Presentation on WTO Agreement on Rules of Origin

Presented By Ashamdeep Singh Cheema 09020241003

Vishal Singla 09020241048Deepika Singh 09020241056

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• Rules of Origin are – Laws– Regulations – Administrative determination

of general application to determine the country of origin of goods (that is, where made, grown, etc.).

• Exception: Such rules of origin would not apply to preferential trading agreements.

Definition

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• Rules of Origin would apply equally for all purposes as set out in the Agreement.

• Such Rules should be administered in a consistent, uniform and impartial manner.

• Transparency requirements-laws be published, advance ruling, no retrospective changes.

• Provision for judicial review and confidentiality clause.

Scope

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• Value-Added Criterion

• Process Criterion

• Change in Tariff Classification criterion

Substantial Transformation

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Substantial Transformation

Value-Added Criterion

Process Criterion

Change in Tariff Classification criterion

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• Certain WTO Members already have their own non-preferential ROO

• India does not have such non-preferential ROO

• The Agreement seeks to harmonize, that is, have common rules of origin for all WTO Members.

• The expected benefit is to provide more certainty in the conduct of world trade.

Harmonization Work Programme (HWP)

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• Rules of Origin should be objective, understandable and predictable.

• They should not be used as instruments to pursue trade objectives.

• They should be coherent.

• They should be based on a positive standard.

Principles of HWP

Principles of HWP

Objective, Understandable & Predictable Rules

Coherent Rules

Based on Positive Standards

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• Origin of a good would either be the country where it is wholly produced and in case of multi-country production of goods, the country where the last substantial transformation took place.

• The basis for HWP is the Harmonized System (HS) tariff classification developed by WCO (total HS subheadings-5113).

• Discussion on product sector basis represented by various Chapters or Sections (15 product sectors).

Criteria for HWP

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• Wholly obtained and minimal operations or processes that do not confer origin (examples: milk, eggs, crops, fruits obtained in one country; packaging, preservation operations).

• Substantial transformation for multi-country production-CC, CTH, CTSH, CTHS, CTSHS.

Criteria for HWP (contd.)

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• CC-Change of Chapter• CTH- Change of Tariff Heading• CTSH- Change of Tariff Sub-heading• CTHS- Change of Tariff Heading Split• CTSHS- Change of Tariff Sub Heading Split

• HS 9.01-Coffee, whether or not roasted or decaffeinated; coffee substitutes containing coffee in any proportion.-coffee not roasted-coffee roasted

• Supplementary criteria for substantial transformation-value addition, manufacturing or processing operations.

Criteria for HWP (contd.)

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• Work initiated in July 1995.

• Initial deadline for completion was July 1998.

• Due to technical and voluminous nature of work and trade policy considerations for several issues, deadline had to be extended repeatedly-1999, 2000, 2001 and the latest is end of 2002.

• Negotiations for first three years was conducted in TCRO in Brussels in 17 formal sessions.

Progress of HWP

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• Results of discussions in TCRO presented to CRO in June 1999-agreed Rules (Basket 1) for endorsement and unresolved issues (486) for decision.

• As on date, 350 issues resolved and 136 issues are outstanding.

Progress of HWP (contd.)

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• The remaining outstanding issues are some of the most complex and sensitive.

• Sectors with largest number of unresolved issues are agricultural products, textiles and machinery.

• Machinery sector has another large number of outstanding issues linked to the resolution of the Assembly Rule.

Remaining Work of HWP

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• A new working methodology adopted since April 2001 Meeting of CRO.

• Chairman’s recommendation for each issue is the basis for further negotiation

• 276 issues resolved after adopting this approach (in 4 CRO Sessions) compared to 54 issues resolved between September 1997 to March 2001 (in 25 Sessions).

• Progress slowed in 2002. 300 Issues resolved in 4 CRO Sessions in 2001 but only 18 resolved in 2 CRO Sessions in 2002.

Ways to complete HWP

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• Countries to give reasoned explanation where Chairman’s recommendation not acceptable and suggest compromise solutions.

