Policy analysis of rules of origin by mr. chea socheat

Presented by Mr.Chea Socheat,Chief of ASEAN and Economic Integration Bureau

Department of Multilateral Trade Ministry of Commerce

CambodiaEmail: [email protected]

Understanding the Purposes of Rules of Origin: Cambodia Perspective

The 3rd Workshop on Rules of Origin in EASDelhi, India, 25-26 July 2011

Objectives

The 3rd Workshop on ROO in EAS, India, 25-26/07/11

ASEAN Bureau, Department of Multilateral Trade, Cambodia Ministry of Commerce2

What is Rules of Origin? Types of Rules of Origin Purposes of Different Types of Rules of Origin Administration of Rules of Origin Betterment of ROO System How Does it Facilitate Trade? Principles of Rule of Origin ROO Best Practices

What is Rules of Origin? The interest in Rules of Origin, ROO stems from the

proliferation of free trade area and the fact that countries have treated similar imported goods differently depending on where the product was made.

ROO are the criteria used to determine the nationality of a product and to define where a product was made. By definition, each good can only originate in one territory. In a world where more and more goods are produced from parts from other origins, conferring origin to a product is not always an easy task.

The 3rd Workshop on ROO in EAS, India, 25-26/07/11 3

ASEAN Bureau, Department of Multilateral Trade, Cambodia Ministry of Commerce

Types of Rules of Origin There are two types of rules of origin, non-preferential and

preferential rules of origin, ROO. Non-preferential ROO are used to distinguish foreign from

domestic products. By nature, it is meant for some specific purposes.

Preferential ROO defines the conditions under which the importing country will regard a product as originating in an exporting country that receives preferential treatment from the importing country. Hence, it is possible to define what goods can and cannot be given duty free access or reduced tariff to a party of FTA. In short, it is a key element in determining the magnitude of the economic benefits that accrue from preferential trade agreements and who gets them.

The 3rd Workshop on ROO in EAS, India, 25-26/07/11 4

ASEAN Bureau, Department of Multilateral Trade, Cambodia Ministry of Commerce

Purposes of Rules of Origin



Origin rules are necessary because goods may be subject to different discriminatory measures depending on their origin. Duties and restrictions connected to importation may vary according to the origin of the product imported. Generally, rules of origin are used:To determine whether imported products shall receive most-

favor nation, MFN treatment or preferential treatment; To implement measures and instruments of commercial policy

such as anti-dumping duties and safeguard measures;For the purpose of trade statistics;For the application of labeling and marking requirements; and For government procurement

Purposes of GSP ROO



Criteria of GSP Rules of Origin is generally set unilaterally by preference giving country for the preference-receiving country to comply with in order to enjoy the tariff treatment.

Purposes vary depending on politic and economic interest. For example, Cambodia case in the field of textile and

clothing.

Purposes of GSP ROO



ROOs may be employed as an instrument to promote desirable political interests. As stated in the agreement between US and some middle eastern countries, cumulationof origin allows producers in one contracting party to use non-originating materials or labor form other countries without losing the preferential status of the final product.

As a policy instrument, establishing a cumulationarrangement between several parties provides a significant incentive for producers to cooperate in order to reap the benefits of cumulation in their trade with third parties.

Purposes of GSP ROO



This arrangement enables producers in Jordan and Egypt to export products to the US duty-free if the products contain inputs from Israel. This special origin rule is designed to broaden support for the Middle East peace process, since Jordan and Egypt are the two Arab countries that have signed peace treaties with Israel.




ROO are used to protect benefits of FTA from Free Rider, the non-participating countries or third countries to FTA to enjoy the privileges conferred in the agreement. Specifically, it attempts to prevent trade deflection by establishing criteria to ensure that a good undergoes substantial transformation in an exporting member country.

In other words, only goods that have been the subject of substantial economic activity within the free trade are eligible for the tariff concession provided for in FTA.




Tariff

Free trade

Transitcountry

Exporting country

Importing country

country

A

B

CD




The trade deflection, or simple transshipment, happens when products from non-participating countries or third countries are redirected or re-routed to any member countries through a preferred free trade partner to avoid the payment of customs duties.

Without ROO in place, imports from third countries would seek entry through the FTA country which has the lowest tariff.




In the above context, rules of origin can be manipulated to protect domestic producers from foreign competition.

This kind of policy will be an incentive to attract investment into any party to FTA from outside and inside the region. It also encourages the development of integrated production structures and facilitates trade flow within FTA to maximize the impact on employment and to ensure that it is not just low value-added activities which are undertaken in the FTA.




From the government perspective, rules of origin play very important roles to: Promote substantial economic activities in the country through the

criteria of sufficient working or processing and propel domestic industries to achieve higher value added production.

Encourage the use of local material and serve as springboard for the development of specific industries and stimulate relevant and supporting industries. Hence, it helps identify which sector or industry to promote and what kind of material or intermediate goods needs to be produced

Determine sector of priority in economy Build production network and supply chains across FTA and finally

the growth and competitiveness of the region




Effects from the policy instrument of ROO are: Increased trade flow intra region Shaped trade pattern Job CreationWell being of people Stepping stone for nationwide and regionwide industrial

development

Administration of Rules of Origin



The administration of rules of origin revolves around six aspects: the pre and post inspection, procedures to obtain certificate of origin, record keeping, customs procedures, verification, and communication with other FTA member country. Pre and post Inspection Procedures to obtain certification of origin Maintenance of records concerning origin Customs proceduresVerificationCommunication with other members




In a nutshell, the administration of rules of origin involves both private sector and the public sector. It includes all of the procedures in compliance with origin, documentation and record keeping requirements established by an agreement and its regulations, all of the customs procedures associated with proving origin, and all of the procedures and potential sanctions deriving from ex post verification of origin.




The administration of ROO is getting difficult and complicated due to the fact that: Noodle bowl of rules of origin with a lot of divergent elements Different tariff modalities in different FTA Different procedures dictated by agreement Other requirements

Betterment of ROO System



Capacity building Outreach Program Electronic origin certification systems Self Certification Other measures

How Does it Facilitate Trade?



The application of the scheme of certified exporters, system automation, curtailed procedures, and other measures (risk management) including capacity building programmes will significantly contributes to trade facilitation through reduction of time, resource spending, laboring work, and associated risks.

For example, the practice carried out in Cambodia

Principles of Rules of Origin



As principles, origin requirements should be applied in an impartial, transparent, predictable, consistent and neutral manner. In this regard, ROO should not have restricting, distorting or disruptive effects on international trade; and it should be administered in a consistent, uniform, impartial and reasonable manner.

ROO Best Practices



To facilitate trade, rules of origin should be designed with the following elements in mind: The avoidance of the possibility of high compliance costs for business

and the need for ROOs that are easy to understand and to comply with. Wherever possible, ROO are consistent across all of FTAs.

ROO that maximize trade creation and minimize trade distortion Simplification and Harmonization of procedures or requirements Rules should be consistent across products and across agreements.

Because the greater the inconsistencies, the greater the complexity of the system of ROO both for companies and for officials administering the various trade schemes.

Q&A

Thank You for Your Kind Attention

Policy analysis of rules of origin by mr. chea socheat

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