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Reform of EC GSP rules of origin: a Product- specific analysis

Emanuela Balestrieri

Sao Paulo, 7 Junho 2010

Overview: EU Preferential Trading Arrangements

� January 1 2009 – December 31, 2011: Generalised System of Preferences (GSP) -- Brazil

� GSP+ -- Paraguay

� Everything But Arms (EBA) --Duty-Free, Quota-Free access for products of the 49 Least Developed Countries (LDCs).

EU-Brazil Trade� The EU is Brazil's biggest trading partner,

accounting for 22.5% of its total trade (2008).� Brazil is the single biggest exporter of

agricultural products to the EU, accounting for 13% of total EU imports.

� Manufactured products such as machinery and transport equipment represent almost one third of Brazilian exports to the EU.

� EU runs a deficit in trade in goods with Brazil: EU goods exports to Brazil 2007: €21.2

billionEU goods imports from Brazil 2007: €32.3

billion

EU-Brazil Trade

� Brazil is the 2nd largest user of GSP – €4.4 billion in 2007

� 4th largest Beneficiary in terms of MFN duties otherwise due

� Estimated savings to Brazilian exporters of €142 million in 2007

[http://trade.ec.europa.eu/doclib/docs/2009/march/tradoc_142658.pdf]

However:

� 99% preferential tariff utilization rate for products such as selected automobiles, compressors and engines

� 70% motor vehicle parts and

� 65% footwear with rubbera matter of origin compliance?

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GRADUATION - Performance on the EU market exceeds set threshold over 3 years: preferential tariff suspended

� Council Regulation (EC) No 732/2008 of 22 July 2008 applying a scheme of generalized tariff preferences for 1 Jan 2009-31 Dec 2011 period, graduation is applied to Brazil for

- HS chapters 16 to 24: prepared foodstuff, beverages, spirits and vinegar, tobacco and manufactured tobacco substitutes

- HS chapters 44 to 46: wood and wood articles, wood charcoal, cork and cork articles, manufactures of straw, of esparto or of other plating materials, baskets ware and wickerwork

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EU-MERCOSUR Trade� The EU is Mercosur's largest trading partner,

representing 20.7% of total Mercosur trade (2008)

� Mercosur ranks 8th among EU trading partners, accounting for 2.7% of total EU trade(2009)

� The EU is Mercosur's largest market for its agricultural exports, accounting for 19.8% of total EU agricultural imports (2009)

� EU runs a deficit in trade in goods with Mercosur:� EU goods exports to Mercosur €27.2 billion (2009)� EU goods imports from Mercosur €35.1 billion

(2009)

Why does it matter and what is at stake?

� Scope and conditions for regional cumulation as envisaged by the reform of the GSP rules of Origin: extended cumulation with creation of a new regional cumulation group = group IV comprising the 4 Mercosur MSs and cumulation with Turkey

� Current Mercosur rules of origin regime indicates a move from across-the-board RoO approach to product-specific approach

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Official link

� http://ec.europa.eu/trade/wider-agenda/development/generalised-system-of-preferences/index_en.htm

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GSP: first concrete application of the reform of rules of origin (RoO)

� Simplification and development-friendliness: leading principles of the reform

� Single method for determining origin based on value added in the beneficiary country abandoned in favor of a sector-based approach = list rules(value added, CTHs and specific processing requirements)

� Less dramatically streamlined RoO system than the “net cost” across-the-board criterion, yet simplified and including targeted relaxation for the LDCs

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Key issues of proposed RoO Regulation

� General tolerance rule: relaxed. Amount of non-originating materials permitted increased from 10% to 15% of ex-works price of final product. Exception: agricultural and processed agricultural products: 15% tolerance in weight

� Cumulation : relaxed. Value added criterion eliminated, only requirement “more than a minimal operation must be performed in the country where cumulation takes place on materials originating in the other MCs of a cumulation group”

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The main changes at horizontal level

� The RoO are product specific instead of the single method based on value added previously envisaged (opposed by many stakeholders).

� The proposed RoO are based on the 3 methods: percentage criteria, change of tariff heading or a specific processing requirement.

� There are many simplifications, plus targeted relaxation, in particular for the least developed countries.

� Cumulation of origin: Regional cumulation of origin is expanded to Mercosur and some conditions are relaxed.