• 92 Issues identified as core policy level issues in CRO meeting of June 2002.

• These referred to the General Council for decision.

Ways to complete HWP (contd.)

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Out of 92 core issues, 24 relate to textiles which is the 2nd largest after agriculture (45 Issues).

Some important unresolved issues for textile sector relate to dyeing, printing, coating, embroidery, assembly and making of flat products.

India favours liberal rules i.e. favours origin for all these processes.

Core Unresolved Issues

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• Agriculture- mixture issue, roasting or toasting of coffee, making curry by mixing spices, etc.

• Textiles- Dyeing, printing, making of flat products, etc.

• Footwear- manufacture of shoes from formed uppers to which an inner sole has been attached permanently

• Wholly obtained goods- origin of fish caught in EEZ of a country should go to that country and not the flag/country of registration of the vessel.

Some important issues for India

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• Cotton (HS 52.02): Country in which cotton is obtained in its natural or unprocessed state (WO).

• Carded or Combed Cotton (HS 52.03): CC

• Cotton Sewing Thread (HS 52.04): CTH by core spinning from yarn or fibres

• Cotton Yarn (HS 52.05): CTH, except from HS 52.04

• Cotton Fabrics (HS 52.08): CTH

Important Resolved Issues in Textile Sector

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Sewing thread of man made filament (HS 54.01): CTH, except from HS 54.02-54.06

Man made filament yarn (HS 54.02-54.05): CTH, except from HS 54.01 or 54.06

Filament yarn; put up for retail sale (HS 54.06): CTH, except from HS 54.01-54.05

Fabrics of filament yarn (HS 54.07): CTH Similar rules agreed for silk (Ch 50) and wool (Ch 51)

Important Resolved Issues in Textile Sector (Contd.)

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Making of flat products (bed sheets, pillow covers, etc. from fabrics)

Yes (CTH) (COL, IND, MYS, PHL, VEN).

Yes, provided both cut or knitted to shape and assembled in the same country (otherwise, origin is the country of fabric) (HKC, EEC, TUR); for goods of knitted or crocheted material; CTHS, provided the change is attained by complete making-up) (EC, TUR).

No, origin should be the country of fabric (ARG, BRA, CAN, JPN, MEX, THA, USA)

Chairman’s compromise proposal: CTH, provided the starting material is pre-bleached or unbleached fabric) (supported by AUS, IND, NOR, NZ, PAK).

Important Unresolved Issues in Textile Sector (Contd.)

Short title: US — Textiles Rules of Origin

Complainant: India

Respondent: United States of America

Third Parties: Bangladesh; China; European Union; Pakistan; Philippines

Agreements cited:(as cited in request for consultations)

Rules of Origin: Art. 2

Request for Consultations received: 11 January 2002

Panel Report circulated: 20 June 2003

United States — Rules of Origin for Textiles and Apparel Products

Prior to this case, US has lost all three major cases in WTO.

In the first textile dispute raised at the

WTO, Costa Rica secured a major victory

against the US over Washington‘s restriction

on Costa Rican underwear exports.

India won a major case against US restrictions on

Indian wool shirts and blouses.

In the third dispute, Pakistan succeeded in proving that the

United States' restriction on

Pakistani cotton-yarn exports was illegal.

Previous History of US in WTO

•11 January,2002- India requests consultation with US•7 May 2002, India requested the establishment of a panel

•22 May 2002, the DSB deferred the establishment of a panel.

•24th June, 2002- second request by India, DSB establishes the panel.•EC, Pakistan and Phillipinnes reserved its third party rights

•4th July, 2002- China reserved its third party rights

•10 October 2002, the Panel was composed

•20 June 2003-the Panel Report was circulated to Members.

Milestones in the case

• At the core of this dispute is whether the US-amended Section 334of the Uruguay Round Agreements Act that brought substantial changes in the rules of origin governing textile and apparel products in 1996, Section 405 of the US Trade and Development Act of 2000, and the customs regulations to implement these provisions violate the application of WTO's rules-of-origin agreement.

