

19. Free Trade
Association
Customs Union 3% 7% 2% 7% 7% 4%
10% 7%
Japan

20. Intensity of EU-Preferences per 1.8..2010
Complete integration: European Union
Customs Union: With Turkey (except steel products)
EU-EFTA Agreements:
Norway, Iceland, Liechtenstein, Switzerland
“Europe Agreements”: No more countries
Stabilisation and Association Agreements with Croatia, BiH, Macedonia, Albania, Montenegro, Serbia (Interim)
Economic Partnership Agreements ( EPAs, see “Abroad”)
Mediterranean Agreements :North Cyprus (Turkish part),
Maghreb states: Morocco, Tunisia, Algeria.
Mashrek group: Egypt, Jordan, Syria, Lebanon. Plus Israel and PNA
Abroad: South Africa, Mexico, Chile, EPAs: Cariforum, Pacific Terr.
Unilaterally: 178 (176) developing countries in the GSP,
Balkan beneficiaries: UNMIK/ Kosovo and Moldova

21. CEFTA System of Origin Preferential definition Commercial definition
Non-preferential
definition
“Made-in” origin
EU-system
System of
other
countries
EU-
definition
Worldwide
definition
UK in 1887
WTO mandate
to WCO
Madrid-Agreement 1891
General system
of Preferences
(UNCTAD)
Rules for
specified
products
(i.e.textiles)
and
Madrid-Agreement 1958
Actually in
process
National legislation
PAFTA
ASEAN
CEFTA
AGADIR
Most important: TRIPS,
(WTO-accession!)
Rules for
all the rest
of products
Contains
elements of
the preferential
origin
WIPO-Geneva

22. Criteria for the origin of goods. Wholly obtainment. or
Criteria for the origin of goods Wholly obtainment or sufficient processing

23. What is “Wholly obtained” ??

24. See Article 5 of the Origin Protocol:
Mineral products: Extracted from the soil Vegetables: Harvested there Live animals: Born and raised up …..

25. Tomatoes, 0702, harvested “WHOLLY OBTAINED” ORIGIN BECAUSE Processing:
Heading 2103
“WHOLLY OBTAINED”
ORIGIN BECAUSE
EXPORT:
ORIGIN, BECAUSE RAW
MATERIAL IS ALREADY
WHOLLY OBTAINED
But bottle, spices?
Tomatoes1

26. 4403
4403
4407
IS IT WHOLLY OBTAINED?
9504

27. Wholly obtainment frequently used for agricultural goods:
Chapter 07 Edible vegetables: Fresh, chilled, provisionally preserved Chapter 08 Edible fruits: Fresh, dried Chapter 20 Preparations of vegetables: In general all vegetables and fruits used must be wholly obtained (with little exemptions). Chapter 21 Miscellaneous edible preparations: With one exception no wholly obtainment „Chapter“ means Chapter of the „Harmonised System“ – see below).

28. The alternative for the processing industry: Sufficient processing

29. Most frequent basic principles :
Change of the HS-heading (4-digits!)
Limited percentage of the used materials
- Manufacturing procedure
-- AND COMBINATIONS THEREOF—
Recommendation: To start with the
production on the lowest level possible

30. 10% of materials which should not be used, are allowed.
General tolerance:
10% of materials which should not be used, are allowed.
The tolerance rule cannot be applied for textiles (Chapter 50 – 63) and in case of insufficient working or processing.

