2021年6月15日

European Commission Opens Consultation on Draft Regulation Regarding the Origin of Goods

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On June 7, 2021, the European Commission (“Commission”) published a draft Delegated Regulation Amending Delegated Regulation (EU) No 2015/2446 proposing certain amendments to the provisions on the origin of goods as set forth in the Union Customs Code Delegated Act (“UCC DA”) (“Draft Regulation”).1 The Draft Regulation is currently the subject of a public consultation, opened until July 5, 2021.2

1. Clarifications and amendments to the provision of the UCC DA on non-preferential origin

Non-preferential origin is used for the application of a number of commercial policy measures including (but not limited to) antidumping and countervailing duties, safeguard measures, origin-marking requirements, public procurement and statistics.

In the Draft Regulation, the Commission contemplates clarifications and amendments to the current rules.

1.1 Clarifications regarding the determination of non-preferential origin for vegetable products

Under Article 60(1) of the Union Customs Code (“UCC”),3 goods wholly obtained in a single country or territory are to be regarded as having their origin in that country or territory. The list of goods which can be considered as wholly obtained in a single country or territory is contained in Article 31 of the UCC DA.

The Commission proposes to clarify that vegetable products must not only have been harvested but also grown only in the relevant country or territory.

1.2 Amendments to residual rules for determining non-preferential origin in case of processing or working, which is not economically justified or qualifies as minimal operations

Under Article 60(2) of the UCC, goods—the production of which involves more than one country or territory—shall be deemed to originate in the country or territory where they underwent their last, substantial, economically-justified processing or working, in an undertaking equipped for that purpose, resulting in the manufacture of a new product or representing an important stage of manufacture.

The UCC DA inter alia (i) clarifies when a processing or working is not considered “economically justified” and (ii) provides a list of minimal operations which shall not be considered as substantial, economically justified processing or working for the purposes of conferring origin.4

In practical terms, even if a processing or working corresponds to the last substantial transformation referred to in Article 60(2) of the UCC, if such processing or working is either not “economically justified” or when it consists in minimal operations, the non-preferential origin will not (necessarily) correspond to the country or territory where this processing or working took place. In those circumstances, specific rules apply for the determination of the non-preferential origin.

With regard to processing or working, which is not “economically justified,” the UCC DA currently provides for alternative rules, in Article 33 of the UCC DA, depending on whether goods are listed in Annex 22-01 of the UCC DA.

Annex 22-01 sets forth list-rules for specific goods in order to determine where they have undergone their last substantial processing or working, resulting in the manufacture of a new product or representing an important stage of manufacture (i.e., their non-preferential origin). In accordance with Article 33 of the UCC DA, for goods listed in Annex 22-01, when the processing or working is nonetheless considered as not being economically justified, the residual rules included in Annex 22-01 apply. These residual rules correspond to alternative rules to determine non-preferential origin in case the “primary” or main rule does not apply.

For instance, for electronic integrated circuits of heading 8542, Annex 22-01 provides that a working processing that results in a change of tariff heading or an assembly of semi-conductor products would constitute sufficient working or processing to confer non-preferential origin. However, if that working or processing is found not to be economically justified, this working or processing—even if it meets the list rules of Annex 22-01—would not confer non-preferential origin. Rather, the non-preferential origin would have to be determined by reference to the “Chapter residual rule” for Chapter 85, as provided for under Annex 22-01. For electronic-integrated circuits of heading 8542, the Chapter residual rule indicates that goods would have the non-preferential origin of the country in which the major portion of the materials originated, as determined on the basis of the value of the materials.

As a concrete example, assuming electronic-integrated circuits are manufactured through an assembly of semi-conductor products in country X, but in order to avoid the application of anti-dumping measures on imports of electronic-integrated circuits from country Y, the goods would not have the non-preferential origin of country X. Although the list rule of Annex 22-01 would be fulfilled in country X, the processing or working would not be considered as economically justified. If, based on their value, the major portion of parts originated in country Y, the goods would still have the non-preferential origin of country Y and remain subject to anti-dumping measures.

However, not all goods are covered by Annex 22-01. For instance, aluminium products and articles thereof falling within Chapter 76 of the EU’s Combined Nomenclature (i.e., the EU’s tariff classification system) are not covered by Annex 22-01. Their non-preferential origin cannot be assessed by reference to list-rules and must instead be determined by reference to the concept of “last substantial transformation” as interpreted by the EU jurisdictions. However, in case a processing or working is considered as not being economically justified, Article 33 of the UCC DA provides for a specific “residual rule” in order to determine non-preferential origin. This residual rule refers to the country or territory where the major portion of the materials originated.

For goods that are listed in Annex 22-01, the Draft Regulation does not propose to introduce any modification to the “residual rule” to be applied in case non-preferential origin has to be determined further to a processing or working which is not considered as economically justified.

