Introduction
In the current European Union, since the Maastricht Treaty, in force since January 1, 1995 (formerly the European Economic Community since the Treaty of Rome of 1957, in force since January 1, 1958), the origin of the merchandise is determined for operations to which tariff preferences are granted, which may arise from bilateral or unilateral treaties, granting preferential treatment, and another for relations with those countries to which they have not been granted. The latter are called common law operations.
This latter treatment is also used for countries, to which preferences are granted, but which are not applicable to certain categories of goods.
In the Community Customs Code, effective from 1 January 1994, Articles 22 to 26 determine the non-preferential origin of goods, while Article 27 provides for their preferential origin. Before then, this subject was dealt with by Implementing and Executing Regulations, set out in Council Regulation 802/68 and repealed by the Regulation implementing the Code, in Articles 35 to 43.
Origin of preferential operations
We have indicated that customs preferences of the common market may be granted on the basis of a bilateral or multilateral agreement, or by the Union's own decision, pursuant to Article 27 of the Community Code. Regarding the former, since they depend on the agreement signed for their purposes between the contracting States, the criteria of origin are not regulated by law. Therefore, it will be necessary to determine in the agreement the reasons for granting them, which may be different or similar to each other.
However, for those in which preferences are granted unilaterally by the Community, they are regulated in art. 27 of the Code, and reference is made to arts. 66 to 77, 98 to 104 and 120 to 126 of the Implementing Regulation. In these cases, preferences may be mutual, or differentiated in terms of the determined percentage, or even with the denial of the same by the other party.
The principles of origin determined in the aforementioned agreements are the common ones applicable to the regime. Thus, goods obtained entirely within the exporting country are considered to be of origin in the same. On the other hand, it is determined that goods that have undergone non-relevant processing in another customs territory do not change their origin. These principles are stated in art. 38 of the Regulation. In addition, the change in the tariff heading of the processed product is considered to grant a new origin to the resulting goods.
In addition to the above, and even in the application of the principle of change of heading, lists of goods were duly ordered, in which the origin arose by the mere fact of being included in them, granting or not the new origin. In this regard, and starting with the Harmonized System of Designation and Coding of Goods, the lists cited are replaced by a single one, in which, in addition to the change of tariff heading, the requirements ordered in that list are considered valid for the granting of origin.
There are also special operations related to developing countries, contemplated by Regulation 3749/83 of the Commission of the European Communities, so they are more strictly applied and, consequently, within the regulations, greater requirements are demanded, which if they did not exist, would lead to cases of commercial fraud.
In this regard, the Court of Justice of the European Communities, in Case No. 385/85, held: “Regulation 802/68 expressly provides that its rules shall apply without prejudice to any specific regime which the Community unilaterally establishes in relation to trade with guaranteed preferences… The Commission may apply the concept of origin of goods in a different and more restrictive sense within the framework of generalized tariff preferences than that resulting from the general framework of Regulation 802/68. This application may be necessary in order to ensure… that preferences benefit only industries established in developing countries, and in respect of products whose principal production process has taken place in those countries.”
Origin of Common Law operations
The Community Customs Code provides for the origin of Community merchandise, indicating that in this case the non-preferential origin of the merchandise is the object of the application of the tariff and non-tariff trade policy measures. In its art. 23, it provides that the merchandise of this origin is:
“a) Mineral products extracted in a country, both in its territory and in its territorial sea (paragraph 3);
“b) the plant products collected therein;
“c) live animals born and raised therein;
“d) products from live animals raised therein;
“e) the products of hunting and fishing carried out therein;
“f) products of sea fishing and other products taken from the sea outside the territorial waters of a country by vessels registered and recorded in that country and flying its flag;
“g) goods obtained on board factory ships from products referred to in point (f) originating in said country, provided that said ships are registered or recorded in said country and fly its flag;
“h) products extracted from the seabed or subsoil situated outside territorial waters, provided that said country exercises exclusive exploitation rights over said seabed or subsoil;
“i) waste and residues resulting from manufacturing operations and obsolete articles, provided that they have been collected in that country and can only be used for the recovery of raw materials;
“j) those obtained in said country exclusively from the goods contemplated in letters a, e and/or their derivatives, whatever the phase in which they are found.”