31. Column 3 an 4 only refer to imported materials
Where to find these criteria?
See „List of working and
processing“
= Annex to the Origin Protocol
Column 3 an 4 only refer to
imported materials

32. Importance of the HS for the. rules of origin: -
Importance of the HS for the rules of origin: - For preferential origin: 4 digits (for used materials: See Customs declaration) - for export goods: See export declaration - For help: Binding tariff information by Customs! - For non-preferential origin: 4 digits, 1 KN- code-line with 8 digits - Tariff reduction schemes: 6 – 8 digits

33. The Structure of the HS 01 04 20 90 00 10 Heading HS Subheading HS
Chapter HS
Heading HS
Subheading HS
Subheading National Statistic
(Combined Nomenclature, TARIC)
National
Internal

34. The HS / version 2007 is divided into
21 SECTIONS
97 CHAPTERS
1221 HEADINGS
5052 SUBHEADINGS
General Rules I – V, also binding

35. Determination of the origin in case of „sufficient processing“:
- HS-heading of the finished product - HS-heading of the used materials - Exact calculation of the ex works- price per unit (= exact bookkeeping!)

36. The value of the used materials is their Customs value.
So: Important is to check the Customs value carefully!
Be aware of the exchange rate!

37. Some examples for sufficient processing:

38. Combined criteria - Medicine
HS headings 3003, 3004:
1. Tariff change of all used materials
But: materials of headings 3003 and
3004 only up to 20% ex-works
and
2. Used materials must not exceed 50% of the ex works-price.
Combined criteria - Medicine

39. Example for Exclusion of a heading,
exclusion specific imported materials
and
restriction of imported materials:
Heading 1904, I.E. Corn Flakes Question: Is it allowed to use imported mineral salts?

40. Example for minimum- input of originating materials:
HS-heading 2402,
… Cigarettes…:
At least 70% by weight of the used
tobacco must be originating in the country

41. Notice: Chapter 1 = Live animals!
Preparations of meat of Chapter 16:
" Manufacture from animals of chapter 1”
Notice: Chapter 1 = Live animals!
(sanitarian conditions of
slaughter houses!)

42. „Manufacture from yarn“
Clothes and garments of Chapter 61 and 62:
„Manufacture from yarn“

43. Rules for cotton products:
1.Natural cotton fibers, not prepared for spinning HS 5201

44. 2. Cotton yarn, HS 5203
Manufacture from natural fibers, not prepared for spinning

45. 3. Cotton Fabric HS 5208
Manufactured from natural fibers, can be prepared for spinning

46. 3. Jeans HS 6203
Manufactured from YARN

47. Alternative 1/ for fabrics:
Alternative for the fabric:
Printing of the raw fabric
(Plus at least two finishing steps)
But: Value of the unprinted fabric allowed only up to 47,5 % of the ex-works price of the goods
Alternative 1/ for fabrics:

48. Alternative for clothing:
Embroidered clothing:
Manufacture from unembroidered fabric with a value of not more than 40 % of the ex-works price of the finished good

49. Insufficient treatment (“simple operation”) in general not accepted as to confer origin. For details see Art. 7 of the Origin Protocol, but see cumulation rules (below).

50. Alternative criteria:
Column 3 of the “List”:
Alternative criteria:
Why do you need and when should you use the
alternative criterion??

51. Fertilizers Ex - 3105 Standard rule col. 3:
Manufacture, in which all materials used are classified within a Heading other than that of the product.
However, materials classified within the same heading may be used, provided their value does not exceed 20% of the ex-works price of the product

52. And the value of all materials used does not exceed 50% of the ex-works price of the product
- COMPLICATE -

53. Alternative Rule Col. 4:
Manufacture in which the value of all the materials used does not exceed 40% of the ex-works price of the product
Simple and allows products of heading 3205 up to 40%

54. If the conditions of the „List“ cannot be met, a co-production with a partner state can help in order to get the origin for the finished product.
How?
By processing materials originating in this or in more partner states.
Which possibilities are actually offered by the Free Trade Agreements?

55. 1. Bilateral accumulation 2. Diagonal accumulation
Actual models of co-production:
1. Bilateral accumulation
2. Diagonal accumulation
3. Full accumulation, actually only by EU applied
in the trade with the Maghreb states, some former
ACP states and in the EEA (EU + NO, IS, FO, CH is
connected).
Principle:
Non originating material as first processing step
allowed, but all accumulations must lead finally to
“List compliance” -.

