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Certificates of Origin

Introduction

Rules of origin are the rules for attributing a country of origin to a product in order to determine its "economic nationality".[1] The need to establish rules of origin arises from the fact that the implementation of trade policy measures, such as tariffs, quotas, trade remedies, in several cases, depends on the country of origin of the product in question.

Rules of origin have become a challenging issue in international trade, not only because they constitute a highly technical area of rule-making, but also because their designation and application have not been harmonized around the world. The lack of harmony is even more noticeable in the era of regionalism, when more and more free trade agreements (FTAs) are concluded, creating a spaghetti plate effect.

Definition of rules of origin

The most complete definition of rules of origin is found in the International Convention for the Simplification and Harmonization of Customs Procedures (Kyoto Convention), which entered into force in 1974 and was revised in 1999. According to specific Annex K of this Convention:[3].

"Rules of origin mean the specific provisions, developed from principles established by national legislation or international agreements ("criteria of origin"), applied by a country to determine the origin of goods;".

The definition makes it clear that rules of origin are basically the "criteria" for determining the origin of goods. Such criteria can be developed from principles in national legislation or international treaties, but the implementation of rules of origin (i.e. certification and verification) is always done at the country level. It is also important to note that the purpose of rules of origin is to define the country of origin, not a geographic area such as a region or province (which is very important in the field of intellectual property rights). The country of origin is often found on the label or marking of a good, for example, "product of China", "made in Italy", etc.

Taking into account the modest number of members of the World Customs Organization (WCO) that adhere to Specific Annex K (adherence to Specific Annexes is optional), the Kyoto Convention has a rather insignificant impact on the application of rules of origin in international trade. However, this Convention provides many important definitions and standards, which serve as a harmonized basis for national laws and trade agreements to formulate origin. In addition to the definition of rules of origin, it also provides definitions of "country of origin", "substantial transformation" and a series of recommended practices.[4].

Certificates of Origin

Introduction

Definition of rules of origin

Classification of rules of origin

Rules of origin can be classified into non-preferential rules of origin and preferential rules of origin. Non-preferential rules of origin are those that are primarily designed to maintain most favored nation treatment (MFN) within the World Trade Organization (WTO). Preferential rules of origin are those associated with "contractual or autonomous trade regimes that lead to the granting of tariff preferences that go beyond" TNMF application. This separation is stipulated in Article 1 of the WTO Agreement on Rules of Origin.[5].

Article 1: Rules of origin.

1. For the purposes of Parts I to IV of this Agreement, rules of origin shall be defined as those laws, regulations and administrative determinations of general application applied by any Member to determine the country of origin of goods, provided that such rules of origin are not related to contractual or autonomous trade regimes that lead to the grant of tariff preferences that go beyond the application of Article I:1 of the GATT 1994.

2. The rules of origin referred to in paragraph 1 shall include all rules of origin used in non-preferential trade policy instruments, such as in the application of most favored nation treatment under Articles I, II, III, XI and XIII of the GATT 1994; anti-dumping and countervailing duties under Article VI of the GATT 1994; safeguard measures under Article XIX of the GATT 1994; origin marking requirements under Article IX of the GATT 1994; and any discriminatory quantitative restriction or tariff quota. They will also include rules of origin used for public procurement and trade statistics.

It is important to understand the difference between these two categories of rules of origin. Non-preferential rules of origin are considered "non-preferential" because they are applied on a non-preferential basis to determine the country of origin for certain application purposes within the multilateral trading system. On the other hand, the rules of origin in FTAs and in the Generalized System of Preferences (GSP) are considered preferential because they help determine the country of origin to grant preferential and special treatment to products originating from a contracting party or a beneficiary country.[6].

In principle, FTAs, as well as their rules of origin, must be notified to the WTO as an obligation of Members.[7] However, the rules of origin of FTAs and autonomous trade regimes (e.g. GSP schemes) are not subject to any substantive WTO requirements. This is because the Agreement on Rules of Origin does not regulate how rules of origin should be formulated and implemented in an FTA or GSP scheme. There is only a brief Common Declaration on Preferential Rules of Origin, which sets out some rules and recommendations for the formulation of preferential rules of origin.[8] The fact that preferential rules of origin do not fall within the scope of the WTO adds further divergence to the "spaghetti plate" of rules of origin: each FTA and each autonomous trade regime can formulate its own rules of origin. As a consequence of the rapid growth of regionalism, hundreds of rules of origin are currently applied in hundreds of FTAs. According to the WTO, as of January 4, 2019, 291 FTAs were in force, counting only those notified to its Secretariat.[9] Considering that, according to the International Trade Center (ICC), more than 440 FTAs were in force at the end of March 2019.[10].

