Session 1: Rules of Origin - PowerPoint Presentation

1. Session 1: Rules of Origin17 MARCH 2016FRANCIS SERAFIN DE LEON

2. TPP Forum OBJECTIVES: roo AND ORIGIN PROCEDURES

3. Basic Accession Equation to Goods Agreement

4. Trading under mfn and ftas: basic considerationsMFN tariff rate of India is equal or less than the AIFTA rateOption to export to India under MFN Case 1

5. Trading under mfn and ftas: basic considerationsCase 2

6. Trading under mfn and ftas: basic considerations Case 3

7. Trading under mfn and ftas: basic considerations Case 4

8. Supply chain configurations and fta optionsCase 1 FTA?

9. Supply chain configurations and fta optionsCase 2 FTA?

10. Supply chain configurations and fta optionsCase 3 FTA?

11. Supply chain configurations and fta optionsCase 4 FTA?

12. 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 extends preferential tariffs ONLY to products originating from the country/area.ROO will determine which products are considered originating.

13. Satisfies the consignment criteriaSatisfies the origin criteriaOriginating goods of Country ASatisfies the origin certification proceduresOriginating goods of Country A that satisfied the consignment criteriaOriginating good of Country A is eligible for preferential tariffCertified to meet both origin and consignment criteriaProduct is produced in Country A for export to Country BConditions for qualification to preferential treatment Preferential tariff treatmentProduct is listed in the goods for the preferential treatment in Country B13

14. The basic roo structure14Country C: A Party(3) Rules for origin certification or for verification of declared origin of the good(3) Procedural Provisions(2) Rules for determining whether or not the good in question maintains the acquired origin status during its transportation(2) Consignment CriteriaCountry ACountry B: a Party(1) Origin Criteria(1) Rules for determining the origin of the good at the time of exportation

15. Three Major Elements of ROOGeneral structure of ROO15Rules of originOrigin criteriaConsignment criteriaProcedural provisionsWholly obtained or produced goodsGoods satisfied substantial transformation criterionGoods produced exclusively from originating materialsCertificate of originTransportation documentsSpecific manufacturing or processing operation criterionValue-added criterionChange in tariff classification criterionExceptions to the substantial transformation criterionAccumulationDe minimisNon-qualifying operationsNot wholly obtained or produced goodsWholly obtained or produced goods

16. Important features of PFTAS ROOOrigin CriteriaResidual 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.

17. Important features of PFTAS ROONon-qualifying operations.De minimis rule based on value, weight or volume.Bilateral, diagonal and partial accumulation scheme.Consignment CriteriaDirect consignment.Origin ProceduresGov’t or chamber of commerce issued CO.Back-to-Back CO/ Movement Certificate.

18. Important features of PFTAS ROOOrigin ProceduresRetroactive 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.

19. Important features of TPP ROOOrigin CriteriaNo 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.

20. Important features of TPP ROOYarn 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.

21. Important features of TPP ROOConsignment CriteriaDirect consignment.Origin ProceduresPrivate 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.

22. Important features of TPP ROORefund provisions for preference claims made after importations.

23. ORIGIN CRITERIAThe 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

24. ORIGIN CRITERIAThe 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

25. Product Specific RulesThe 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

26. Product Specific RulesProcessed 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

27. ORIGIN PROCEDURESThe 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

28. ORIGIN PROCEDURESThe 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).KEY FINDINGS

29. The Government Inter-Agency Body on ROO and Industry Consultation ProcessThe Department of Trade and Industry must convene the relevant technical working groups composed of specialists/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

30. The Department of Trade and Industry and other relevant agencies must subsequently conduct a 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

31. 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 line will be necessary to readily identify existing difference between the MFN and the TPP rate schedule. RECOMMENDATIONS

32. 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 EvaluationSince 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

33. Origin Certification ProceduresA prior determination is an imperative on the Philippines’ readiness to provide for the required local regulations to enable the implementation of origin procedures mandated by the TPP 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

34. 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

35. 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). RECOMMENDATIONS

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