Session 1: Rules of Origin FRANCIS SERAFIN DE LEON 17 MARCH 2016

TPP Forum OBJECTIVES: roo AND ORIGIN PROCEDURES TPP Accession, Tariffs and ROO Establish understanding of the significance that tariffs and ROO play in any country decision to accede to an FTA Promote greater understanding on how tariff preference is ultimately given to exports and imports TPP Readiness Establish basic understanding of the ROO Structure Identify & analyze gaps in the ROO Structure of TPP and the Philippine’s enforced Free Trade Areas (PFTAS) Findings and Recommendations Highlight important ROO gaps between TPP and PFTAS Provide key recommendations to overcome accession hurdles in the area of ROO

Basic Accession Equation to Goods Agreement Tariff Modalities on Traded Products: MFN vs. TPP Origin & Consignment Criteria, OCP Level of TPP Accession Benefit to RP on Goods

Trading under mfn and ftas: basic considerations Case 1 MFN tariff rate of India is equal or less than the AIFTA rate Option to export to India under MFN

Trading under mfn and ftas: basic considerations Korea’s MFN tariff rate is greater than its AKFTA tariff rate RP Products to be exported are non-compliant to AKFTA ROO requirements Option to trade under MFN only Case 2

Trading under mfn and ftas: basic considerations MFN tariff rate is greater than the ATIGA tariff rate Products to be traded are compliant to ATIGA ROO requirements Option to trade under FTA (AFTA) Case 3

Trading under mfn and ftas: basic considerations Exporting Originating Goods under ACFTA Request from Importer/buyer for the Issuance of Form E (ACFTA) Option to trade under FTA (ACFTA) Case 4

Supply chain configurations and fta options Case 1 RP Export Product to Thailand Primary Material 1 - Indonesia Primary Material 2 – Vietnam Primary Material 3 - Philippines FTA?

Supply chain configurations and fta options Case 2 RP Export Product to Indonesia Primary Material 1 - Taiwan Primary Material 2 – Australia Primary Material 3 - Philippines FTA?

Supply chain configurations and fta options Case 3 RP export product to Japan Primary Material 1 - RP Secondary material 1-China Secondary material 2 -Australia Primary Material 2 - RP Secondary Material 1(2) -India

Supply chain configurations and fta options Case 4 RP export product to USA (dyed fabric) Cotton Yarn - RP Cotton Fiber - USA Polyester Yarn - RP Polyester Filament - Japan

Why do we need the Rules of Origin in AN FTA? Not all products traded in an FTA are accorded the tariff preference An FTA extend preferential tariffs ONLY to products originating from the country/area ROO will determine which products are considered originating

Why do we need the Rules of Origin in AN FTA? FTAs extend preferential tariffs ONLY on products originating from the country/area ROO will determine which products are considered originating

Conditions for qualification to preferential treatment 2008/04/17 Conditions for qualification to preferential treatment Product is produced in Country A for export to Country B Product is listed in the goods for the preferential treatment in Country B Originating goods of Country A Satisfies the origin criteria Originating goods of Country A that satisfied the consignment criteria Satisfies the consignment criteria 原産地規則との関係 一般に、ある国から輸入される貨物が関税上の特恵待遇等を受けるためには、① 当該貨物が当該特恵待遇等の対象として指定されていること、② 当該貨物が当該特恵待遇等を受けるための条件を実際に満たしていること、及び、③ 当該満たしていることを税関当局に対して証明すること、のすべてが必要である。これらのうち、①は、当該貨物が、当該特恵待遇等の対象であることが譲許表等において指定されているということを意味する。そして、上記②及び③が原産地規則に対応するものとなる。本稿においては、このうち②に掲げた｢実際に満たすべき条件｣のことを実体的要件と呼び、③の｢証明しなければならない｣という要件のことを手続的要件と呼ぶこととする。この場合において、上記１．において説明した原産地規則の３大構成要素(＝原産地基準、積送基準及び手続的規定)とこれら２つの要件との関係であるが、 実体的要件＝原産地基準＋積送基準 手続的要件＝手続的規定の一部 となるものと解される。なお、手続的規定の中には、事前教示等、手続的要件以外の事項が含まれていることに留意する必要がある。 Originating goods of Country A is eligible for preferential tariff Satisfies the origin certification procedures Preferential tariff treatment Certified to meet both origin and consignment criteria 14 14

The basic roo structure Basic Concept of Rules of Origin - Keynote address 2008/10/21 The basic roo structure (2) Consignment Criteria (2) Rules for determining whether or not the good in question maintains the acquired origin status during its transportation Country A Country B : a Party Country C: A Party (3) Rules for origin certification or for verification of declared origin of the good (1) Rules for determining the origin of the good at the time of exportation (3) Procedural Provisions (1) Origin Criteria Customs Training Institute, Ministry of Finance, Japan