In fact, within the WTO, non-preferential rules of origin are no more harmonized than in FTAs. Despite enormous efforts, the work program to harmonize non-preferential rules of origin has not made significant progress to date, meaning that there is still no common set of rules of origin for non-preferential purposes within the WTO. During the so-called "transitional period", the formulation and application of non-preferential rules are literally at the discretion of Members.[11] The only difference compared to preferential rules of origin is that non-preferential rules of origin are subject to more binding requirements in the WTO agreements, in particular the Agreement on Rules of Origin and the Agreement on Trade Facilitation.[12].

So far, the most successful initiative to harmonize this area of rule-making at the multilateral level is the WTO's implementation of preferential rules of origin in favor of least developed countries (LDCs). The 2015 Nairobi Decision on Preferential Rules of Origin for LDCs, which builds on the decision taken in early 2013 at the Hong Kong Ministerial Conference, has for the first time established general guidelines and detailed instructions on specific issues for determining the status of products originating from an LDC country. In addition, Members granting preferences must notify the Secretariat of their prevailing origin criteria and other origin requirements. To enable transparency and comparability, such notifications must also follow a template adopted by the WTO Committee on Rules of Origin.[13].

The role of rules of origin in international trade

Being the criterion for determining the economic nationality of goods, the role of rules of origin intrinsically derives from the fact that various trade policy measures are applied depending on the origin of imports. For example, if country A wants to impose anti-dumping duties on steel products originating in country B, that is when rules of origin come into play. Without rules of origin, country A cannot apply this measure correctly because it cannot determine whether the steel in a given shipment is "made in country B." Beyond this fundamental issue, when steel products originating in country C only transit through country B, they should not be subject to this trade remedy measure; but when steel products from country B choose to transit through country C before entering country A, it should be considered circumvention of anti-dumping duties. All these issues give rise to the need to formulate and apply rules of origin. Basically, rules of origin allow the application of trade measures to appropriate materials as long as their nationality is taken into account. Likewise, rules of origin are crucial for trade statistics because a country may need to track its trade balance with its partners.

Rules of origin are particularly important in FTAs, which are established to grant preferences exclusively to products of preferential origin. In this context, rules of origin are essential to differentiate between goods originating from contracting parties and those originating from third countries. Such differentiation has two purposes: (1) it allows the importing party to determine whether a product is eligible for preferential treatment under the FTA in question; (2) avoids the scenario where exports from third countries enter the FTA through the member with the lowest external tariff (i.e., trade diversion).[14] This explains why in a customs union it is not necessary to establish rules of origin between its contracting parties: the members of a customs union must maintain a common external tariff imposed on imports from third countries.[15].

Because of that role, rules of origin also help create trade between members of a preferential trade agreement. This trade creation effect can occur through two channels. Firstly, given that preferences are allocated exclusively to goods originating from partner countries, it follows that one party tends to increase its imports from another party to an FTA. To illustrate, if country A signs an FTA with country B, due to lower tariffs, product X originating from country B now becomes cheaper than similar product X' originating from country C; Therefore, country A has the incentive to import a larger volume of It means that country A has the incentive to use inputs originating from country B because this will allow its products to qualify for originating status under the FTA with country B more easily. Both channels can lead to increased trade between country A and country B, but can also have an adverse effect on their trade with country C (i.e. trade diversion). Therefore, although rules of origin help overcome trade diversion and encourage trade creation, they also cause trade diversion, which in many cases is not economically efficient.[16].

Origin criteria

Contenido

Las normas de origen intentan reflejar la práctica del comercio y la producción. Es evidente que un producto puede ser obtenido o producido por un solo país, pero también puede ser un producto fabricado con la contribución de varios países. Por lo tanto, los criterios para determinar el origen de las mercancías, el elemento más importante de cualquier conjunto de normas de origen, se designan para reflejar estas dos circunstancias.

Products wholly obtained or produced

"Wholly obtained" refers mainly to natural products grown, harvested, etc., in a Party (country or territory) and products made entirely from them. Typically in FTAs and GSP schemes, these products are indicated by a general definition or by an exhaustive list. The second method is the most common and is also considered more transparent.

Specific Annex K of the revised Kyoto Convention provides a list of products wholly obtained or produced, which can be taken as a good example for the second method:[3].

