Asian Experience with RoO with the emphasis of China

1
Asian Experience with RoO with the emphasis of
China (LU Bo) Workshop on the Importance of
Rules of Origin and Standards in Regional
IntegrationBoao,Hainan, China, June 27, 2006
2
Understanding of Rules of Origin
Rules of origin (ROO) are the criteria
needed to determine the national source of a
product. Certificate of Origin (CO) is not only
a trading document, but one of the most important
trade administrating measures. It can be the
trade barrier to protect the importing market.
ROO is not only a confused factor in trade
statistics, but also an important factor in
anti-dumping, countervailing and other non-tariff
trade barriers. Trade partners formulate
many preferential ROO under GATT/WTO framework
rules. Preferential ROO ensure the reduced rates
of duty in PTA/FTA. Disputes or discussions
on ROO itself are focused on non-wholly obtained
or partly obtained products, which are becoming
very popular in the economic globalization.

3
----No dispute, no request to visit!!!
Enforcement of NAFTA Rules of Origin
In NAFTA preferential treatment, a Certificate of
Origin must be filed with the import broker,
certifying that the goods are originating.
If a U.S. company has evidence to show that a
foreign company's products do not satisfy NAFTA
ROO, U.S. Customs will contact the
Canadian/Mexican company with a request to visit
(audit). Where a visit takes place, and
Customs auditors find a violation of a rule of
origin, the goods will be denied NAFTA duty
preference. Depending on the
circumstances, civil or criminal penalties may be
assessed.
4

• Chinas Experience with ROO
• Most of the trade frictions and disputes
  between China and its trade partners were caused
  by the different standards of ROO.
• 1. When labor can not move freely out of
  China as goods can, investors move in. If a
  product only added value less than 10 in China,
  who will issue the certificate of origin for it?
  According to the research paper of General
  Administration of Quality Supervision, Inspection
  and Quarantine (File K010-2000, December of
  2001), in 1990, China issued 2 million of CO
  valued US 40 billion, which shared 77 of
  Chinas total export. Some products with only
  7-8 value added were also recognized as products
  made in China (substantial transformation). (p.27
  of the paper 2001)
• As the Chinese work for foreign companies,
  the Authority issue Certificate of Origin. (China
  importing parts and exporting assembled products,
  SH code number changed) . If Chinese authority
  refused to issue the CO, how can the products be
  exported?Can the exporters in China request other
  authority outside China to issue CO for them? Can
  Chinese authority issue CO to confirm the
  products were made in Japan or US?
• 2. When Quota for textiles and garments
  trade is still used in 1996, US changed its
  standard of ROO to textiles and clothing. Many
  products used to be made in HK (cutting place
  as the Origin) became the products made in
  China(sewing place as the Origin).

5
Chinas
Experience with ROO 3. Many products like
mobile phone, only processed in China, but can be
sold in China market as products made in China.
4. In 2005, without the exports of
foreign invested companies, Chinas trade surplus
with US will declined 73.4 to US 30.4 billion
instead of US114.2 billion in 2005. Without the
exports of processed products, Chinas trade
surplus with US will decline 91 to US 10.3
billion in 2005 (Ministry of Commerce, PRC
estimated. Bo). 5. Since 1995, 1/7 of the
anti-dumping cases are related to Chinese
companies. EU, the US and some other countries
have considered China as a non-market economy
(NME). When calculating dumping margin, they use
the price of a third country, the so-called
surrogate country or reference country,
instead of the actual domestic price of China.
Such a discriminatory practice has greatly
encouraged foreign industries to apply for the
use of antidumping investigations against China,
making Chinese companies very difficult and
costly to respond.
6
Chinas Trade in Goods (January to April,
2006)  US billion
 
