1. TAIEX Workshop 16-17 April 2013 Brussels The new rules of origin for the Generalized System of Preferences François BECQUART DG Taxation and Customs Union Unit B3 – Rules of origin

2. Presentation of the Commission Regulation (EU) n°1063/2010 of 18 November 2010 I. Why a new GSP ? The background II. Overview of the main changes between the old GSP rules and the new GSP rules III. The pillars of the new GSP 2

3. A. Background 1) Commission’s Green Paper (2003) and Communication (2005) on the simplification of the rules of origin 2) Impact assessment 3) Commission’s draft regulation (October 2007) Commission’s revised proposal (November 2008) Agreement of the Member States (September 2010) 3

4. A. Background 1) Commission’s Green Paper (2003) and Communication (2005) on the simplification of the rules of origin The old origin rules did not fit current economic reality. The current origin rules were seen as too complex, restrictive and they lacked transparency. There was a clear call for rationalisation and simplification of the origin rules. The system needed to be changed in order to provide an adequate level of assurance that the products for which preferential treatment was claimed did actually satisfy the origin rules. The system of paper-based certificates needed to be replaced by an electronic document. There was a need for increased European Union monitoring and greater coordination and cooperation to ensure compliance with the rules of origin. 4

5. A. Background 2) Impact assessment Simplification and appropriate relaxation of the rules for determining origin Supported by adequate management and control procedures, all parties need to know exactly what is required of them and it is necessary for there to be confidence in administrations. Conversely, efficient management and control is facilitated by rules which are easy to understand and apply. 5

6. A. Background 3) Commission’s draft regulation in October 2007 Commission’s revised proposal (November 2008) Agreement of the Member States (September 2010) 6 Commission Regulation (EU) N° 1063/2010 of 18.11.2010

7. A. Background Legal framework of the GSP rules of origin Commission Regulation (EU) No 1063/2010 of 18.11.2010 amending Regulation (EEC) No 2454/93 (implementing measures of the customs code) Official Journal No L 307 of 23.11.2010, p. 1 Entered into force on 01.01.2011 7

8. B. Main changes in the GSP rules of origin The rules of origin are defined as far as possible on a sector-by-sector rather than a product-by-product basis. The rules applicable to products also take into account the specific situation of least developed countries (in general allowing a maximum content of non-originating materials of up to 70% or providing for an equivalent level of relaxation for products originating in the least developed countries) 8

9. B. Main changes in the GSP rules of origin 1) Simpler origin determination criteria 2) Applicability of cumulation of origin 3) Other features in general provisions 9

10. First main change Simpler origin determination criteria A maximum permitted content of non-originating materials; Change of tariff heading or sub-heading; A specific working and processing operation; The use of wholly obtained materials. 10

11. Second main change Applicability of cumulation of origin Bilateral cumulation EU-beneficiary country; Simplified regional cumulation with 4 regional groups; Extended cumulation between a beneficiary country and a country with which the European Union has a free-trade agreement in force; Cumulation of origin with industrial goods originating in Norway and Switzerland, extended to Turkey. 11

12. Third main change Other features in general provisions Replacement of the direct transport rule with a more flexible non manipulation principle (Article 74); Removal of the crew requirement in the definition of "its vessels" for fishery products captured outside territorial waters to be considered as wholly obtained (Article 75(2)); Relaxation (from 10 to 15%) and the adaptation to sectoral specificities of the general tolerance rule, from now on expressed as a percentage of weight for agricultural products (Article 79). 12

13. The implementation of the changes 1)Appropriate rules for determining the acquisition of origin 2)Improved and efficient management and control / clear and appropriate division of responsibilities between operators and authorities 3)A secured environment for legitimate trade - based on an improved framework for administrative cooperation 13

14. C. The pillars of the new GSP 14 1) Appropriate rules for determining the acquisition of origin Simpler origin determination criteria a maximum permitted content of non-originating materials Introduction of an added value rule for chapter 44 with a threshold of 70 % of non originating materials

15. 15 1) Appropriate rules for determining the acquisition of origin Simpler origin determination criteria change of tariff heading or sub-heading Suppression of additionnal mandatory rules