2. Standard.

Goods produced entirely in a given country will be considered to originate in that country. It will only be considered to be produced entirely in a specific country:.

to. mineral products extracted from its soil, its territorial waters or its seabed;.

b. vegetable products harvested or collected in that country;.

c. live animals born and raised in that country;.

d. products obtained from live animals in that country;.

and. products obtained from hunting or fishing carried out in that country;.

F. products obtained from maritime fishing and other products extracted from the sea by a vessel from that country;.

g. products obtained on board a factory ship of that country solely from products of the type covered by paragraph (f) above;.

h. products extracted from the soil or marine subsoil outside the territorial waters of that country, always

that the country has the exclusive right to work that soil or subsoil;.

Yo. waste and scrap from manufacturing and processing operations, and used items, collected in

that country and suitable only for the recovery of raw materials;.

j. goods produced in that country solely from the products mentioned in paragraphs (a) to (ij) above..

Although the lists of fully sourced products are more or less identical across all agreements, there are still several subtle differences. For example, some agreements consider animals raised in a country to be entirely sourced in that country, while most agreements require them to be born and raised there. Furthermore, most agreements include in this list only products obtained in a single country, while some agreements also consider an item to be wholly obtained if it is made entirely from inputs originating in one or more of one partner country.

Products not obtained in their entirety

In the criterion of 'substantial transformation', 'the origin is determined considering as the country of origin the country where the last manufacturing or substantial transformation, considered sufficient to give a basic product its essential character, has been carried out'.[17] In other words, once a product is composed of inputs from several countries, it obtains the status of originating in the country that houses the substantial works, giving it an essential character. There is the possibility that work carried out in different countries gives the product equally essential characteristics; In this case, the last one will be paid. There are several application methods to identify compliance with the 'substantial transformation' criterion, including rules based on (i) the change in tariff classification, (ii) the ad valorem percentage, or (iii) the list of manufacturing or processing operations. All of these interchangeable methods have certain positive and negative aspects, and can be applied separately or in combination.

This method takes into account the degree of manufacturing or processing that is carried out in a country by calculating the value it adds to the products. If the added value reaches a certain threshold, expressed as a percentage, the manufacturing or processing will be considered substantial or sufficient, allowing the goods to acquire originating status in the country where such manufacturing or processing takes place. A rule based on the value-added requirement can be expressed in one of the following tests:.

(i) Minimum percentage of value added to final products (accumulation or direct proof): Manufacturing or processing operations carried out in the country of origin must reach a certain degree, that is, the percentage of value they add to the final product. The products must be equal to or greater than a certain threshold, so that the latter can obtain their origin there. This test requires a consideration between the value of regionally or locally created content and that of the final products. As a result, the stringency of rules of origin would increase with the regional or national content threshold. For example, a rule requiring 40% regional value content will be stricter than one requiring 35%.

(ii) Maximum percentage of non-originating inputs (reduction or indirect test): The use of non-originating materials or components in processing or manufacturing in the country of origin is restricted to a maximum rate. This test is based on a comparison between the value of the non-originating inputs and that of the final goods. Therefore, the rigor of the rules of origin would be inversely proportional to the granting of non-originating inputs. As an example, a rule that allows 60 percent of the value of final products to come from non-originating materials is stricter than one that allows 65 percent.[18].

General provisions of origin

In addition to the basic criteria of origin, rules of origin also include general provisions covering other aspects of origin determination. They are called general forecasts because they apply across the board and are not specific to any product. Although there is no harmony among trade agreements, the WCO Comparative Study on Rules of Origin has listed the most frequently encountered provisions in this category.[21] Based on this study, the International Trade Center "International Trade Center (international body)") provides the following glossary as a brief guide for businesses.[22].

Accessories, spare parts and tools: A provision that clarifies the process of determining the origin of the accessories, spare parts or tools delivered with the good..

Accumulation:

A provision that allows goods obtained in a member country of an FTA and their processing carried out there to be considered as originating from another..

Appeals:

A provision establishing an appeals process regarding origin determination and advance rulings..

Competent authority:

A provision listing the national authorities responsible for supervising origin-related provisions and issuing the certificate of origin. This is usually the government or a government department which may then delegate the certificate issuance procedure to other national organizations..

Certification:

A provision detailing the type of source documentation that must be provided to claim preferential rates under an FTA..

De Minimis:

A provision that allows a small amount of non-originating materials to be used in the production of the good without affecting its originating character. The provision acts as a relaxation of the rules of origin..

