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HOW TO BE MORE INTERNATIONAL AND BENEFIT FROM THE NETWORK’S SERVICES

FREE TRADE AGREEMENTS

DATA 6th APRIL

Barcelona Chamber of Commerce


To know about the existence of FTA

To know the different kinds of Origin: non preferential and preferential

Acquire knowledge about the different types of rules of origin

Learn how to issue proofs of origin

Objectives of this session


Contents

Introduction: some concepts of foreign trade that will help

you to prepare your International Promotion Action Plan

Origin determination: Non Preferential and Preferential

Free Trade Agreements and rules of origin

Origin determination:Technical challenges

Introduction: some concepts of

foreign trade


The European Union is the most integrated area in the world, regarding trade.

In customs legislation the Member Estates do not have competences. The competence belongs to European Union.

There is an Uniformity in Customs law by means of 3 Regulations:

Community legislation:

Union Customs Code UCC Regulation 952/2013 from 9th October 2013.

Of the European Parliament and of the Council.

Commission Delegated Regulation 2446/2015 of 28th July 2015.

Commission Execution Regulation 2447/2015 of 24th November 2015.

Juridical Documents emanated from the European Commission.


INTERNATIONAL TRADE OPERATIONS

BUYING TO THIRD COUNTRIES

IMPORTS

SELLING TO THIRD COUNTRIES

EXPORTS

BUYING AND SELLING INSIDE THE EU

DISPATCHES/ARRIVALS INTRACOMMUNITY


CLASIFICATION ORIGIN VALUE

The customs, in order to comply with all their functions, need to know this aspects of the goods:


Customs classification goods – HS System Harmonized System – HS

Goods are classified according to their composition,

function, use, or size based on the Harmonized

Commodity Description and Coding System

(‘Harmonized System’ –HS)

The HS is an internationally standardized system of

names and numbers developed by the World

Customs Organization (WCO) in 1988.

The Harmonized Commodity Description and Coding

System (HS) is a universal economic language to identify

goods. It is basically a system of numbers and names.

Countries apply their own more detailed versions of the

HS –

The EU uses the ‘Combined Nomenclature’ (CN) 8-digit

code used on Exports, on Intrastat..


Customs classification goods – HS System

In the EU, you will

need 10‐digit code

(often known as

‘commodity code’) to

correctly classify your

goods on imports:

Origin determination


Origin of the Goods:

It is the geographical link that a good has with a specific territory from which is considered to have been obtained

or produced.

Economic Passport of goods that will determine its treatment when this good arrives to another territory to be

imported.

NACIONALITY-------------------------------PERSON

ORIGIN----------------------------------------GOODS

Difference between provenance and origin.


CUSTOMS TREATMENT CUSTOMS QUOTA ANTIDUMPINGS

LABELING COUNTRY OF ORIGINSANITARY MESURES

INSPECCIONS

QUARANTINES

STATISTICS TRADE

Each country can Export meat to

EU up to a specific quantity

Why is important the Origin of the Goods?

ORIGIN.- Territory where a good has been fully obtained or produced, or where the good has been sufficiently transformed, according to the regulation.

PROVENANCE.- It is the country or territory from where the goods come.

Origin ≠ provenance Importation does not mean that it acquire EU origin. (comply with all legally operations due).

THE COMMUNITY STATUS:

It is the legal situation of an imported good after having satisfied all customs duties and all other requirements and therefore it canfreely circulate within the Community.

Origin of the Goods:


Types of origin

Original

Non OriginalINSUFFICIENTLY TRANSFORMED

NON PREFERENTIAL

SUBSTANTIALLY TRANSFORMED

PREFERENTIAL

SUFFICIENTLY TRANSFORMED


PREFERENTIAL

WHOLLY OBTAINED

NON TRANSFORMED

Non Original Products


Insufficiently transformed goods

Goods that undergo some operations that don’t contribute in any sense or very little to give to the good its more essentialcharacteristics. Those operations that won’t confer origin to goods that do not have any added value:

- Necessary manipulations to ensure conservation of goods through their transportation or storage.

- Manipulations aiming to improve the commercial presentation and quality of goods, or conditionate them for transportation suchas, size aggrupation, packaging modification.

Simple packaging operations

Labelling

Cleaning operations, selection or elaboration of assorted goods


Insufficiently transformed goods: Minimal operations and Insuffient operations

The following examples are not sufficient in themselves to confer origin:

• Preserving operations to make sure that the products remain in good condition during transport and storage (freezing,

cooling, ventilation, drying, etc.).

