The EC's Wonderland: An Overview of the Pan-European Harmonised Origin Protocols

Journal of World Trade

Volumn 33, Issue 4, 1999, Pages 19-45

  Driessen, Bart ^b   Graafsma, Folkert ^a  

^a Vermulst and Waer Advocaten   (Belgium)

^b NONE

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EID: 0033464316     PISSN: 10116702     EISSN: None     Source Type: Journal    
DOI: 10.54648/trad1999026     Document Type: Article

References (92)

1. see E. Vermulst, P. Waer and J.H.J. Bourgeois (1994): Rules of Origin in International Trade - A Comparative Study (University of Michigan Press);
2. and, in the European context, Komuro, Norio (1997): Pan European Rules of Origin, Revenue des Affaires Européennes.
3. In this article the denomination "European Union" or "EU" is used to include the European Community.
4. Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia.
5. Cyprus and Malta.
6. Iceland, Liechtenstein, Norway and Switzerland.
7. See section VII, below.
8. The Maghreb countries (Algeria, Morocco and Tunisia), the Mashreq countries (Egypt, Jordan, Lebanon and Syria), Israel and Palestine.
9. In the remainder of this article, "origin criteria" denotes product-specific rules in the annexes to the origin protocols, whereas "general origin rules" is used where the rules in the main text of those protocols or instruments is intended.
10. Please refer to the Annex for a listing of the references.
11. Austria, Sweden, Switzerland and Iceland. See note 22, below.
12. Norway and Finland. See note 22, above.
13. See section VII, below.
14. EC Official Journal O.J. (1994) L359/2.
15. The old protocols did allow for bilateral cumulation.
16. Towards a Closer Association with the Countries of Central and Eastern Europe - Report by the Commission to the European Council of Edinburgh, 11-12 December 1992, 2 December, 1992, doc. SEC (92) 2301 final, p. 5.
17. As note 14, above, at 11.
18. Communication from the Commission to the Council Concerning the Unification of Rules of Origin in Preferential Trade between the Community, the Central and Eastern European Countries and the EFTA Countries (1994), at 6.
19. As witnessed by the no-drawback rule, the reality of such a desire is sometimes different in practice. See section VI, below.
20. See, e.g., Joint Declaration No. 10 to the 1993 EC-Bulgaria Interim Agreement: "The Community and Bulgaria confirm their readiness to consider at a later stage in the Association Council the possibility of regional cumulation with Poland, Hungary and Czechoslovakia, and with Romania, in the light of progress made in fulfilling the appropriate technical and administrative conditions."
21. Before the harmonised protocols were drafted, the Czech and Slovak association agreements (O.J. (1994) L360/2 and O.J. (1994) L359/2, respectively) replaced the earlier agreement for Czechoslovakia. The wording on cumulation in those new agreements was improved somewhat, prompting an analogous revision of the protocols with Hungary (O.J. (1995) L201/39) and Poland (O.J. (1996) L208/33). These protocols were replaced in 1997 by the harmonised protocols.
22. Turkey recently negotiated corresponding protocols with the partner countries concerned.
23. Protocol No. 3 in case of the agreements with the Baltic States.
24. Then: Austria, Finland, Iceland, Norway, Sweden and Switzerland. The original agreements are published in O.J. (1972) L300/2 (Austria); O.J. (1973) L328/2 (Finland); O.J. (1972) L301/2 (Iceland); O.J. (1973) L171/2 (Norway); O.J. (1972) L300/97 (Sweden); and O.J. (1972) L300/189 (Switzerland).
25. O.J. (1994) L1.
26. Art. 2(2) of the EEA origin protocol provides that "the territory of the Principality of Liechtenstein shall, until 1 January 2000, be excluded from that of the EEA, for the purpose of determining the origin of the products referred to in Tables I and II of Protocol 3 and such products shall be considered to be originating in the EEA only if they have been either wholly obtained or sufficiently worked or processed in the territories of the other Contracting Parties".