Tax refund:

A provision that refers to claims or refunds of customs duties previously paid on inputs. In the context of FTAs, the duty drawback provision generally relates to the ability to claim back duties paid on non-originating materials used to produce the final good that is exported under preferential tariffs..

Packaging:

A provision that clarifies whether packaging must be taken into account when determining the origin of the product..

Minor errors:

A provision clarifying that where the origin of goods is not in doubt, requests for preferential origin should not be rejected as a result of minor administrative errors and discrepancies..

Certification Exemption:

A provision listing exemptions from the requirement to provide proof of origin. In certain circumstances, originating goods can be imported into an NAFTA country without proof of origin and still be considered originating..

Authorized exporter:

The approved exporter provision refers to exporters who meet certain conditions, frequently export under an FTA and are registered with local customs authorities (have obtained an approved exporter authorization)..

Exhibitions:

A provision that allows an originating good to be purchased in a third country (non-FTA member) during an exhibition and imported into a NAFTA country under preferential treatment..

Expendable materials:

A provision that determines how non-originating and originating consumable materials must be tracked (accounted for) when both types are stored together and/or used to produce originating and non-originating goods. It allows tracking of both types of merchandise, not through physical identification and separation, but on the basis of an accounting or inventory management system..

Indirect materials:

A provision specifying that the origin of certain materials (referred to as indirect or neutral) used in the production process should not be taken into account when determining the origin of the final good..

Unqualified operations:

A provision listing operations that do not confer origin. They are considered below the threshold of sufficient production/processing..

Penalties:

A provision that specifies the legal consequences of submitting source documentation based on incorrect or falsified information. These may be related to criminal, civil and administrative sanctions..

Passive improvement:

A provision that allows a good to be temporarily removed from the NAFTA territory and processed in the third country without affecting the determination of the origin of the final product. The fact that the good has left the territory of an FTA during the production process is not taken into account..

Validity period:

A provision that specifies the time during which a certificate of origin or a declaration of origin (see proof of origin) is valid from the time it has been issued..

Principle of territoriality:

A provision stating that for the purposes of determining the origin of goods, all manufacturing and processing must take place within the territory of the parties to the agreement without interruption..

Advance resolutions:

A provision that allows an exporter or importer to obtain an official and legally binding opinion on the classification, origin or customs value of its products from local customs authorities before exporting/importing the goods..

Direct transportation:

A provision that requires goods claiming preferential treatment under an FTA to be shipped directly from the FTA country of origin to the FTA destination country..

Certification and verification of origin

Certification and verification are procedural aspects of rules of origin, but they are no less important. Even if a product meets the substantive origin criteria, it will not be entitled to preferences unless it meets the procedural requirements. Requirements related to certification and verification are usually provided in annexes called operational procedures or sometimes in chapters on customs procedures. These annexes or chapters include a number of provisions, such as retention of documents, refund of overpaid duties, minor errors, etc., which must be taken into account if traders wish to claim preferences for their products.

Basically, to be eligible for preferential treatment, a shipment must be accompanied by proof of origin. The most popular form of proof of origin required in most trade agreements is a certificate of origin. In addition, there are other forms of proof of origin, for example a declaration of origin or a declaration of origin. Many agreements provide value thresholds below which proofs of origin can be waived.

With respect to certification, a trader should know whether the trade agreement under which he or she claims preferences allows for self-certification. If permitted, the trader (whether producer, exporter or, in some cases, importer) need only complete the information related to the shipment on a prescribed form (if any) and declare that the goods listed therein meet the origin criteria and other requirements. However, if self-certification is not permitted, the trader must request proof of origin issued by a certifying authority, which is usually the chamber of commerce or an agency of the ministry of commerce or commerce. To obtain this document, the exporter or producer must present various documents related to the production or manufacturing of the merchandise. The competent authority will examine the documents and visit the applicant's facilities to verify if necessary and certify whether the goods meet the origin criteria established in the trade agreement in question.[23].

Regarding verification, when the shipment arrives at the port of entry in the importing country, proof of origin will be presented to the customs authority. To facilitate trade, sometimes a physical presentation is not required: the importer or his representative can simply present the document number and/or an electronic copy of it. Customs' acceptance of proof of origin will decide whether the shipment is entitled to preferential treatment. In case of doubts, the customs authority can resort to various measures, for example, examining the original proof or origin or verifying the document information and the goods actually imported. Customs may require the trader to provide more information or even contact the issuing authority of the exporting country for further clarification.[24].