16. 16 1) Appropriate rules for determining the acquisition of origin Simpler origin determination criteria Until 2011

17. 17 1) Appropriate rules for determining the acquisition of origin Simpler origin determination criteria A specific working and processing operation

18. 18 1) Appropriate rules for determining the acquisition of origin Simpler origin determination criteria The use of wholly obtained materials The definition of the product wholly obtained is more precise. New wording « grown » New definition New wording « scrap »

19. 19 1) Appropriate rules for determining the acquisition of origin Applicability of cumulation of origin Cumulation of origin with industrial goods originating in Norway and Switzerland, extended to Turkey A new type of cumulation: extended cumulation with industrial goods A new group for regional cumulation : MERCOSUR (Argentina, Uruguay, Paraguay, Brasil) A new possibility of « cross » cumulation between the groups I and III

20. 20 1) Appropriate rules for determining the acquisition of origin Applicability of cumulation of origin Cumulation with Switzerland, Norway and Turkey articles 85 and 87 – CCIP Cumulation is possible with these countries and the beneficiary countries if all the following conditions are respected: GSP applied in Switzerland, Norway and Turkey are the same than the one in the European Union; Transformation or working made in the GSP country goes beyond of the minimal operation; GSP applied in Switzerland, Norway and Turkey granted the same preference to the cumulation between EU and the beneficiary countries; Agricultural products are excluded (chapters 1 to 24).

21. 21 1) Appropriate rules for determining the acquisition of origin Applicability of cumulation of origin A new type of cumulation: extended cumulation articles 86-7 to 86-9 – CCIP Extended cumulation authorized cumulation between a beneficiary country and a country with which the European Union has a free-trade agreement in force (South Africa, Mexico, South Korea...) if all the following conditions are respected: there is a possible administrative cooperation between them; the European Commission is informed of this agreement; transformation or working made in the GSP country goes beyond of the minimal operation; agricultural products are excluded (chapters 1 to 24).

22. 22 1) Appropriate rules for determining the acquisition of origin Applicability of cumulation of origin Regional cumulation articles 86-1 to 86-6 - CCIP There are 4 regional groups. Group I composed with Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Philippines, Singapore, Thaïland, Viet Nam

23. 23 1) Appropriate rules for determining the acquisition of origin Applicability of cumulation of origin Regional cumulation articles 86-1 to 86-6 - CCIP There are 4 regional groups. Group II composed with Bolivia, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Nicaragua, Panama, Peru, Venezuela

24. 24 1) Appropriate rules for determining the acquisition of origin Applicability of cumulation of origin Regional cumulation articles 86-1 to 86-6 - CCIP There are 4 regional groups. Group III composed with Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, Sri Lanka

25. 25 1) Appropriate rules for determining the acquisition of origin Applicability of cumulation of origin Regional cumulation articles 86-1 to 86-6 - CCIP There are 4 regional groups. Group IV composed with Argentina, Brasil, Uruguay and Paraguay (MERCOSUR)

26. 26 1) Appropriate rules for determining the acquisition of origin Applicability of cumulation of origin Regional cumulation articles 86-1 to 86-6 - CCIP Regional cumulation is authorized between countries of a same group if the following conditions are fulfilled : each country of the group need to respect the qualifying operation of the annex 13 a part II if cumulation applied between a LDC and another beneficiary country An administrative cooperation is foreseen between each country of the group The European Commission is informed of this cooperation The annex 13 b foresees exceptions to the regional cumulation

27. 27 1) Appropriate rules for determining the acquisition of origin Applicability of cumulation of origin « Cross » cumulation between the groups I and III article 86-5 - CCIP Countries belonging to groups I and III can, after authorisation by the European Commission, cumulate between themselves, if they fulfilled the following conditions : Each country needs to respect the qualifying operation in annex 13 a part II if cumulation is between a LDC and another beneficiary country; An administrative cooperation is foreseen between each country which enters in the cumulation.

28. 28 1) Appropriate rules for determining the acquisition of origin Improvements in general provisions Replacement of the direct transport rule with a more flexible non manipulation principle (Article 74); Removal of the crew requirement in the definition of "its vessels" for fishery products captured outside territorial waters to be considered as wholly obtained (Article 75-2); Relaxation (from 10 to 15%) and the adaptation to sectoral specificities of the general tolerance rule, from now on expressed as a percentage of weight for agricultural products (Article 79); Derogation.