56. Bilateral accumulation
PREFERENCE
AREA A
CONTRACTING
PARTY B

57. Conditions for bilateral accumulation
1. Agreement between the partners
2. Processing of originating
materials more than insufficient
- but less than sufficient
processing is allowed -
3. If only insufficient processing:
Origin will be retained
4. Non-originating materials have to be
processed sufficiently (“List”)

58. The bilateral accumulation today is integrated as standard rule in all modern European Free Trade Agreements.
The „pan-european accumulation“,
which covers the bilateral and the diagonal accumulation with more than two involved trade partners, nowadays constitutes the most favourable and most modern system of trade facilitation by Customs technique.

59. B A D MULTILATERAL/DIAGONAL ACCUMULATION PREFERENCE PARTY AREA PARTY C
CONTRACTING B
PARTY
PREFERENCE A
AREA D C
CONTRACTING
PARTY
MULTILATACCUM

60. Advantages of the Pan-European accumulation
No more differentiation between bilateral and multilateral accumulation
Insufficient operation can lead to the origin
Facilitation and enhancement of regional cooperation

61. The diagonal accumulation is used
- in the trade within EEA (European Economic Area) = EU plus EFTA- states Norway and Iceland, while Switzerland incl. Liechtenstein are associated to the EEA,
- in the trade of the EEA with Turkey,
- in the trade of the EU and Turkey with the SAP-partners,
- within the CEFTA-region

62. Accumulation in the CEFTA-Origin Protocol:
Origin in CEFTA-states, 2 options:
Art. 3 of the Origin Protocol:
- - Using originating materials only from CEFTA-member states (Art. 3, Item 1),
- - Using originating materials from CEFTA-member states, the EU, Iceland, Norway, Switzerland and Turkey (Art. 3, Item 2).

63. Origin in CEFTA-states a n d in the EU: Art. 4 of the Origin-Protocol:
- Using originating materials from any other CEFTA-party or from the EU (Art. 4 (1) of the Origin Protocol)
Question: How to be applied?

64. Conditions for CEFTA-accumulation:
Agreements with all other involved partner
states with identical rules of origin
2. Origin of the materials and processing of more than “insufficient operation”
3.) Publication in the Official Journal/Gazette
same conditions as in pan-european model ----

65. Principles of CEFTA-accumulation
1. Processing more than insufficient operation:
= Origin in this country, Compliance to list-criteria is not necessary!
2. Processing only as insuficient operation:
= Origin in the last country only if the added value there is higher than the highest value share of originating materials
of the other involved countries
3. Processing of non-originating materials:
= Origin only by sufficient working or
processing (according to “list criteria”)
4. Unchanged sale of the materials:
Goods retain their origin

66. Example for CEFTA-accumulation
Export product: Woven fabric of wool, HS 5112, woven in Albania, export to Montenegro
Input: yarn of wool of HS 5107, originating in BiH and Serbia
The weaving in Albania is more than insufficient processing. The criterion of fabric is: Manufacture from natural fibre.

67. Result: The fabric gets Albanian origin
Reason: BiH, Serbia, Montenegro and Albania are contracting parties to the CEFTA-2006 Free Trade Agreement.
Preference in Montenegro.
In case of only insufficient operation in Albania, i,e, only packing of the yarn, the origin goes to the country with the highest input of originating materials.
Applied: Art. 3, Item 1 of the Origin Protocol

68. Same example,but export to the EU:
Same result:
The woven fabric has Albanian origin and is eligible for preference in the EU, because all involved parties have Free Trade Agreements (actually as Interim Agreements) with the EU and between themselves. Preference in the EU.
Applied: SAP-Agreement
Question: Yarn from Croatia ??

