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

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Presentation on theme: "Seminar on Rules of Origin in the CEFTA 2006 – Agreement Shkodra/Albania, Nov. 2010 Helmuth Berndt © 2010."— Presentation transcript:

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

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

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

4 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 5 Targets of the Stability Pact: 3 working tables -Democracy -Economy -Security

6 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 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 – 2005: Network of 32 bilateral Free Trade Agreements (Matrix) Virtual Free Trade Zone

9 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 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 11 Agreement on Amendment of the CEFTA (1996) Agreement :

12 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 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 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 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 16 - Goods are eligible or preferences -Goods are originating in the country of exportation -Technical conditions are met Conditions for Customs preferences:

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

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

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

20 20 Intensity of EU-Preferences per Complete integration: European Union Customs Union: With Turkey (except steel products) EU-EFTA Agreements: Norway, Iceland, Liechtenstein, Switzerland Europe Agreements: No more countries 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 Stabilisation and Association Agreements with Croatia, BiH, Macedonia, Albania, Montenegro, Serbia (Interim) Abroad: South Africa, Mexico, Chile, EPAs: Cariforum, Pacific Terr. Unilaterally : 178 (176) developing countries in the GSP, Balkan beneficiaries: UNMIK/ Kosovo and Moldova

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

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

23 23 What is Wholly obtained ??

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

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


27 27 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). Wholly obtainment frequently used for agricultural goods:

28 28 The alternative for the processing industry: Sufficient processing

29 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 30 The tolerance rule cannot be applied for textiles (Chapter 50 – 63) and in case of insufficient working or processing. General tolerance: 10% of materials which should not be used, are allowed.

31 31 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 32 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 33 The Structure of the HS Chapter HS Heading HS Subheading HS Subheading National Statistic (Combined Nomenclature, TARIC) National Internal National Internal

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

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

36 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 37 Some examples for sufficient processing:

38 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.

39 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 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 41 " Manufacture from animals of chapter 1 Preparations of meat of Chapter 16: Notice: Chapter 1 = Live animals! (sanitarian conditions of slaughter houses!)

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

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

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

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

46 46 Manufactured from YARN 3. Jeans HS 6203

47 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

48 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 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 50 Column 3 of the List: Alternative criteria: Why do you need and when should you use the alternative criterion??

51 51 Fertilizers Ex 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 52 And the value of all materials used does not exceed 50% of the ex-works price of the product - COMPLICATE -

53 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 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 55 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 56 PREFERENCE AREA A CONTRACTING PARTY B Bilateral accumulation

57 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 58 The bilateral accumulation today is integrated as standard rule in all modern European Free Trade Agreements. Thepan-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.


60 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 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 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 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 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 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 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 67 Result: The fabric gets Albanian origin Reason: BiH, Serbia, Montenegro and Albania are contracting parties to the CEFTA 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 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 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 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 5.-- 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 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 20.- Euro Packing costs 2.- Euro Plastic bag (Albania) 0.5 Euro Other costs/profit 2.5 Euro Price ex works 25.- Euro Added value in Albania: 5.-- Euro Highest value input = BiH, Origin = BiH Applied: SAP-Agreement Question: If the plastic bag is of origin Ukraine?

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

73 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 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 75 Additional special rules: Accessories, spare parts Neutral elements Principle of territoriality Direct transport Free zone processing Sanctions

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

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

78 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 79 -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 Details for the approved exporter:

80 80 Internal proof of origin of materials: Suppliers 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 81 Thank you for your attention!

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

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