Center point of Dispute

• India made an argument that Washington was actually pursuing its trade objectives through the Section 334 amendment.

• Washington struck a bilateral deal with Brussels through a "process verbal" to take on board the EU‘s concerns.

• The US not only pursued trade objectives through amendments to rules of origin, which are banned under the WTO’s rules-of-origin agreement, but further discriminated against the Indian exports over exports from the EU member countries

Complaint By India

• India charged that Washington's sole purpose in pursuing these changes in its rules of origin for textile and apparel products is to further its trade-policy goals, banned under the WTO agreement.

Complaint By India (Cont…)

• The Panel found that:

• New Delhi could not show hard evidence as to how its exports were restricted over the past seven years due to the US measure.

• India failed to establish that section 334 of the Uruguay Round Agreements Act is inconsistent with Articles 2(b) or 2(c) of the RO Agreement; and

• India failed to establish that section 405 of the Trade and Development Act is inconsistent with Articles 2(b), 2(c) or 2(d) of the RO Agreement;

• India failed to establish that the customs regulations contained in 19 C.F.R. 102.21 are inconsistent with Articles 2(b), 2(c) or 2(d) of the RO Agreement.

• At its meeting on 21 July 2003, the DSB adopted the Panel Report.

Judgments of the Panel report

India is one of the founding members of WTO along with 134 other

countries. India's participation in an increasingly rule based system in

governance of International trade, would ultimately lead to better prosperity

for the nation. Various trade disputes of India with other nations have been

settled through WTO. India has also played an important part in the

effective formulation of major trade policies. By being a member of WTO

several countries are now trading with India, thus giving a boost to

production, employment, standard of living and an opportunity to

maximize the use of the world resources.

Purpose of Technical Committee

The World Customs Organization’s (WCO) Technical

Committee on Rules of Origin (TCRO) was

established at the request of the WTO’s Committee on

Rules of Origin (CRO) to undertake the technical

work emanating from the work programme to

harmonize non-preferential ROO provided for in the

WTO Agreement.

Purpose of Technical Committee

Status of the Work1. The Harmonization Work

Programme (HWP)

2. The Committee on Rules of

Origin (CRO)

3. Conclusion - Members commit

themselves to make their best

endeavour to complete the

HWP by November 1999

4. Ensure consistency of the relevant

horizontal rules

5. Section/chapter rules and residual

rules should subsequently be

established

6. Refining and clarifying further

technically unresolved issues

7. September – December 1998

8. January-May 1999

9. January – July, September – October

1999

Report of ROO

• The Technical Committee on Rules of Origin (Technical Committee or TCRO) was

established by the WTO Agreement on Rules of Origin (Origin Agreement), Article 4.2

(Institutions). The Technical Committee is a WTO body, but it has operated under the

auspices of the WCO as provided for under Article 4.2 of the Origin Agreement. Therefore,

the WCO Council exercises its supervision over the Technical Committee with regard to

administrative matters only.

• When the TCRO was established, its two major mandates were to

– (i)undertake the technical exercise of the Work Programme for harmonizing non-preferential rules

of origin (HWP in short, as described in Articles 9.1 and 9.2 of the Origin Agreement)

– (ii) assume its permanent responsibilities (as described in Articles 4.1 and 4.2 (Institutions), Article

6.3 (Review) and Annex I of the Origin Agreement).

TCRO

1. Re Harmonization Work Programme

2. Re permanent responsibilities of the TCRO

Purpose of Technical Committee

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• World Trade Organisation http://www.wto.org/english/tratop_e/dispu_e/dispu_agreements_index_e.htm?id=A14#selected_agreement

• http://tcc.export.gov/Trade_Agreements/All_Trade_Agreements/exp_005552.asp

• http://www.atimes.com/atimes/Global_Economy/ED18Dj01.html

• Financial Express http://www.financialexpress.com/news/rules-of-origin-wto-panel-rules-against-india/83138/

References

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Thank You. Thank You.