General structure of ROO Wholly obtained or produced goods Wholly obtained or produced goods Not wholly obtained or produced goods Origin criteria Change in tariff classification criterion Goods produced exclusively from originating materials Value-added criterion Rules of origin Specific manufacturing or processing operation criterion Consignment criteria Goods satisfied substantial transformation criterion Exceptions to the substantial transformation criterion Procedural provisions 原産地規則の構成をもう少し詳しく見てみると、（クリック） 先ほど説明したように３つの要素から構成されている。すなわち、①原産地基準、②積送基準、③手続的規定。このうち、原産地基準は、（クリック） 品目横断的に適用される総則的規定と、個々の品目ごとに適用される品目別規則とに大別される。 総則的規定は６つのカテゴリーに分けられ、このうちの「完全生産品」「実質的変更基準」「原産材料から生産される産品」は重要なパート。さらに（クリック） 実質的変更基準については、「関税分類変更基準」「加工工程基準」「付加価値基準」に細分される。これらも、原産地規則の主要な部分。さらに（クリック） 実質的変更基準の例外として、累積、僅少の非原産材料等があり、（クリック） さらにその他の特別な規定についても８つのカテゴリーに細分され、（クリック） また、手続的規定についても６つのカテゴリーに分けられる。 以下、これらの内容について説明させていただきます。 Certificate of origin Transportation documents Accumulation De minimis Three Major Elements of ROO Non-qualifying operations

Important features of PFTAS ROO Origin Criteria Residual origin rule of RVC 40% or CTH RVC calculation based on build-up or build-down methods Adoption of Product Specific Rules that allow the application of alternative substantial transformation rules for most tariff lines Chemical reaction rule for HS chapters 28,29,31 3 alternative origin rules for textiles and apparel, allowing importation of non-originating materials RVC 40% only rule for CBU and parts

Important features of PFTAS ROO Non-qualifying operations De minimis rule based on value, weight or volume Bilateral, diagonal and partial accumulation scheme Consignment Criteria Direct consignment Origin Procedures Gov’t or chamber of commerce issued CO Back-to-Back CO/ Movement Certificate

Important features of PFTAS ROO Origin Procedures Retroactive and on-sight verification visits Bond posting for questionable shipments Back-to-Back CO/ Movement Certificate USD 200 maximum value for waiver of CO presentation 2 or 3 years record keeping requirements No refund provisions for preference claims made after importations

Important features of TPP ROO Origin Criteria No residual origin rule All PSR origin criteria structure RVC calculation based on build-up (VOM based), build- down, net cost, focused value methods Higher RVC thresholds (30% to 55%) Adoption of Product Specific Rules that allow the application of substantial transformation rules for most tariff lines 9 types of specific process rules (as applied) as alternative rules for chemical products of HS Chap. 27 to 38

Important features of TPP ROO Yarn forward rule for textiles and apparel products of natural fibers or man-made filaments, except for textiles and apparel products from silk and vegetable fibers No assembly operations for footwear RVC rule (net cost method) only for most CBU and its parts No list of non-qualifying operations De minimis rule for most tariff lines based on value Bilateral, diagonal, full cumulation

Important features of TPP ROO Consignment Criteria Direct consignment Origin Procedures Private sector issued origin certifications (importer or exporter or manufacturer) Retroactive and on-sight verification visits Bond posting for questionable shipments USD 1,000 maximum shipment value for waiver of CO presentation 5 years record keeping requirements

Important features of TPP ROO Refund provisions for preference claims made after importations

KEY FINDINGS ORIGIN CRITERIA The PFTAS and TPP adopt similar principles and technical operative arrangements in the implementation of the following key ROO and consignment elements: Origin status of goods that are considered preference conferring RVC calculation in relation to build-up and build-down methods Bilateral/diagonal accumulation arrangements De minimis rule based on value Substantial transformation rules relating to CTC, RVC and specific process rule (SP) Transit and transhipment

KEY FINDINGS ORIGIN CRITERIA The Philippine FTAS have no experience in determining origin status of goods exported or imported under the following circumstances: Preference claims made using product specific rule based on the regional value content formula adopted in the TPP ( build-up method (VOM based), net cost method and focused value method) Preference claims made using product specific rules based on specific process rules relating to chemical reaction, distillation, direct blending, diluent, purification, mixing and blending, change in particle size, standards materials, isomer separation Full accumulation scheme

KEY FINDINGS Product Specific Rules The Philippines preferred PSR structure and outcome, including the PSR it concluded and implemented in one or more of its regional FTAs, are significantly similar and comparable with those adopted under the TPP, particularly in the following groups of products: Unprocessed Agricultural Products – ATIGA, AANZFTA, ACFTA, AIFTA Processed Agricultural Products – ATIGA, AKFTA, AANZFTA, ACFTA, AIFTA Cement Products – ALL PFTAs Chemical Products – on CTC rules in ATIGA, AANZFTA, AJCEPA Plastic Products – All PFTAs (except those with minimum originating materials content under the TPP)