69. Example with export to Turkey:
Yarn ( HS 5204) origin: EU
goes to Albania for weaving into
raw fabric ( HS 5208) origin: Albania
fabric goes to Serbia for dyeing origin: Serbia
fabric sold from Serbia to Turkey
Both processings are more than unsufficient operation within the CEFTA accumulation.
But: There is no Agreement between Turkey and Albania (but between
Turkey and EU and Turkey with Serbia) . No preference in Turkey, non-preferential origin only!

70. Example with 10%-tolerance and “insufficient operation”
Assembling of a ball point pen of HS 9608 for export to the EU
- All used parts are of HS 9608:
- Cartridge, origin EU, value 2.—€
- Plastic parts, origin BiH value 1,-- €
- Clip, origin Montenegro value 1.-- €
Ex-works price in Albania €
Export → Serbia: Origin is EU ( highest share)
Applied: Art. 3, Item 2 of the Origin Protocol
The “ List” does not apply because of “insufficient operation”!
If: Cartridge is of origin BiH: Origin of the pen will be BiH
If: Cartridge is of origin Albania: Origin of the pen will be Albania
If: Clip is of origin China: No preferential origin for the pen at all
- 10%-tolerance rule does not apply:
“Insufficient operation” is given and
%- tolerance is exceeded

71. Example with “insufficient operation” only
Jeans / Origin BiH ( HS 6203) with EUR.1 go to
Albania for packing and export to the EU:
Values: Jeans Euro
Packing costs Euro
Plastic bag (Albania) Euro
Other costs/profit Euro
Price ex works Euro
Added value in Albania: Euro
Highest value input = BiH, Origin = BiH
Applied: SAP-Agreement
Question: If the plastic bag is of origin Ukraine?

72. No Draw Back rule Art. 15 of the Origin Protocol General background
Concerned goods

73. Example: TV tube
Origin : South Korea
Processing in Albania for TV-set
Value not exceeding 25% of the ex - works price of the TV (HS 8528)

74. Export of the finished TV to other CEFTA-partner state with EUR.1
1. Duty free access of the Korean TV tube to the CEFTA - market,
2. disadvantage for CEFTA producers against Albanian producers because
of customs duties to be paid by the CEFTA producer for his importations of tubes.
Question: Exportation to EU-market ?

75. Additional special rules:
Accessories, spare parts
Neutral elements
Principle of territoriality
Direct transport
Free zone processing
Sanctions

76. Impact of the rules of. origin on the internal. structure of your
Impact of the rules of origin on the internal structure of your company:

77. Purchase Calculation Production Preferences Sales Marketing
Case Worker
Preferences
Sales
Marketing
Calculation 2

78. Formal simplification:
- Invoice declaration for
all shipments up to € or
as „Approved Exporter“
--- in future: „Approved Economic
Operator“/AEO:
Approved for Security aspects,
Customs procedures or both---

79. Details for the „approved exporter“:
- Legal base in the Agreement
- Irrespective of the value
- Origin declaration by typing, stamping or printing on the invoice or any commercial doc.
- Wording must be according to the legal text
The declaration must be signed ( principle)
- Non-originating goods indicated only on the invoice
- Written application and basic audit
- Frequent shipments, knowledge of rules of origin
- Proper records and stock accounts
- Full responsibility by the exporter
- Regular audits by the Customs
- Withdrawal of the authorization in case of non-compliance

80. Internal proof of origin of materials:
„Supplier‘s declaration“ as part of the contract:
Certification for the
- - status of non-originating materials
- - status of already originating materials
- Issued for single shipments and
as long term declaration.
Responsibility by the manufacturer, auditing by the Customs.
Actually formally applied and based in the Agreements within the EEA and between EU, Turkey and the Maghreb states, but informal use is highly recommended.

81. Thank you for your attention!

82. Thank you for your attenion
Helmuth Berndt
Senior Customs Advisor
Tel.:
fax :
Mob.:
LV-CEFTA-Maced-2010
Thank you for your attenion