The European Union uses preferential trade arrangements to give preferential treatment to imports from given countries. This is done either by concluding regional economic integration agreements that create free trade areas or customs unions or by unilateral action (primarily with a view to the development of the beneficiary countries) such as the Generalised System of Preferences (GSP). The EU has about forty preferential arrangements with third countries or groups of third countries in total.
What exactly is the change proposed to the rules of origin?
The Commission envisages sweeping away the present multiplicity of rules of origin and replacing them with a single rule based on value added in the beneficiary country. Under this method, a product resulting from the working or processing of imported non-originating materials would be considered as originating if the value added in the country (or in a region where cumulation is permitted) amounted at least to a certain threshold (a minimum "Local of Regional Value Content") expressed as a percentage of the net production cost of the final product. However, this rule still needs to be tested in order to verify that it suits all sectors.
What would the value-added thresholds be? Would this not imply a relaxation of current rules to the detriment of Community industry?
The value added demanded would be fixed on the basis of a sound economic analysis and according to the objectives of the particular preferential arrangement e.g. development and, when it did not thwart these objectives, to the required degree of trade liberalisation. The thresholds could be as high or as low as they needed to be to take account of those objectives. However, they should not be more restrictive than the present rules.
What are the present rules of origin?
To have the preferential origin of a country, goods must be wholly obtained (e.g. grown, mined) there or, where this is not the case, have undergone sufficient processing there. At present the rules of origin define "sufficient processing" by way of a very long list of origin criteria that vary from product to product. These may be based on changes of tariff heading, value added, a specific processing requirement, the use of wholly obtained inputs or, frequently, a combination of the foregoing. Furthermore, additional rules on minimal operations (which can never acquire origin) and tolerances have to be taken into account.
Why are changes needed to the rules of origin?
In the context of the Doha Agenda for Development, ensuring a better integration of developing countries into the world economy, in particular through improved access to the markets of developed countries, remains the top priority of Community trade relations. World trade has developed in a way (globalisation) not envisaged when the current preferential rules of origin were drawn up in the 1970s. The rules have become outdated as well as progressively more complex and opaque. Furthermore, efforts have been made to harmonise the rules within the various EU preferential arrangements which in theory should make them easier to understand and apply but does not do so as they only appear to be standardised and in fact differ slightly from one arrangement to the other. Lastly, harmonisation at all costs is often synonymous with a lack of flexibility and the inability of origin rules to adapt to changing economic requirements. The harmonised approach to preferential rules of origin seems to be faltering in the face of the common policies and the varied objectives of the preferential arrangements.
Are traders likely to support these changes to the rules?
The Commission believes so. The Commission published a Green Paper on the future of rules of origin in preferential trade arrangements in 2003 (COM(2003) 787 final - see IP/03/1766 ), which outlined the problems with the current rules and sought the views of all interested parties. 100 replies were received from the governments of third countries, trade associations and operators. Two of the key conclusions to emerge were that the current origin rules are too complex and restrictive and that there was a need for rationalisation and simplification.
Would the proposed changes really work?
The Commission considers that they would. Operators are used to working with value for commercial as well as other customs reasons and they are fully aware of their costs. Moreover, even under the current rules they have to be able to ensure the traceability of all the materials they use. In any event all the other methods currently used have their own drawbacks in terms of complexity and lack of flexibility and none has the potential to be applied across-the-board.
At the same time the changes would give Community policy-makers greater flexibility because they would more easily be able to tailor the rules to the objectives (e.g. development-related) of the preferential arrangements concerned through the setting of the thresholds .
However it is evident that operators and administrations will have a lot of questions about such a radical approach and further evaluation will be carried out before the proposals are implemented. Should this evaluation demonstrate that the value added approach does not deliver the expected results for certain sectors, the Commission would consider whether that approach needed to be supplemented or whether another approach would be more effective in those sectors.
Would the proposed new procedures for declaring origin prevent abuse?
Yes. At present proof of origin is usually based on a certificate which is signed by the exporter and stamped by the competent authorities of the country concerned. Instead there would be a system of prior registration by the authorities of beneficiary countries of exporters who would be authorised to export under a given preferential arrangement. These registered exporters would then be solely responsible for making the statements of origin. Exporters are best placed to know and demonstrate the origin of their goods.
Would depending on exporters to make statements not put an unfair verification burden on importers?
The Commission does not think so. It is necessary to balance the roles and responsibilities of operators and administrations. Importers cannot be absolved of all responsibility for declarations they make. They already have to make checks with their suppliers for commercial reasons and there is no reason why they should not be expected to do so for customs reasons too. The regulations to be adopted on the basis of the communication would specify the responsibilities of all parties.
Would it really be necessary for the Commission and Member States to monitor the origin procedure?
Yes. Preferential arrangements rely on trust between the Community and its partners, since it is the partner countries who are responsible for carrying out checks. Preferential arrangements can already be withdrawn if there are failures in administrative cooperation with third countries but we need a firm basis for taking that ultimate step. Improved information and technical assistance should, however, help in preventing that stage from being reached.
How does this new strategy interact with the new GSP scheme?
Two of the aims of the new GSP scheme are to improve the preferences and to ensure greater use of the preferences offered. The proposed new method for determining origin will make it easier to deliver the development objectives of the GSP through the establishment of appropriate value-added thresholds.
When will the new strategy for simplified rules of origin be implemented?
The Commission will begin with arrangements where the need for change is most immediate, i.e. the rules of origin for the purposes of applying the new GSP scheme. The Commission aims to adopt a specific Regulation on GSP rules of origin as soon as possible and to introduce the changes in 2006. Changes in the other preferential trade arrangements will follow. A priority will be to apply the new approach to the Economic Partnership Agreements being negotiated with six regional groups of African-Caribbean-Pacific (ACP) countries, which take full account of the current benefits of the Cotonou Agreement. The approach could then progressively be extended to existing Free Trade Agreements. In proposing new arrangements to trade partners, the Commission will seek to ensure that matters which have already been settled in on-going negotiations are not put into question, and to approach new negotiations in a constructive and open spirit.
Do the changes to be made need to be approved by the Council and Parliament?
Not for the GSP. That will be a Commission Regulation that uses the Committee procedure, requiring approval by the Member States on the basis of qualified majority. The Council and, in certain cases, the Parliament will be involved as far as free trade agreements are concerned.
What about the rules for non-preferential origin?
The communication concerns preferential origin only and has no implications for the ongoing international work on the harmonisation of non-preferential origin rules, which will continue and which remain a priority for the Commission.
(See also IP/05/320 )