KEY FINDINGS Product Specific Rules Processed Agricultural Products – ATIGA, AKFTA, AANZFTA, ACFTA, AIFTA Leather and Wood Products – All PFTAs Textiles and Apparel Products – AJCEPA, JPEPA, AKFTA Footwear, Gaiters – All PFTAs Iron and Steel – All PFTAs Nuclear Reactor, Boilers, Machineries – All PFTAs Motorcycles (including mopeds) – All PFTAs

KEY FINDINGS ORIGIN PROCEDURES The PFTAS and TPP adopt similar principles and technical operative arrangements in the implementation of the origin certification procedures relating to: retroactive and onsight verification visits

KEY FINDINGS ORIGIN PROCEDURES The PFTAS and TPP adopt divergent principles and technical operative arrangements in the implementation of the origin certification procedures relating to: Issuance of the certification of origin (government vs. trader issued) Threshold for the waiver of the issuance of a certification of origin (USD 200 vs. USD 1,000) Maximum period of keeping records of goods that made claims for tariff preference (3 years vs. 5 years) Provision for refund after importation of originating goods (no provision vs. mandatory provision)

RECOMMENDATIONS The Government Inter-Agency Body on ROO and Industry Consultation Process The Department of Trade and Industry must convene the relevant technical working groups composed of specialist/experts on preferential rules of origin, origin certification procedures, agricultural and industrial commodities, tariff classification, industrial planning and customs procedures to initiate inter-agency review and establish a uniform understanding of all the legal, technical and procedural requirements set by the ROO Chapter of the TPP.

RECOMMENDATIONS The Department of Trade and Industry and other relevant agencies must subsequently conduct series of industry specific consultations (e.g., agriculture, chemicals, textiles and garments, footwear, steel, electronics, machineries, motor vehicles, etc.) to discuss the requirements of the ROO chapter (origin criteria and origin procedures) and secure important feedback and information relating to supply chain profile, origin qualification profile, degree of processing, indicative regional value content, consignment requirements, recording of cost, record keeping practices on importations/exportations, etc.

RECOMMENDATIONS Necessary Information Required for Effective ROO Profiling of TPP Traded Products Sources of data have to be from multiple but select and credible origin to compensate for intrinsic data gathering limitations of government statistics. Key information or data relating to actual trade of Philippines to each TPP party on a per tariff line basis will be critical to determine trade data on exported materials and final products as well as imported materials and final products. Corresponding tariff rates applied by the Philippines and the TPP parties (non-preferential and non-preferential tariff rates) to each tariff lines will be necessary to readily identify existing difference between the MFN and the TPP rate schedule.

RECOMMENDATIONS Access to information relating to the production, sourcing and value added profile of industries will be an imperative to confirm possible compliance or non-compliance to relevant PSR of the TPP. Should a short supply list from the Philippines be allowed later in the accession process or years thereafter (periodic review), then, the information gathered from this activity will be critical. Origin Compliance Test and Evaluation Since the ROO Chapter of the TPP will have to be adopted as it is by the Philippines, the only approach available to assess offensive and defensive interests of the Philippines in relation to origin criteria built for the TPP is through actual product origin test and evaluation. A pre-accession assessment result that provides for the minimum acceptable outcome may indicate a recommendation to proceed with the accession process for the ROO chapter.

RECOMMENDATIONS Origin Certification Procedures A prior determination is an imperative on the Philippines’ readiness to provide for the required local regulations to enable for the implementation of origin procedures mandated by the TPP to implement provisions relating to: Issuance of certificate of origin higher threshold on the waiver of certification of origin longer record keeping requirement refunds for preference claims made after importation full accumulation scheme

RECOMMENDATIONS The technical and structural readiness of the Bureau of Customs and other relevant agencies to effectively assess for the origin and consignment compliance of imported goods having claims for TPP tariff preference can be a major ratification issue, as deficiencies in this aspect of customs administration directly and negatively impacts tariffs revenue collections for the government.

RECOMMENDATIONS The government needs parallel evaluation and assessment of: the requirements for the Philippine readiness to adopt and implement the self-certification scheme by the TPP that covers both exporter and importer the readiness of customs to take on the possible surge in verification requests from TPP parties the readiness of customs to introduce and implement necessary post- exportation and importation audits, and risk management controls for preference claims made under the TPP arrangement Technical capacity of customs and availability of local testing centers and laboratories to process and validate preference claims based on specific manufacturing process considered and adopted as origin conferring in the TPP such as those provided for chemical products (chemical reaction, distillation, direct blending, diluent, purification, mixing and blending, change in particle size, standards materials, isomer separation)

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