Free Trade Agreements (FTA) are the results of negotiations between two countries. They therefore reflect the trading choices of both parties. As a consequence, FTA are usually different from each other. However, most EU Trade Agreements have Common Provisions.
Knowing the EU Trade Agreements Common Provisions is very useful when analysing the impact of a trade agreement on your trade flow. In particular, for duty optimisation, when you are looking for savings. It facilitates the research. However, we must keep in mind that a particular agreement can contain rules that differ from the common provisions. We therefore need to check both the common and the specific provisions.
Originating status
This is the status of the origin for a specific product. A product is either “originating” if it meets the rules of origin or “non originating” if it doesn’t. Only originating product benefits from the preferential treatment derived from the trade agreement such as reduced or nil rate of duty. In all preferential agreements, originating products are either “wholly obtained” or “sufficiently worked or processed”.
Wholly obtained
This is usually for natural products from agriculture, fishing, mining and to the products made from them. These products can’t contain any non-originating material.
Sufficiently worked or processed
A non-originating material (for instance a component that has been imported) must be “sufficiently worked or processed” to obtain origin. “Sufficiently worked or processed” is defined in the Rules of Origin of each agreement. All FTAs have an annex containing a definition of “Sufficiently working or processing” required to be carried out on non-originating materials to become originating products. The Rules of Origin are based on the commodity code of the product, accurate classification is therefore critical.
Cumulation
Cumulation is a mechanism allowing countries that are part of a trade agreement to use originating products from each other. For instance, a watch made in the Netherlands can be further processed in Morocco as if it originated in Morocco. Under Cumulation, the working or processing activity can be minimal as the “Sufficiently worked or processed” provision does not apply. Cumulation is part of the negotiation of the FTAs. Some countries choose to include cumulation in their provisions, others not. There are four types of cumulation: bilateral, diagonal, regional and full.
Bilateral cumulation
Bilateral cumulation allows the cumulation of origin between two countries part of a trade agreement. It is common to all origin arrangements. It applies only to originating products.
Diagonal cumulation
Diagonal cumulation allows the cumulation of origin between several countries. They must have a trade agreement with a provision allowing the cumulation between them. They must also have have identical rules of origin. For a product manufactured in several countries, the origin of the product will be the last country where the last working or processing operation took place. This, providing it was more than a minimal operation. Diagonal cumulation operates between the 23 countries of the Pan-Euro-Mediterranean cumulation zone: the EU, the EFTA States (Switzerland, Norway, Iceland and Liechtenstein), the Faroe Islands, the participants in the Barcelona Process (Algeria, Egypt, Israel, Jordan, Lebanon, Morocco, Palestine (This designation shall not be construed as recognition of a State of Palestine and is without prejudice to the individual positions of the Member States on this issue.), Syria, Tunisia and Turkey), the participants in the EU’s Stabilisation and Association Process (Albania, Bosnia and Herzegovina, the Republic of North Macedonia, Montenegro, Serbia and Kosovo) and the Republic of Moldova.
Regional cumulation
Regional cumulation is a form of diagonal cumulation. It applies under the Generalised System of Preferences (GSP). This is a unilateral preference given by a country to support some economies. It operates between members of a regional group of beneficiary countries.
Full cumulation
Full cumulation allows the working or processing on non-originating products in the countries that are part of an agreement. All operations carried out in the participating countries are taken into account. All the working or processing in the agreement list of rules of origin must be carried out on non-originating materials in order for the final product to obtain origin. This is in place for trade between the EU and the EEA, Maghreb, OCT or ACP.
Minimal operations
Minimal operations are activities the manufacturing, processing or assembly process that are insufficient to confer origin. In the case of cumulation, the minimal operations of a product is the minimal level of processing that has to be carried out in cumulation. All trade agreements contain in their rules of origin a provision listing the types of working and processing that is insufficient to provide origin to a product. For instance, simply repacking a product is insufficient. In the case of a cumulation system, the working or processing will have to exceed the minimal operations but does not necessarily need to meet the list of rules of the agreement.