27. The latest version of the GSP rules of origin is published in O.J. (1997) L9, amended by O.J. (1999) L10/1. Under the current rules, cumulation of origin is allowed with Norway and Switzerland. Other rules of origin cover preferential trade with the EU's OCTs, certain republics of the Former Yugoslavia, and the Faroe Islands.
28. Except for cumulation rules, which allow derogations not foreseen under non-preferential rules.
29. Case 385/85, S.R. Industries v. Administration des douanes [1986] ECR 2929. Also discussed by Waer, as note ** above, at 156.
30. There is no need for preferential origin rules within the EU, as it is a customs union. Art. 9(1) of the EU Treaty (Art. 23(1) in the post-Amsterdam renumbered version) provides that: "The Community shall be based upon a customs union which shall cover all trade in goods and which shall involve the prohibition between Member States of customs duties on imports and exports and of all charges having equivalent effect, and the adoption of a common customs tariff in their relations with third countries." This means in practical terms that the EU operates as one customs territory for the purposes of goods from third countries. Once products from third countries are customs cleared in the EU, they are in free circulation and can move from one EU Member State to the other without restriction.
31. The background to the continuing existence of the bilateral agreements between the EU and Norway and Iceland is that some agricultural (fisheries) products are not included in die EEA. There are plans to extend the EEA also to those products; once this happens, the raison d'être for the bilateral agreements with these countries will disappear. It may be presumed that the bilateral origin protocols with these countries will also then lose their purpose.
32. Article 4 of the EEA protocol.
33. Wholly obtained are the following products obtained in the EU or in the partner country concerned: (a) mineral products extracted from their soil or from their sea bed; (b) vegetable products harvested there; (c) live animals born and raised there; (d) products from live animals raised there; (e) products obtained by hunting or fishing conducted there; (f) products of sea fishing and other products taken from the sea outside the territorial waters of the Community or the partner country by their vessels; (g) products made aboard their factory ships exclusively from products referred to in subparagraph (f); (h) used articles collected there fit only for the recovery of raw materials, including used tyres fit only for retreading or for use as waste; (i) waste and scrap resulting from manufacturing operations conducted there; (j) products extracted from marine soil or subsoil outside their territorial waters, provided that they have sole rights to work that soil or subsoil; (k) goods produced there exclusively from the products specified in (a) to (j).
34. In the old protocols, the main rule was a change of tariff heading (CTH) criterion to which, however, very many exceptions were allowed. Such a general rule is no longer included as the complete harmonised system is covered by Annex II to the protocols.
35. Art. 6 in the EEA protocol.
36. These operations are: (a) operations to ensure the preservation of products in good condition during transport and storage (ventilation, spreading out, drying, chilling, placing in salt, sulphur dioxide or other aqueous solutions, removal of damaged parts and like operations); (b) simple operations consisting of removal of dust, sifting or screening, sorting, classifying, matching (including the making-up of sets of articles), washing, painting, cutting up; (c) (i) changes of packaging and breaking up and assembly of packages; (ii) simple placing in bottles, flasks, bags, cases, boxes, fixing on cards or boards, etc., and all other simple packaging operations; (d) affixing marks, labels and other like distinguishing signs on products or their packaging; (e) simple mixing of products, whether or not of different kinds, where one or more component of the mixture does not meet the conditions laid down in this Protocol to enable it to be considered as originating in the Community or the partner country; (f) simple assembly of parts to constitute a complete product; (g) a combination of two or more operations specified in subparagraphs (a) to (f); and (h) slaughter of animals.
37. Art. 6(2); Art. 5(2) of the EEA protocol. Such a 10 percent tolerance clause was already part of the protocols concluded with the EEA (O.J. (1994) L1/57) and the EFTA countries (O.J. (1994) L204/66, 94 and 154). By way of comparison, the EU's GSP rules of origin allow only a derogation of up to 5 percent (O.J. (1999) L10/1 at 2).