The Draft Regulation, however, proposes to amend the “residual rule” in relation to goods that are not listed in Annex 22-01. While the principle remains that non-preferential origin will be determined by reference to the country or territory where the major portion of the materials originated, the Draft Regulation clarifies that:

  • For products classified under Chapters 1 to 29 or 31 to 40 of the Harmonized System,5 the major portion shall be determined based on the weight of the materials; whereas
  • For products classified under Chapters 30 or 41 to 97 of the Harmonized System,6 the major portion shall be determined on the basis of the value of the materials.

With regard to minimal operations, the Draft Regulation proposes to introduce residual rules, which are modelled on those applicable in case of processing or working which is not “economically justified” (as detailed above), i.e.:

  • For goods covered by Annex 22-01 of the UCC DA, Chapter residual rules in Annex 22-01 applies;
  • For goods not covered by Annex 22-01 of the UCC DA, non-preferential origin is based on the country or territory where the major portion of the materials originated, determined by reference to weight or value.

2. Amendments to reflect the updated 2022 Harmonized System Nomenclature ("HS Nomenclature")

The Draft Regulation proposes modifications to three annexes of the UCC DA to reflect the amendments made in the HS Nomenclature, which will enter into force on January 1, 2022.7

As these annexes list goods on the basis of their classification in the HS Nomenclature, the amendments contained in the 2022 HS Nomenclature have to be reflected accordingly. The proposed amendments mostly concern the nature of the goods covered by a particular tariff heading or covered by a specific rule.

For instance, the Draft Regulation proposes to amend Annex 22-01 of the UCC DA, which—as mentioned above—provides for list-rules in order to determine the non-preferential origin of certain goods.

The proposed amendments concern inter alia:

  • The scope of the Chapter residual rule applicable to mixtures falling within Section IV, Chapter 20 of the EU’s Combined Nomenclature (preparation of vegetables, fruits, nuts or other parts of plants), which is amended to confirm that it applies to (i) coconut water and (ii) vegetable juices, unfermented “and not containing added spirit”;
  • The title of heading 8541, which is amended to clarify that it covers “semiconductor devices,” including “for example, diodes, transistors, semiconductor based transducers,” as well as light-emitting diodes “whether or not assembled with other light-emitting diodes.”

Similar changes are made to reflect the updated 2022 HS Nomenclature in:

  • Annex 22-03 of the UCC DA, which provides for list-rules in order to determine the preferential origin of goods in the context of the EU’s Generalised System of Preferences (“GSP”); and
  • Annex 22-04 of the UCC DA, which establishes a list of materials excluded from the scope of regional cumulation under the EU’s GSP.

3. Next steps

The Draft Regulation is currently the subject of a public consultation until July 5, 2021. It will subsequently have to be formally adopted by the Commission and notified to the European Parliament and the Council, which will have two months to oppose it. If no opposition is received, or if the European Parliament and the Council have informed the Commission that the they will not object, the Draft Regulation will be published in the Official Journal of the European Union (“Official Journal”).

Clarifications and amendments relating to the non-preferential rules of origin would enter into force on the 20th day following publication in the Official Journal, while changes reflecting the HS Nomenclature 2022 would be applicable as of January 1, 2022.

With long-standing experience in EU customs law, Mayer Brown is committed to help affected producers and importers determine the impact of the Draft Regulation on their activities and assist them in their participation to the consultation.

 


 

1 Draft Commission Delegated Regulation amending Delegated Regulation (EU) No 2015/2446 as regards certain provisions relating to the origin of goods, Ref. Ares(2021)3728861 – 07/06/2021.

The UCC DA is set forth in the Commission Delegated Regulation (EU) 2015/2446 of July 28, 2015, supplementing Regulation (EU) No 952/2013 of the European Parliament and of the Council as regards detailed rules concerning certain provisions of the Union Customs Code, OJ L 343, 29.12.2015, p. 1.

2 The public consultation, together with the Draft Regulation, can be accessed at:

https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12901-Union-Customs-Code-updated-rules-on-non-preferential-origin-of-goods_en.

3 Regulation (EU) No 952/2013 of the European Parliament and of the Council of October 9, 2013, laying down the Union Customs Code, OJ L 269, 10.10.2013, p. 1.

4 UCC DA, Articles 33 and 34.

5 This corresponds to live animals, animal products, vegetable products, animal or vegetable fats and oils and their cleavage products, prepared edible fats, animal or vegetable waxes, prepared foodstuffs, beverages, spirits and vinegar, tobacco and manufactured tobacco substitutes, mineral products, products of the chemical or allied industries (except for pharmaceutical products), plastics and articles thereof, rubber and articles thereof.

6 This corresponds to the products not listed in footnote 5, including pharmaceutical products.

7 The HS Nomenclature 2022 Edition can be accessed at:

http://www.wcoomd.org/en/topics/nomenclature/instrument-and-tools/hs-nomenclature-2022-edition.aspx.

The HS Nomenclature is adopted in the framework of the World Customs Organization and is used worldwide by all contracting parties to the Harmonized System Convention as the basis for their tariff classification at the six-digits level. It therefore seeks to harmonize customs classification at the global level in order to facilitate the flow of goods.

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