General tolerance rule
This tolerance allows traders to use non-originating materials in a product but up to a specific percentage value of the ex-work price. If the specific processing rule in the trade agreement allows for the use of non-originating materials, then the tolerance rule doesn’t apply. The maximum is always the tolerance of the specific rule. Although the tolerance rule is common to all EU trade agreements, the percentage of tolerance varies between agreements. Tolerance rules do not apply to textile goods of Chapters 50 to 63. For these products, specific tolerance rules apply.
“No drawback” rule
“Drawback” means refund of duty on imported goods. This rule prohibit the refund on duty on imported goods. So non-originating products can’t benefit from any duty refund mechanism. This means no Inward Processing Relief. The content of “no drawback” provision varies between agreement and Partial Drawback can also apply. For instance, the EU-Korea FTA does not limit duty drawback to the same extent as it does for the EU-Canada agreement.
Principle of territoriality
Under the principle of territoriality, the working or processing must be carried out in the territories of the countries that are part of the FTA. Some derogations can allow the use of Outward Processing mechanisms to carry out some processing outside the territory under certain conditions. However, not meeting these conditions will result in the product losing its origin and returning as a non-originating product. In most agreements, the derogation does not apply to textiles product of Chapters 50 to 63. A product can’t benefit from the derogation and the General Tolerance Rule at the same time.
In origin calculation, the working or processing performed outside the territory of the parties of the agreement is not taken into account. However, the total value added is taken into account. It is added to the value of the non-originating materials. The total value added outside the territory plus the value of non-originating materials must not exceed the percentage of the specific rule of origin.
Direct transport rule
The objective of this rule is to ensure that there won’t be a diversion and modification of the product. The products that have left one country of the trade agreement will be the same as those arriving in the other. If the goods pass through another country, as long as the goods stay under customs supervision, the conditions of direct transport are considered fulfilled. The proof of compliance can be a transport document or in some countries a “non-manipulation certificate” issued by the local authorities of the country of transit.
Proof of origin
Goods presented to Customs authorities with a particular preferential origin must be certified by a proof of that origin. The format, document and text of the proof or origin is specified in the trade agreement. Trade agreements have different Proof of origin e.g. EUR1, EUR-MED. It is therefore important to check each trade agreement for the format.
Most trade agreements allow the use of an invoice declaration for consignment under a certain value. Above a certain value, the trader must be authorised by Customs authorities.
A supplier’s declaration can be used by a domestic supplier to declare the originating status of the goods. This might be required by a trader who needs to certify the preferential origin of the goods at export.
In limited circumstances proofs of origin can be issued retrospectively and in cases of loss or destruction the exporter can apply for a duplicate.
When provided for in the legislation, it is possible to replace the original proof of origin by one or more movement certificates.
Period of validity of proofs of origin
Documentary proofs of origin have a limited life span according to each arrangement. The period starts running as from the day the proof of origin is issued. However, there can be exceptional circumstances in which presentation of the proof of origin may be accepted after that time. Finally, exporters are obliged to retain copies of all proofs of origin and documents related to them for a period of three years from the date of issue.
Notices to importers – reasonable doubts as to the origin of goods
The EU Commission publishes notices to importers in the Official Journal (OJ) of the European Union to inform EU importers of reasonable doubts as to the origin of goods covered by preferential tariff arrangements. If a notice to importers has been published by the Commission, traders cannot plead good faith with regard to goods falling with the scope of this notice (Article 119(3) of the UCC)
Approved exporter
An approved exporter is an exporter who met certain conditions imposed by the customs authorities and who is allowed to make out invoice declarations. The status of “Approved exporter” can be granted and withdrawn. The procedure to grant the status of approved exporter depends on national provisions. Under certain conditions, a ‘single authorisation’ may be granted to an approved exporter, who is established in one Member State, where he keeps his records containing the evidence of origin, but whose products are exported from other Member States.
Sources of information EU Trade Agreements Common Provisions:
EU Trade Agreements: Text, Rules of Origin and Cumulation
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