• Breaking-up and assembly of packages.

• Washing, cleaning, removal of dust, oxide, oil, paint or other coverings.

• Ironing or pressing of textiles.


• Simple placing in bottles, cans, flasks, bags, cases, boxes, fixing on cards or boards and all other simple packaging operations.

• Affixing or printing marks, labels, logos and other like distinguishing signs on products or their packaging.

• Simple mixing of products, whether or not of different kinds.

• Simple assembly of parts of articles to constitute a complete article or disassembly of products into parts.

• Animal sacrifice.

Previous operations combined.

Insufficiently transformed goods: Minimal operations and Insuffient operations

Original Products


Original Products: substantially or sufficiently transformed

There are two types of origin:

- NON PREFERENTIAL ORIGIN (for trade measures), made in

- PREFERENTIAL ORIGIN (for preferential tariffs measures)

The main difference between preferential and non-preferential origin lies in the UTILITY of each of them and in the level of exigence.

Non-preferential origin is used to apply all other customs and fiscal measures that are not tariffs.

Preferential origin has tax benefit, it is used for the obtain customs duties lower or zero.

Non Preferential Origin


Original Products: Non preferential origin: regulations

• International regulations:

International Convention on the simplification and harmonization of customs procedures (Kyoto Convention) June 1974.

• Community regulations:

Community Customs Code, Reg. 2013/952 Art. 59 - 63

Commission Delegate Regulation (EEC) No 2015/2446 Art 31 a 36 and annex 22-01

Commission Implementing Regulation (EEC) No 2015/2447 Art 57 a 59


When in the manufacture of a good there are materials from more than one territory being used, the origin of that product will

be the last country where it has been substantially transformed.

Rules of origin are norms which confirm from where a good is originated, so the economic nationality that it has.

They establish the conditions for which a good can be considered “original” from one country.

In case of the non preferential origin, there are a “list norms” established for some headings in annex 22-01 of the Regulation

2015/2446 of Customs Code Application.

Original Products: Non preferential origin: Substantially transformed goods


Original Products: Non preferential origin Annex 22-01 Delegate Regulation (EEC) No 2015/2446


Indian tissue (60)

EU

Manufacture men

knitted shirts

(6109)“Rule of non Preferential Origin:

Complete making-up

Rule of Preferential Origin:

Manufacture from non original yarn Non-Preferential origin EU

Preferential origin EU

Original Products: Non preferential origin: Substantially transformed goods Example

Preferential Origin


Original products Wholly obtained

Goods naturally occurring, such as:

Live animals born and raised in a given country.

Plants harvested in a given country.

Minerals extracted or taken in a single country.

As an example, taking the origin protocol of the EU-

South Korea FTA on live animals and meat:

Chapter 1 Chapter 2

Live animals Meat and edible

meat offal

All the animals of

Chapter 1 shall be

wholly obtained.

Manufacture in which all

the materials of Chapters

1 and 2 used are wholly

obtained.


Union Customs Code Regulation 2013/952 Art 64 to 68

Delegated code Regulation 2015/2446 Art. 37 to 70 and Annex 22-01.

Execution code Regulation 2015/2447 Art. 60 to 126.

The preferential origin for FTA is regulated in the different agreements signed by the European Unión with other

countries or territories. Specifically in the Origin Protocols. These protocols regulate the preferential Rules of Origin which are

norms that determine the way that a product produced in one part of the agreement will be able to be considered substantially

transformed and acquire the preferential origin by the other part. These rules are specially important when in the process of

manufacturing the final product non original material has been used.

Original Products: preferential origin: regulations


Original Products: Preferential origin: Substantially transformed goods: Example

Argentina Leather

HS (41)

Synthetic Brilliants

China

HS (7018)

EU manufactures

hand bag

HS 4202

- Design

- Zip fastener

- Labour

“Manufacture from any

non-originating materials

changing HS code”

Preferential Origin EC


ORIGIN

NON-

PREFERENTIAL

The objective is to

identify the country

of origin confers

“economic “

nacionality

PREFERENTIAL

Confirm that a good

claiming preferential

status meets the

conditions of the

agreements

It is used in MFN

WTO trade

It is used for

preferential trade

Determine import

duties(preferential

tariffs)

It allows to establish:

statistics; quotas: anti

dumping measures,

licences, labelling

requirements

Source: National

legislation (+

WTO agreement)

Source:

Unilateral UCC

Bilateral: Regional

agreements or

preferential

FTA`S

Free Trade Agreements

and rules of origin

Free Trade Agreements are designed to create better trading opportunities

and overcome trade barriers. They promote the development of trade and

encourage investment. A free trade agreement reduces and eliminates

Customs duties for goods traded between contracting parties of the free

trade area.