Source Ministry of Commerce, PRC
7
Chinas imports and exports by form and by
ownership, 2005
(US100 million)
In 2005, Chinas trade surplus is US
142.4 billion, 1.4 times. China get only 3-5
profit from the processing trade. Chinese company
can get only US 15 from the US 700 of a
exporting notebook computer.
Source Ministry of Commerce, PRC
8
Chinas Labour Force and Employment in the Rural
Area(2001)
At present, China still has over 200
million unemployed labor in the countryside.
Chinas unemployment rate is 4 in 2004 and 2005.
9
Chinas Main Trade Partners in 2005(US Billion)
Source Ministry of Commerce, PRC
10
TDC1 Offshore Trade ( HK100 Million)
Offshore trade/ Entrepot Trade
Offshore Trade
Entrepot Trade
Trade in Total
1
1
1
1
1
Annual Increase
1
1
TDC Trade Development Council.
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Since 1980s, most HK manufacturing
industry moved out to mainland China. Local
manufactured product exports shared 81 of the
total in 1970s, 35.3 in 1990s, and 8.7 in
2002. In 1990s, 50 of Chinas trade is
with HK, the share declined from 44 of 1997 to
31 of 2001, and to 9.5 in 2005. In 2002, HKs
re-export of mainland made products increased to
75 of its total export (70 of re-export of
mainland made products are actually processed
products.). Re-export of products made in other
countries is estimated 15 of the total export.
From 1999 to 2001, share of entrepot trade
in HKs total trade reduced. Re-export of
mainland made products increased only 4.6 when
HK-China trade increased 7.8. Share of
processing trade also reduced, from 68.4 in 1999
to 64.5 in 2001 and to 7.8 in 2002 (In 2002,
Non-processed products trade between HK and China
increased 21.2).
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1996-2000, annual increase of HKs re-export
is 3.8 in average while offshore trade increased
much higher (the service on trade increased
11.4). Offshore trade of HK is calculated
as trade in service instead of trade in goods.
HKs service on trade in goods are finance
(80), test/certificates, arbitration, insurance
and transportation (20). Offshore trade is
expected to increase to 70 of the total in 2010,
and the processed trade will decline from 64.5 in
2001 to 50 of 2010.(TDC) 60 of Chinas
export to Singapore is machinery and electric
equipment. Most of them could not be used in
Singapore. Advanced financial service,
efficient management of shipment are advantages
of Singapore. China imports 21 of ROKs
total export and 13.4 of Japans total export.
Asia becomes the manufacturing centre for the
world, especially for US and EU. (?????????),
This situation can not change soon.
13
Chinas Trade with Hong Kong and with
Singapore (US Billion Per capita, US)
Trade per capita of Hong Kong and Singapore with
China
Population China, 1.3 billion, Hong Kong, 7
million Singapore, 4 million.
14
East Asian Regional Economic Integration
After the United States initiated in
1991 to establish NAFTA with Canada and Mexico,
ASEAN member states started to establish the
first FTA in Asia, AFTA in 1992. ASEAN completed
most negotiations on trade and investment in
1990s, especially on tariff and non-tariff
arrangements. As soon as China became the WTO
member, ASEAN agreed to establish ASEAN-China FTA
in 10 years from 2002.
Chinas Trade with ASEAN and with the World
(1990-2005)
(US billion)
Source Ministry of Commerce, PRC
15
Source Ministry of Commerce, PRC
China accepted 25 value-added standard in
1992. In 2004, China formulated the simple
standard of ROO with 40 value-added or 4-digit
Tariff Heading Change (THC, ????????) in 2004.
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ASEAN China (ACFTA) ACFTA rules of
origin is negotiated with AFTA standards, CEPT
(Common effective preferential tariff) Scheme
- the content is at least 40 either on the
"Single Country Content" or "ACFTA Cumulative
Content" basis and the final process of the
manufacture is performed in one country (40
value-added rule). - a number of products
which satisfy product specific rules (PSR) can
also qualify for tariff concessions. These
include textiles (424 items in 6-digit HS code),
fish(2), wool (6) , leather goods (22), furskins
(14 ) and footwear (4). - The Certificate of
Origin (CO) is issued by the authorities. (Annex
3 of the Trade in Goods Agreement)
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CEPT SCHEME FOR AFTA - at least 40 of its
content originates from any Member States. -
have fulfilled the CEPT origin requirement.
- products worked on and processed as a result of
which the total value of the materials, parts or
produce originating from non-ASEAN countries or
of undetermined origin used does not exceed 60
of the FOB value of the product produced or
obtained and the final process of the manufacture
is performed within the territory of the
exporting Member State. - The formula for 40
ASEAN Content is as follows Value of
Imported Non-ASEAN Materials,Parts or Produce
Value of Undetermined Origin Materials,
Parts or Produce X 100 60 If
the material has less than 40 percent ASEAN
content, the qualifying ASEAN national content
shall be in direct proportion to the actual
domestic content provided that it is equal to or
more than the agreed threshold of 20.
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• Implementing Guidelines for Partial
• Cumulation under ASEAN Cumulative Rules of
  Origin
• (a) to be considered for partial cumulation, the
  local/ASEAN content of the materials, parts or
  produce originating from the country of last
  manufacture should not be less than 20
• (b) the formula to be used in the calculation
  would be similar to the formula for calculating
  the 40 local/ASEAN content
• (c) no CEPT preference shall be extended by the
  importing member country for that particular
  intermediate goods
• (d) the export of the intermediate good shall be
  accompanied by a valid CO Form D duly prominently
  marked or stamped FOR CUMULATION PURPOSES ONLY
• (e) the relevant sections of the Operational
  Certification Procedures, including Rule 17 on
  verification, shall be applicable to CO Form Ds
  issued for partial cumulation purposes.