38. As an extra restriction, the 10 percent tolerance rule does not apply for textile or clothing products.
39. But see Advocate-General Van Gerven, in his opinion to the Brother II Judgment (Case 26/88, [1989] ECR 4253), discussed by Waer in Rules of Origin in International Trade - A Comparative Study by Vermulst et al, as note ** above, at 124-125. The Advocate-General takes the opinion that "it is only the last, which from an economic point of view need not necessarily be the most important of... the operations, which confers origin" (emphasis added).
40. But see Advocate-General Van Gerven, in his opinion to the Brother II Judgment (Case 26/88, [1989] ECR 4253), discussed by Waer in Rules of Origin in International Trade - A Comparative Study by Vermulst et al, as note ** above, at 124-125. The Advocate-General takes the opinion that "it is only the last, which from an economic point of view need not necessarily be the most important of... the operations, which confers origin" (emphasis added).
41. Art. 8 of the protocols, Art. 7 of the EEA protocol. The recently added Art. 70a to Commission Regulation (EEC) No. 2454/93 of 2 July 1993 laying down provisions for the implementation of Council Regulation (EEC) No. 2913/92 establishing the Community Customs Code clarified the same point in the GSP context in virtually identical wording (O.J. (1999) L10/1 at 2).
42. General Rule 3 to the harmonised system provides: "When by application of Rule 2(b) or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows: (a) the heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods; (b) mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to 3(a), shall be classified as if they consisted of the material or component which gives them their essential character in so far as this criterion is applicable; (c) when goods cannot be classified by reference to 3(a) or (b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration."
43. Art. 9 (Art. 8 of the EEA protocol).
44. Art. 11 (Art. 10 of the EEA protocol).
45. Compare Recommended Practice 5 in Annex D.1 of the Kyoto Convention of 18 May 1973, recognised by the EU (O.J. (1975) L100/1).
46. Art. 12 (Art. 11 of the EEA protocol).
47. This would seem to be the implicit view of the European Commission (compare the notice in O.J. (1999) L90/6 at 7).
48. Art. 12, as amended in, e.g., O.J. (1999) L35/32 (for the EU-Czech protocol).
49. Note that in the bilateral relations between the EU on the one hand and Norway and Iceland on the other there exists bilateral cumulation (Art. 3, O.J. (1997) L195), while in the relations between these countries in the framework of the EEA full cumulation exists (O.J. (1997) L21). As noted in note 29, above, the background of the continuous existence of the free-trade agreements between die EU and Norway and Iceland is the exclusion of certain agricultural (fisheries) products from the scope of the EEA.
50. On the basis of the Joint Declarations attached to die harmonised protocols, industrial products (HS Chapters 25 to 97) originating in Andorra are considered to be of EU-origin. All products from San Marino are considered to be originating in die EU as well. The Spanish territory of Ceuta and Melilla is, however, not part of the Community (Art. 36 of die harmonised protocols).
51. For the position of Turkey see section VII, below.
52. The old text of the harmonised protocols provided in Art. 4(2) that, for the purpose of the highest value test, "no account shall be taken of materials originating in the other [partner] countries ... which have undergone sufficient working or processing in the Community or [name partner country]". This effectively implied a roll-up test for parts assembled in the country of assembly of the final product from materials from other beneficiary countries. For example, if an assembly was manufactured in the Czech Republic from Hungarian parts and it fulfilled its origin criterion, it obtained Czech origin. If subsequently it was used in the Czech Republic for the production of a radio, it would still be considered as Czech-origin for the purpose of the highest-value test. Presumably, the latest text of the cumulation provision does not change this for the cases where the highest-value test is applied. Arts. 3(2) and 4(2) provide in this respect that, for the purpose of the highest-value test, "the product obtained shall be considered as originating in die country which accounts for the highest value of originating materials used in the manufacture in [the country of assembly]" (emphasis added).
53. Please refer to the Annex for an overview of the state of publication of the amendments.
54. In Art. 3(1) the reference is to Art. 2(1), in Art. 4(1) to Art. 2(2).
55. Footnote in original: "The Principality of Liechtenstein has a customs union with Switzerland, and is a Contracting Party to the Agreement on the European Economic Area."