Multiple EU trade agreements differ regarding on their content:

- Reciprocal preferential agreements: Around 40 agreements with

about 70 countries. CETA and EPA are the most progressive agreements

to date. For imports and exports.

- Unilateral preferential agreements: Generalized Systems of

Preference. Just for imports into the European Union.


Fulfil the requirements set up by

the agreement.

Be accompanied by a valid

certificate stating preferential

origin.

Be accompanied by an origin

declaration issued by an approved

exporter.

Why FTA’S? Requirements


Bilateral Agreements in the frame of Conventional EU policy are between the EU and third countries:

– Boost wealth and development between signers territories. For Exports and for Imports.

Unilateral Agreements in the frame of autonomous policy of the EU, confer to a underdeveloped countries advantages: in

duty tax and there are Only for imports

– Commercial instruments related with fostering development policies.

– Reduce poverty in developing countries, through increasing income due to exports.

Types of Preferential origin

EU Trade map


Source: EFTA, Free Trade Map


Unilateral

• Generalised System of Preferences (GSP)

• Overseas Countries and Territories (OCTs)

• African, Caribbean and Pacific Group of States (ACP)

Bilateral• East and Southern Africa – ESA (Botswana, Lesotho, Mozambique, Namibia, Swaziland, and South Africa).

• ANDORRA headings 01-24 other 25- 97 Customs Union

• CANADA CA

• CARIFORUM: ACS STATES (Antigua and Barbuda – (AG), Bahamas – (BS), Barbados – (BB), Belize – (BZ), Dominica – (DM) Dominican Republic – (DO), Granada – (GD),

Guyana – (GY), Jamaica – (JM), Federation of Saint Kitts and Nevis – (KN), St. Lucia – (LC), Saint Vincent and the Grenadines – (VC), Suriname – (SR), Republic of Trinidad

and Tobago – (TT))

• CENTREAMERICA: Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, Panama.

• CEUTA AND MELILLA.

• WEST BANK AND GAZA STRIP (Palestinian Authority)

• ANDEAN COMMUNITY: Peru, Colombia i Ecuador.

• SOUTH KOREA - KR

• EFTA: Switzerland, Norway, Iceland, Liechtenstein i Faroe Islands (Denmark).


• EUROPEAN ECONOMIC AREA (EEA)

• GEORGIA GE

• JAPAN JP

• JORDAN JO

• MEXICO MX

• MOLDOVA MD

• NORWAY NO

• PACÍFIC: PAUPUA NEW GUNIEA, FIJI ISLANDS.

• MEDITERRANEAN COUNTRIES: Turkey, Algeria, Tunisia, Morocco, Israel, Palestinian Authority, Egypt, Jordan, Lebanon i Syria.

• PAN EURO MEDITERRANI

• SINGAPORE

• SOUTH AFRICA – (ZA),

• TUNISIA TN

• TURKEY TR

• UKRAINE UR

• WESTERN BALKANS: Albania, Bosnia-Herzegovina, Kosovo, Macedonia, Montenegro, Serbia.

• CHILE CH

Origin determination:

Technical challenges


Preferential Origin: What are the Rules of Origin?

Rules of Origin (RoO) are used to determine the country of origin of imported goods so that they receive the

appropriate treatment at their importation. Their importance is derived from the fact that duties and restrictions in

several cases depend upon the source of imports. They determine where a good was obtained or manufactured;

“goods“ are defined to be all those commodities which are classifiable under the Harmonized System (HS).

EU Trade Policy Strategy for All Simpler and more development-friendly rules

Simple and easy-to-use rules of origin help EU enterprises maximise the preferential treatment offered by FTAs.

The rules of origin enable the preferential agreements to be implemented


Methods for determining preferential origin

There are several types of preferential rules of origin, which are contained in the ‘Origin Protocol’ of each agreement.

There are two basic criteria to determine the country of origin of goods. These are:

WHOLLY OBTAINED criterion:

SUFFICIENT transformation criterion:

Goods wholly obtained or produced (Live animals, fish. Inedible fish eggs and roes, unmanufactured tobacco) or Mandatory method

of a heading being original.

Change of tariff classification (criterion attributes origin to a country if the product was sufficiently changed as to move its customs

classification from one tariff line to another)

Value added (ad valorem percentages criterion) –measures how much value was added to the product in that particular country

Manufacturing or processing operation (specific process criterion) –origin depends on specific technical processes that can be

considered as an essential part in the production of the product

Mandatory method of an specific heading being original


EXERCISES Wholly obteinedDoes this product qualify for preferential origin?