29. 29 1) Appropriate rules for determining the acquisition of origin Improvements in general provisions Non manipulation principle (Article 74 – CCIP) Direct transport rule replaced by a “non-manipulation” clause Conditions for transportation have been relaxed and simplified in order to correspond with the practice of the supply chain

30. 30 1) Appropriate rules for determining the acquisition of origin Improvements in general provisions Non manipulation principle (Article 74 – CCIP) Article 74 1. The products declared for release for free circulation in the European Union shall be the same products as exported from the beneficiary country in which they are considered to originate. They shall not have been altered, transformed in any way or subjected to operations other than operations to preserve them in good condition, prior to being declared for release for free circulation. Storage of products or consignments and splitting of consignments may take place where carried out under the responsibility of the exporter or of a subsequent holder of the goods and the products remain under customs supervision in the country(ies) of transit. 2. Compliance with paragraph 1 shall be considered as satisfied unless the customs authorities have reason to believe the contrary; in such cases, the customs authorities may request the declarant to provide evidence of compliance, which may be given by any means, including contractual transport documents such as bills of lading or factual or concrete evidence based on marking or numbering of packages or any evidence related to the goods themselves. [...]

31. 31 1) Appropriate rules for determining the acquisition of origin Improvements in general provisions Non manipulation principle (Article 74 – CCIP) The products declared for release for free circulation in the European Union shall be the same products as exported from the beneficiary country in which they are considered to originate. They shall not have been altered, transformed in any way or subjected to operations other than operations to preserve them in good condition, prior to being declared for release for free circulation. Compliance with this provision shall be considered as satisfied unless the customs authorities have reason to believe the contrary; in such cases, the customs authorities may request the declarant to provide evidence of compliance, which may be given by any means.

32. 32 1) Appropriate rules for determining the acquisition of origin Improvements in general provisions Non manipulation principle (Article 74 – CCIP) On the contrary, the direct transport rule requires that the goods are either: transported to the EU without passing through the territory of any other country; or transported via another country, in circumstances where they remain under the control of the customs in that country and do not undergo operations other than unloading, reloading or any operation designed to keep them in good condition

33. 33 1) Appropriate rules for determining the acquisition of origin Improvements in general provisions Non manipulation principle (Article 74 – CCIP) With the traditional direct transport rule, the evidence may be either: – a transport document indicating a singled contract for the carriage of the goods; – a certificate issued by the customs authorities of the country of transit: giving an exact description of the goods; stating the dates of unloading and reloading or arrival and departure; and that the goods remained under customs control and underwent no operations other than those necessary to keep them in good condition; – any documents that confirm that the conditions set out above have been met.

34. 34 1) Appropriate rules for determining the acquisition of origin Improvements in general provisions Removal of the crew requirement in the definition of "its vessels" for fishery products captured outside territorial waters to be considered as wholly obtained (Article 75-2 - CCIP) Reflect the reality of the economic sector. Vessels conditions which allow fishery products to be considered as originating or not, are simplified.

35. 35 1) Appropriate rules for determining the acquisition of origin Improvements in general provisions Relaxation (from 10% to 15%) and the adaptation to sectorial specificities of the general tolerance rule, from now on expressed as a percentage of weight for agricultural products (Article 79 – CCIP) Tolerance rule is relaxed from 10% to 15%. Tolerance is expressed either in weight or in ex-works price

36. 36 1) Appropriate rules for determining the acquisition of origin Improvements in general provisions/list rules Tolerance rule expressed as a percentage of weight for agricultural products Example of product containing sugar

37. 37 Tolerance in value and in weight in rules of origin. How does it work? Tolerance in value Existing rule of origin for Chapter 18: manufacture: From materials of any heading, except that of the product, and -in which the value of all the materials of Chapter 17 used does not exceed 30% of the ex-works price of the product Price 5 $ Price 3 $ Price 5 $ Product 1 Cocoa paste 1803 10 00 Product 2 White sugar 1701 99 10 Weigth 75 kg Weigth 30 kg Final product Chocolates not containing alcohol 1806 90 19 Weight 100 kg Price 10 $ 3$ paid for white sugar = 30% of 10$ → all sugar can be non-originating After prices have changed, 5$ paid for white sugar = 50% of 10$ → 20% of sugar used need to be originating If price for materials of Ch 17 in the world market increases, it becomes more difficult to meet the rule of origin.