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• Rules of Origin in Singapores PTA agreements

In the East Asia region, Singapore is the
most active promoter of PTA or FTA, it signed the
agreement with Australia, New Zealand, Japan, ROK
and the US. The preferential ROO is not simple.
Singapore Australia Free Trade Agreement
(SAFTA)    All products need only fulfil a
general rule of a specified threshold of local
value content of either 30 or 50.
Generally, the ROO requires that the content is
at least 50 of the cost price. For selected
products listed, the content is 30 of the cost
price. Singapore manufacturers that source inputs
from overseas can include the Australian
component of these inputs as part of the
Singapore content. New Zealand and
Singapore on a Closer Economic Partnership
(ANZSCEP) - A product will qualify for
preferential treatment if at least 40 of the
ex-factory or works cost is of New Zealand or
Singapore origin, and if the last place of
manufacture is in New Zealand or Singapore.
Manufacturers that source inputs from overseas
can include the New Zealand or Singapore
component of these inputs towards the 40.
Outward Processing (OP) is recognised in the
agreement.
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Japan and Singapore Economic Partnership
(JSEPA) - Each product has at least one
corresponding specific rule of origin. - a
substantial transformation is deemed to have
occurred if the CTC (Change in Tariff
Classification) rule is met. The final product
must have undergone a change in tariff heading
(CTH a different 4 digit heading) from the
materials used in its production. -
additional flexibility for 264 products of
interest to Singapore, with the provision of two
alternative specific rules. Each of these
products will qualify for preferential tariff
treatment if i. it has undergone the
requisite change in tariff heading or ii.
Singapore content is at least 60 of the selling
(FOB) price. (Its difficult) -
Manufacturers that source inputs from overseas
can include the Japan or Singapore component of
these inputs towards the 60. - Outward
Processing (OP) is recognised in the agreement.
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United States Singapore Free Trade
Agreement (USSFTA) - The ROO for certain
products require that imported inputs used in the
manufacture of the final product within Singapore
are classified under a different tariff
classification from the final product. - For
some electronic products, a VA rule of 30 60
must be satisfied. - For certain
chemicals/petrochemical products, a specified
process must occur in Singapore, such as a
specific chemical reaction. - The concepts
of OP and ISI (The Integrated Sourcing
Initiative) are recognised in this agreement.
European Free Trade Association Singapore
Free Trade Agreement (EFTA) - the final
product change in tariff heading (CTH a
different 4 digit heading) from the materials
used in its production. - VA rule
manufacturers that source inputs from overseas
can include the component of these inputs towards
the specified percentage. The specified local
content ranges from 40 to 80 ex-works price.
- For some chemicals/petrochemical products,
Singapore process will be considered Singapore
origin.
How can rules of origin be simplified?
How has harmonization of standards been achieved?
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Some Other Value-added Standard
Considering the factor of ROO, free trade is not
free, preferential treatment may not
preferential. WCO, 45 value-added is
popular, sometimes 50 is used, 60 value-added
for motor-vehicles Canada, 50 (cost
excluding manufacturers profit, transportation,
etc). Taiwan, 35 US, 35 In 1980s,
Photocopy machine made in Japan or US. (to
EU)?Its difficult to calculate the value added.
Value-added standard is clear and simple,
but the calculation of cost is difficult because
of price changing of materials and other reasons.