Beans: grown in China

Tomatoes: grown in Morocco

Manufacturing operation: Italy

2005, Beans: “Manufacture in

which all the fruit, nuts or

vegetables used are wholly

obtained”

Baked beans in tomato sauce


EXERCISE: Rule of Origin Change of Tariff Classification

A good is considered substantially transformed when the good is classified in a heading or subheading (depending on the exact rule)

different from all non-originating materials used:

— Chapter level (2-digit)

— Heading level (4-digit) – most commonly applied

— Sub-heading level (6-digit)

— Item level (8 or 10-digit)

A mango chutney made in the UK (20 01 90 10 00) contains

imported sugar and mangoes, onions and vinegar. The transformation of the

mangoes (HS 08 04 50 00 10), onions (HS 07 03 10) and malt vinegar (HS 2209)

into the chutney (HS 20 01 90) is sufficient to confer origin in the UK.

1 2 HS Chapter

1 2 3 4 HS Heading

1 2 3 4 5 6 HS Subheading

1 2 3 4 5 6 7 8 CN Subheading

1 2 3 4 5 6 7 8 9 1

0

TARIC

Subheading


EXERCISE: Rule of Origin Value added

Regardless a change in its classification, a good is considered substantially transformed when the value added of a good increases

up to a specified level expressed by ad valorem percentage.The value added criterion can be expressed in two ways:

— A maximum allowance for non-originating materials or

— A minimum requirement of domestic content

Example: to export vehicles 8703 to Mexico in the frame of the EU Mexico global agreement Have de final vehicles acquire the preferential

origin?

Manufacture in which the value of all the materials used does not exceed 40% of the ex works price of the product

50.000€

Non-originating partsEx- works price Originating parts

OverheadsMargin

15.000€ 10.000€

18.000€7.000€

INTERNATIONALISATION PROCESSES & ENTERPRISE EUROPE NETWORK

EXERCISE: Rule of Origin Processing requerimentsA criterion of specific manufacturing or processing operations (technical requirement) regardless a change in its classification, a good

is considered sufficiently transformed when the good has undergone specified manufacturing or processing operations. For example:

HS code 620342 Articles of apparel and clothing accessories, not knitted or crocheted; a denim pants fulfill the origin rule then

they are EU preferential original pants

Rule of origin; Manufacture from non original yarn

Yarn origin from India


Multiple rules of origin

The main technical difficulty for traders using preferential origin within FTAs is managing multiple rules of origin for the same product.

This is known as ‘the spaghetti bowl effect’, which is the multiplication of bilateral FTAs, trying to achieve the same goal as multilateral

WTO negotiations.The proliferation of FTAs with different rules of origin has often been criticized as it has the following effects:

— Increase the administrative burden on exporters

— Increase the compliance costs, by increasing the data sets required as proof of origin

— Increase the costs for internal and external audits

— Reduce the utilization of FTAs


Multiple rules of origin


Preferential Rules of OriginPreferential Rules of Origin (‘RoO’) determine what products can benefit from tariff preferences. Although RoO provisions vary

between the different agreements, they tend to have a series of common characteristics.

Commonalities

—Principle of territoriality: The working or processing must be carried out in the territories of the parties

—More than minimal processing (‘non-qualifying operations’): There are operations regarded as insufficient to confer origin

—General Tolerance: The tolerance or ‘de minimis’ rule relates to the amount of non-originating material a product can contain

without changing the originating status of the product.

—Neutral Elements: Factors or means of production such as energy, fuel, tools, machinery, equipment and plant that are used in the

process of manufacture of a product, but are not incorporated/included in to the final product.

—Direct transport rule (‘direct consignment’): The goods must be shipped directly to the country of destination (in order to

avoid any additional processing outside a partner country)

—Product-specific rules: Specific rules apply according to the HS code (chapter, heading or subheading level)

—Cumulation: The way in which manufacturing can be shared by more than one country

—Proof of origin: Preferential benefit cannot be obtained without some form of certification by the exporter


CumulationThe concept of cumulation allows countries which are part of a preferential trade agreement to share production and jointly comply

with the relevant rules of origin provisions. Otherwise said, it allows products of one country of a free trade area to be further

processed or added to products in another country of that free trade area as if they had originated in the latter country. In this way,

production may be aggregated with other countries’ inputs, thus, offering additional opportunities to source input materials.