Institutions and rules of origin

National institutions

Because rules of origin are implemented at the country level, it is national institutions that directly deal with certification and verification procedures. The competent authorities differ from country to country and also vary according to trade agreements.

An issuing authority can be one of the following institutions:.

To cite an example, in Vietnam, goods exported to an importing country under a non-preferential regime may require a non-preferential certificate of origin certified by the Vietnam Chamber of Commerce and Industry. The Chamber is also responsible for issuing a Type A preferential certificate of origin if goods are exported to a country that grants GSP. However, if the goods are marketed under an FTA, the issuing authority will be a local Import and Export Administration Office, directly reporting to the Ministry of Industry and Commerce.

The verifying authorities are, in principle, the customs authorities of the importing countries, unless otherwise specified. The reason is that the verification of origin in the importing country must be carried out when the goods arrive at the port of entry to determine the (preferential) tariffs that apply to the shipment, which falls within the scope of its customs. In particular, in many agreements, customs are indicated as certifying and verifying authorities.

International organizations

It should be noted that international organizations are not the institutions that deal directly with traders. However, they have a very important role in training, administering and facilitating the application of the rules of origin.

The WTO administers the Agreement on Rules of Origin. It has Rules of Origin committees. Although most of the WTO's work concerns non-preferential rules of origin, the current initiative on rules of origin for LDCs is important work being carried out by the WTO. Requires Members committing under Ministerial Declarations to submit notifications on their rules of origin for preferential treatment for LDCs. The WTO website on non-preferential rules of origin provides an archive of documents related to non-preferential rules of origin in Members.[25] It also provides a database on preferential rules of origin notified under the LDC initiative.[26].

Furthermore, the new WTO Trade Facilitation Agreement also provides new benchmarks for customs-related aspects of the implementation of rules of origin. For example, the article of this agreement provides that each member will issue an advance ruling on the origin of the goods "in a reasonable manner and within a specified time to the applicant who has submitted a written request containing all necessary information."[27].

The WCO administers many important conventions related to rules of origin, for example the revised Kyoto Convention. It also administers the Harmonized System, which is the basis for drawing up tariff lists and also the basis for determining the origin of goods when the "tariff jump" rule is applied. The WCO is jointly in charge of the Technical Committee on Rules of Origin. As provided in Article 4.2 of the WTO Agreement on Rules of Origin, "the Technical Committee is an organ of the WTO, but has operated under the auspices of the WCO as provided for in Article 4.2 of the Origin Agreement. Therefore, the WCO Council exercises its supervision over the Technical Committee only with respect to administrative matters."[28] The WCO also publishes a number of guidelines and studies on different aspects of rules of origin, which are very useful for companies. For example, the WCO Compendium of Origin (2017)[29] and the Comparative Study on Preferential Rules of Origin (2017 version).[30].

In a joint initiative with the WCO and WTO, the International Trade Center "International Trade Center (international body)") introduces the Rules of Origin Facilitator,[31] which provides free, easy-to-use access to the ITC database on rules of origin and origin-related documentation in hundreds of trade agreements. The Facilitator also combines with the huge databases of trade and tariff agreements that ITC's Market Access Map has built and continuously maintained since 2006,[32] resulting in a unique market intelligence solution that allows companies, particularly those in developing countries, to benefit from trade agreements around the world. Currently, the Facilitator contains data on more than 230 FTAs implemented by more than 190 countries, as well as non-preferential regimes of the EU, the United States and Switzerland. This database is gradually expanding with the ultimate goal of covering more than 400 FTAs and preferential schemes that are currently active in the world.

The Rules of Origin Facilitator aims to help small and medium-sized businesses increase trade by taking advantage of global trade opportunities in the form of low duty rates under trade agreements. The tool can also be used by legislators, trade negotiators, economists and other users. Any user can simply search for information on origin criteria, other origin provisions and trade documentation by entering the HS code of their product.

The ICC does not directly deal with the paperwork submitted by traders, but this largest business organization in the world is contributing a lot to the work of the chambers of commerce in the countries, which means that they are improving the work of the issuing authorities.

Following the 1923 Geneva Convention, governments have delegated the issuance of certificates of origin to chambers. Chambers are considered competent organizations and are considered a responsible and trustworthy third party with neutrality and impartiality. The ICC World Federation of Chambers Council on International Certificate of Origin (CIO) was established to enhance and promote the unique position of chambers as a natural agent in the issuance of commercial documents. The Federation has established a universal set of procedures for the issuance and certification of certificates by chambers around the world.[33].