56. Footnote in original: "Cumulation as provided for in this Article does not apply to materials originating in Turkey which arE mentioned in the list at Annex V to this Protocol."
57. The amendment of the EU-Hungarian protocol erroneously mentions here Lithuania instead of Hungary (O.J. (1997) L49/34).
58. Art. 3(2) of the EEA protocol.
59. Please refer to the Annex to this article.
60. Guide to GATT Law and Practice (Vol. 2), (WTO. Geneva) (1995) at 802. Of course, the EU is not the only entity using complicated sets of rules of origin in free-trade context. As one example, The North American Free Trade Agreement (NAFTA)'s origin rules are illustrative.
61. Note that some slight changes were made to the criteria by the 1999 amendments. These concern HS headings 2207, Chapter 57, and headings 7006 and 7601.
62. The corresponding provision in the EEA protocol is Art. 14.
63. See, for example, Art. 23 and the related explanatory note 11 of the Agreement between the EU and Norway O.J. (1993) L171/2.
64. 1994 Commission paper, as note 14, above, at page 4, footnote 1.
65. Since the liberalisation of Central Europe, (foreign) producers/investors tend to prefer such countries as the manufacturing location over the relatively more expensive EU. Also, the no-drawback rule is irrelevant for the sales on the local market as in such situations no drawback can be obtained in any event. Clearly, the remaining target group is the (foreign) producers/investors in Central Europe with the product destination of the EU. As noted by Norio Komuro, note ** above: "The no-drawback rules might seriously affect the sourcing of electronic parts from Japan, Korea and newly industrialised economies (NIES) countries."
66. An old example may illustrate the practical working of the no-drawback rule. At the time when the EU and Turkey were not yet a customs union (but had a free-trade agreement in place), certain foreign producers were assembling colour televisions in Turkey. These televisions were made from (partly) imported components (mainly colour picture tubes) on which, as it appeared, no customs duties had been paid on import into Turkey. However, the finished products were destined for export to the EU and the EC - Turkey additional and financial protocol to the EC-Turkey Agreement contained detailed rules, under which such compensatory duty on the value of the components was due upon entry of the finished product into the EU. (See Art. 2(2), 3(3) and 3 of the Additional Protocol and Financial Protocol, signed on 23 November 1970, annexed to the Agreement establishing an Association between the European Economic Community and Turkey. O.J. (1972) L293 (special English version O.J. (1973) C113). As these compensatory levies had not yet been charged on the value of the picture tubes upon entry of the televisions into the EU, the European Commission's Directorate-General XIX for Budgets urged in a letter of 2 March 1994 the collection of customs duties on colour televisions assembled in Turkey.
67. The rule held up the ratification of the Hungarian and Polish harmonised protocol. However, the Hungarian and Polish governments yielded to the EU after high-level negotiations. This does not mean that other Central European governments did not have misgivings about the rule.
68. Art. 15(6) of the harmonised protocols, for example in O.J. (1996) L343.
69. See, for example, Art. 1(5) of the 1999 amendments (references in the Annex to this article).
70. See, for example, PTY from India and Korea, O.J. (1998) C264/2.
71. Council Decision of 23 December 1963 concluding the Agreement establishing an Association between the European Economic Community and Turkey, O.J. (1964) L217; English version published in O.J. (1973) C113. This Agreement is commonly referred to as the "Ankara Agreement".
72. This application was made in accordance with Art. 28 of the Ankara Agreement which provides that: "As soon as the operation of this Agreement has advanced far enough to justify envisaging full acceptance by Turkey of the obligations arising out of the Treaty establishing the Community, the Contracting Parties shall examine the possibility of the accession of Turkey to the Community." The application for membership is still valid. The most recent legal development in the EC-Turkey customs union and the application for membership is the proposal for a Council Regulation regarding the implementation of measures to intensify the EC-Turkey customs union, published in O.J. (1998) C408.
73. Art. 65(1) of Decision No. 1/95 of the EC-Turkey Association Council of 22 December 1995 on implementing the final phase of the Customs Union, published in O.J. (1996) L35/1.