� Efficient procedures in establishing and controlling origin: The current certification of origin by the authorities of the beneficiary country is replaced by statements on origin to be given directly by registered exporters. (*2013)

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Changes in the calculation of the percentage requirement

� Before: Maximum amount of non-originating materialvalue of non -originating material X 100 < 40%

Ex -works price

� Proposed (July 2009) : the “build down method”Value added /local value content = Ex- works price - value of non-originating material X 100 > 50%

Ex -works price� Current proposal (June 2010) not official:

Back to the old system ! percentage of 40% at times increased tp 50%, even 70% (see chapter 84, Nuclear reactors, boilers, machinery and mechanical appliances )

Current EU-GSP Rules of Origin: Non-Originating Materials

GENERAL RULE : To qualify for GSP entry any non-originating materials in the product must have been sufficiently processed in the beneficiary exporting country so that the final product meets at least ONE of the following tests:

� Product has undergone operations beyond mere preservation, washing, assembly, and other processes considered insufficient to give the product Brazilian origin

� Original product undergoes a change in tariff heading or sub-heading prior to exportation

� Specified percentage in value has been added to the product so that the value of any non-originating material used does not exceed a given percentage of the ex-works price of a product

Please note

� Comparative analysis of “old” and “new”systems carried out at chapter level

� Further analysis required at the level of headings as alternative approach to the chapter rule may be pointed out – e.g.: Chapter 84 and 8401

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Changed rules of origin for Fisheries - Chapter 3

� Relaxation of the crew and officers requirement for the vessels definitions in the wholly obtained category

� Requirements are now limited to:� Registration of the Vessel in Brazil,� Sail under the Brazilian flag,� 0wned by Brazilian nationals or Companies, Cumulation

applicable � Introduction of the 15% value tolerance rule for specific

headings of Chapter 3� The 15% value tolerance is also applicable to HS Chapter 16,

Preserved and prepared fish

Confront current EU-GSP Rules of Origin for Fishery Products

Product caught within territorial waters, i.e. within 12-mile zone of shores, are wholly obtained;

Product caught on the “high seas” or produced in factory ships are wholly obtained if:

�Vessel registered and flagged to Brazil/EC member�Captain and officers are all nationals of country/EC�At least 75% of crew are Brazilian nationals; AND�Can establish ownership of vessel according to

specified criteria.

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The changes in raw hides and leather (HS41 and 42)

� Chapter rule 41 introduced flexibility as CTH or 30 % of local content (leather)

� Introduced flexibilities for headings 4101 to 4103, Raw hides and skins of bovine(including buffalo) or equine animals : Manufacture from any heading

� Liberal: it means that all manufacturing operations carried out within the heading are origin conferring excluding insufficient working or processing operations – for ex. salting.

� Tanned or crust hides and skins: CTH or re-tanning = unchanged rule

� Chapter 42 Leather products - Introduction of alternative rule to CTH : the local value content is at least 30% of the ex-works price of the product= 70% of non-originating.

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Changes in selected textiles and clothing - Chapter 61 and 62 (1)

� Old rules: stringent � Chapter 61 knitted/crocheted garments product

grouping:Assembled: manufacture from yarn

Other: manufacture from natural fibres� New rules

Assembled: knitting and making-up(including cutting)Other : spinning of fibers and knitting or dyeing of yarn of natural fibers and knitting = flexibility

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Changes in selected textiles and clothing (2)

� Old rules � Chapter 62 - Not knitted/crocheted garments:

Manufacture from yarn� New rules � Weaving accompanied by making-up and cutting� Or making- up preceeded by printing and

accompained by at least 2 preparatory or finishing operations provided that the unprinted fabric does not exceed 47,5 % of the ex-works price of the product

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No Changes in Footwear Chapter 64

� Manufacture from materials of any heading, except from assemblies of uppers affixed to inner soles or to other sole components of heading 6406

� Parts of footwear of heading 6406: CTH

� Still very liberal/flexible

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Changes in selected machineries HS 84

� Old chapter rule HS 84 � CTH and not more than 40 % of non- originating

materials of the ex-works price or not more than � 30 % of non- originating materials� New chapter rule HS 84 (July 2009)� CTH or manufacture in which the local value is at

least 30 % of the ex-works price� More flexibility as CTH alone is origin conferring and

up to 70% of non-originating materials can be used with respect to the old rules

� Engines HS 8407, 8408 : local value content of 50%

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Changes in selected Electric machineries HS85

� Old chapter rule HS 85� CTH and not more than 40 % of non –originating

materials of the ex-works price or not more than 30% of non-originating materials.

� New rule (July 2009 )� CTH or Manufacture in which the local value content

is at least 30 % of the ex-works price(70% of non originating materials)

� Conclusion: more flexibility since requirements are not cumulative. Increased threshold for use of non-originating materials.

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Changes in selected machineries (motor vehicles HS87)

� Old chapter rules HS 87� Not more than 40 % of non-originating

materials of the ex-works price� New chapter rule HS 87(July 2009 )� Manufacture in which the local value content is

at least 50 % of the ex-works price� Conclusion: more flexibility since 10 % more

allowance of non-originating materials

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Preliminary conclusions

� In terms of the product specific rules of origin of the main exports of Brazil to the EC it appears that, at first glance:

� 1)The proposed RoO are more liberal

� 2)More in depth analysis may be needed to identify changes for selected tariff headings of export interest to Brazil

Official Link

� http://ec.europa.eu/taxation_customs/customs/customs_duties/rules_origin/preferential/article_777_en.htmI

� In the meantime, the existing rules of origin remain applicable

� As regards procedure, 1st January 2013 is the target

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Grazie Muito obrigada

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