Summarizing inputs from one part of FTA is considering original in the other part of the FTA.

In principle three types of cumulation can be distinguished:

Bilateral: Originating materials from the EU are considered to be originating in Country A (and vice-versa).

Diagonal: Originating materials from the EU, Country A and Country B are considered to be originating in each of the countries.

Full: Originating materials and operations carried out in the EU, Country A and Country B can be ‘summed’ together for origin

determination;

Proofs of Origin


Managing proofs of origin

As an importer from GPS countries (Unilateral Agreements)

As an importer, if you wish to claim nil or reduced rates of duty using a preferential origin arrangement, you need to request that the

exporter ships the goods together with the appropriate proof of origin. You need to retain the proof of origin and present it to the

customs authorities if required.The following may be considered as appropriate supporting evidence:

—Invoice declaration(s) proving the originating status of materials containing the REX number for shipments up to 6.000 €.

—Form A certificates which is going to disappear on June 30th, 2020.


Managing proofs of origin

As an importer from un FTA country

As an importer, if you wish to claim nil or reduced rates of duty using a preferential origin arrangement, FTA, you need to request

that the exporter ships the goods together with the appropriate proof of origin. You need to retain the proof of origin and present it

to the customs authorities if required.The following may be considered as appropriate supporting evidence:

—Invoice declaration(s) proving the originating status of materials containing:

The REX number for Canada and Japan imports.

The Approved Exporter Number for the rest of FTA´s countries imports.

Without any number for shipments up to 6.000 € imports.

— With a Certificate EUR1’s/ or EUR-MEDs not issued in the case of South Korea.


Managing proof of origin as an exporter

EUR 1 for all the FTA countries except South Korea, Canada and Japan.


Managing proof of origin

As an exporter to a FTA country

As an exporter, if you wish that your costumers pay nil or reduced rates of duty using preferential origin arrangement, FTA, you need

to provide them the appropriate proof of origin. The following may be considered as appropriate supporting evidence:

—Invoice declaration(s) proving the originating status of materials containing:

The REX number for Canada and Japan exports.

The Approved Exporter Number for the rest of FTA´s countries exports.

Without any number for shipments up to 6.000 € imports.

— With a Certificate EUR1’s/ or EUR-MEDs not accepted in South Korea.


Managing proof of origin

As an exporter to a FTA country

As an exporter, issuing proof of origin, you are required to hold the following information and present it to the customs authorities,

should they seek to verify the accuracy of the origin determination:

—Long term suppliers declarations for outsourced parts/components.

—appropriate evidence regarding working or processing, and the materials used (Bill of Materials and Work Instructions).

—direct evidence of the cost of materials and the cost of all processes undertaken to obtain the finished goods if required by the

rules of origin.


Invoice Declaration: Approved exporter authorization

An EU exporter who wants to export to an FTA country has two options: providing an EUR-1/EUR-MED or obtaining an approved

exporter authorization. Approved exporters can replace the certificate with an invoice declaration on their shipping documentation.

South Korea did not approve the use of EUR1 Forms in their EU Preferential Trade Agreement so only traders who have this Approved

Exporter Status can issue preference certificates.

In order to be an Approved Exporter, traders must submit a request to the customs authorities in one of the Member States; they

will be issued an authorization number. The basic conditions for approval are that the exporter has to be able to prove that he will, at

any time, be able to justify the origin of the goods exported, under the conditions of all FTAs listed in the authorization.

Please note: for consignments of a value less than €6,000, the approved exporter authorization is not required and traders are

allowed to make an invoice declaration.


Invoice Declaration Registered Exporter Status (REX)

For the FTA between the EU and Canada (CETA), proof of preference is issued by obtaining a ‘Registered Exporter Status’ (REX). REX

allows a registered exporter to certify preferential origin by simply stating the country of origin of each product on the commercial

documentation, without the need to include a specific declaration on the invoice or another commercial document identifying the

exported products.

If your consignment has a value below €6,000, the statement of origin can be made with no obligation to be registered.


Long Term Supplier Declaration

Suppliers shall provide, by means of a declaration, information on compliance with the rules of origin laid down in each

of the Protocols signed by the Community and the respective country or territory which is or may be destined for

Community exports of the dispatched products.

When a supplier regularly supplies a buyer certain goods whose status with regard to the rules on preferential origin is

expected to remain constant for a period of up to two years, a Long-term Supplier Declaration may be extended with a

maximum period of validity of two years.

Thank you very much for your attention

We are at your disposal for any further information

[email protected]

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