74. With respect to the integration of textile products in a customs union, see Decision No. 2/98 of the EC-Turkey Association Council of 23 February 1998, published in O.J. (1998) L86.
75. Chapter II of Decision No. 1/95, as note 70, above, as implemented by Decision No. 1/98 of the EC-Turkey Association Council of 25 February 1998 on the trade regime for agricultural products, published in O.J. (1998) L86/1. Protocol 3 of the latter Decision contains the applicable rules of origin for agricultural products with respect to trade between the EU and Turkey.
76. Art. 26 of the Association Agreement O.J. (1964) 217, English special edition O.J. (1973) C113.
77. Protocol 1 to the Agreement between the European Coal and Steel Community and Turkey on trade in products covered by the ECSC, O.J. (1996) L227/1.
78. Art. 3(3) of the said Decision defines the customs territory of the customs union as comprising the customs territory of the Community and the customs territory of Turkey. Art. 15 of Decision No. 1/95 provides that for certain products, agreed by the Association Council, Turkey may retain higher duties than the EU customs tariff. Turkey may collect the difference in such duties.
79. Annex 10 of Decision No. 1/95 lists the preferential agreements and the autonomous regimes referred to in Art. 16. A statement by Turkey on Art. 16 announces that: "[i]n relation to Article 16, Turkey states that priority will be given to the following preferential agreements: Bulgaria, Hungary, Poland, Romania, Slovakia, Czech Republic, Israel, Estonia, Latvia and Lithuania, Morocco, Tunisia, Egypt" (O.J. (1996) L35/17). In practice, Turkey has already concluded agreements with the EFTA countries, Israel and almost all East European countries except Poland. The Agreement with Poland is likely to be completed in the first half of 1999. Turkey has also already initiated negotiations with Tunisia, Morocco, Algeria and Egypt.
80. At the time of writing, these formalities are in the process of being completed.
81. The above example in note 63, above, concerning the colour televisions could therefore no longer occur these days with respect to the current relation between the EU and Turkey. In fact, even before the customs union was effected, the Turkish customs authorities had started collecting the countervailing duties on third-country products exported to the EU, or on products incorporating foreign components and manufactured in Turkey.
82. Title III of Decision No. 1/96 addresses the procedural aspects of the movement certificate A.TR.
83. Council Decision No. 1/98 of the EC-Turkey Association Council of 25 February 1998 on the trade regime for agricultural products, published in O.J. (1998) L86.
84. See note 74 and accompanying text, above.
85. See for the new GSP rules of origin concerned O.J. (1997) L9/1 at 12.
86. Or on any other document sufficiently identifying the goods concerned.
87. A Joint Declaration attached to the harmonised protocols provides for a transition period which is now of historical interest only. For some practical details, see the notice in O.J. (1999) C90/6.
88. We note that, as a minor amendment, the applicable customs declaration form was altered in the 1999 amendments (Art. 26(1) of the protocols, as amended by the 1999 amendments).
89. These have been slightly changed by the 1999 amendments (see the Annex to this article for references).
90. Art. 2(h) and, (mutatis mutandis, Art. 3(f) thereof) provides that: "upon the request of an exporter, importer or any person with a justifiable cause, assessment of the origin they would accord to a good are issued as soon as possible but not later than 150 days after a request for such an assessment provided that all necessary elements have been submitted. Requests for such assessments shall be accepted before trade in the good concerned begins and may be accepted at any later point in time. Such assessments shall remain valid for three years provided that the facts and conditions, including the rules of origin, under which they have been made remain comparable. Provided that the parties concerned are informed in advance, such assessments will no longer be valid when a decision contrary to the assessment is made in a review as referred to in sub-paragraph (j). Such assessments shall be made publicly available subject to the provisions of sub-paragraph (k)."
91. O.J. (1997) L9 and O.J. (1997) L17/1. Reg. 2913/92 contains the Community Customs Code; Reg. 2454/93 the Implementing Community Customs Code.
92. Or classification. This aspect, however, lies outside the purview of this overview.