38. 38 Tolerance in value and in weight in rules of origin. How does it work? Tolerance in weight Price 5 $ Price 3 $ Price 5 $ Product 1 Cocoa paste 1803 10 00 Product 2 White sugar 1701 99 10 Weigth 75 kg Weigth 30 kg Final product Chocolates not containing alcohol 1806 90 19 Weight 100 kg Price 10 $ Rule of origin for Chapter 18 in the new GSP: Manufacture: [...] in which the individual weight of sugar does not exceed 40% of the weight of the final product [...] 30 kg at price of 3$ → all sugar can be non- originating (30 kg < 40% of 100 kg weight → the rule is met) 30 kg at price of 5$ → all sugar can be non- originating (30 kg < 40% of 100 kg weight → the rule is met) Compliance with rules of origin is unaffected by price fluctuations of raw materials; weight is more objective and easier to monitor

39. 39 1)Appropriate rules for determining the acquisition of origin Improvements in general provisions Derogation Beneficiary countries might apply for derogations from standard rules of origin in case of natural catastrophes and on economic grounds. The EU will equally be able to grant derogations on its own initiatives.

40. 40 2) Improved and efficient management and control / clear and approriate division of responsibilities betwen operators and authorities Enhanced provisions on administrative cooperation Periodic monitoring of the compliance of beneficiary countries with their obligations GSP regulation allows temporary withdrawal if failures in administrative cooperation but a last resort Monitoring to be supported by information, training and technical assistance

41. 41 3) A secured environment for legitimate trade – based on an improved framework for administrative cooperation A new self-certification system by exporters will replace the system of certification of origin by public authorities. A so-called registered exporter system (REX) will be introduced for that purpose as of 1 January 2017. From 2017 onwards exporters will directly provide their customers with statements on origin. Exporters will be registered with the competent authorities of the beneficiary countries in order to facilitate targeted post-export controls Each beneficiary country will need to establish an electronic record of registered exporters Central data-base of registered exporters

42. 42 3) A secured environment for legitimate trade – based on an improved framework for administrative cooperation Introduction of the new certification system from 2017 Certification of origin on Form A by the authorities for each consignment abandoned Registered exporters will make out statements on origin themselves and send them to their customer in the Union Statements on origin may be in electronic format Registration will be simple and one-off Authorities will no longer certify origin at export but concentrate on subsequent controls

43. 43 The Reform of the GSP scheme Regulation No 978/2012 of 25.10.2012 (OJ No L 303 of 31.10.2012). Enters into force on 20.11.2012, applies from 01.01.2014. Main elements: withdrawal of almost half of the beneficiary countries, distinction beneficiaries-eligible countries, flexibility of the list of countries. Consequences on the GSP rules of origin: adaptation of the rules in the Customs Code Implementing Measures (Regulation No 2454/93)

44. 44 The Reform of the GSP scheme (2) Outside the formal modifications, the rules of original have to translate the most important changes of the scheme: Distinction between eligible and beneficiary countries: Regional cumulation may only be performed among beneficiary countries. Maintaining the obligations of the ex-beneficiary countries related to administrative cooperation and subsequent verification of the proofs of origin, for a period of three years after their removal from the list of beneficiaries.

45. 45 The Reform of the GSP scheme (3) Next steps for TAXUD: Publication of an amending Regulation in June 2013, in order to leave time to economic operators to prepare their trade operations according to the new GSP scheme.

46. 46 Conclusion The rules of origin for GSP represent a new standard for the EU. GSP rules of origin represent a new balance in the triangle of the rules of origin adapted for business : Tolerance Rules of origin List rules Cumulation

47. 47 Thank you for your attention European Commission - DG TAXUD B3 Rules of origin TAXUD-UNIT-B3@ec.europa.eu