The present regulations are reflected in the incs. a y b of section 1 of art. 14 of our Code, with some additions by which it is assimilated to the regulations of the Kyoto Convention. These additions refer to products from live animals (incl. d), to the exclusive exploitation zones of said community (inc. h), to waste and residues arising from manufacturing operations, which we have already indicated must be treated as inputs of non-EU origin (incl. l), and those obtained from natural products (incl. j).
Manufactured merchandise
Regarding manufactured goods, that is, with inputs from more than one country and their production in several, art. 25 of the Community Code grants the origin in the country where it underwent the last substantial processing. Within this norm it is mentioned that as long as the transformation carried out is carried out in order to obtain tax benefits or a commercial regime, falsifying the truth of said origin, this cannot be conferred in order to prevent fraud against the law and for the benefit of the applicant.
This substantial transformation necessary to grant origin is not definitive in the Code, granting the greatest scope for its qualification. Therefore, at the time when the international operator requests the destination of the product, the origin that is intended to be asserted will be determined. Consequently, as we have already pointed out, the Commission of the European Communities issued several decisions for the application of the Base Regulation 802/68, defining the term and applying it to certain products in dispute, replaced by the Regulation implementing the Code, and based literally on the Kyoto Convention.
Adopted criteria
There are several criteria provided by the aforementioned Commission to determine what is the substantial transformation, by which origin can be granted to the merchandise. This is also cited as an economically viable operation with respect to lower costs, technical improvements in treatment, and others.
In principle, the most commonly used criterion for the above purposes is when the transformation in another customs territory causes a change in the tariff position of the resulting merchandise, with respect to the inputs that compose it, originating in another territory, which was a criterion adopted by Commission Regulation 1364/91. Another criterion, which arises from Regulation 288/89, is based on the aspect of the transformation carried out, even if it does not cause the change mentioned in the nomenclature, to the finished product with respect to its inputs.
The third criterion refers to the value added by the processing of the resulting product, which may or may not be quantified, as adopted by Regulation 2632/70. This criterion will take into account the percentage of surplus value or added value granted by this transformation. This value is calculated between the value of the inputs, by their import value, and, as regards the product produced in the new territory, by its export value. Finally, it remains to be said that these criteria can be adopted in a combined form.
In this regard, the Court of Justice of the European Communities (Case 93/83) has ruled with great clarity and precision that a transformation can be considered substantial when “the product resulting from it has specific properties and composition that it did not have before that transformation and processing. Operations that affect the presentation of a product for use but do not involve a significant qualitative modification of its properties are not capable of determining the origin of such products.”
Accumulation rules
When rules of accumulation are ordered, this means in the so-called 'binational accumulation', that the same rules will not be applied to merchandise coming from a third State to be manufactured in the Community and then exported to another third country, as when the merchandise is imported from a certain country to be transformed in the Community, and to be exported to that same country from which the merchandise had come.
In general, these rules are applied for the purposes of granting tariff preferences, so in the last case mentioned, if the country of origin of the inputs had this type of preferences, with the intention of applying the change of origin, more lenient rules will be implemented than those used in the first term. This is intended to benefit those countries that previously had preferential treaties with the Community.
In this type of negotiations, the so-called multilateral accumulation may appear, which will be applied in a general way when the Community has signed similar preferential agreements with groups of countries, which, moreover, are related to each other for economic and geographical reasons.
In this case, the form of application is that, once the agreements have been signed, the Community merchandise that is exported to one of the countries with a preferential agreement, to be transformed, can be imported into the Community with said preferences, and that when it comes to multilateral agreements, the merchandise exported from one country of the group to another of the same group to be transformed, can subsequently be imported into the Community with the same preferences granted to those originating in the Community.
Direct transport
As with the rest of international regulations, for a merchandise to be considered as originating in a certain country, when exported from that country to another with which preferential agreements have been signed, it must be sent directly between both countries (exporter and importer), without being unloaded in any customs territory of a third country, except by change of means of transport.
This has been arranged in order to avoid fraud in international trade that could occur in that transit country, such as replacing the original merchandise, adding or removing inputs, or other illegal acts, attempting to make it considered as originating in the original country, to which tariff preferences of another type would have been granted.
However, this principle has exceptions to apply in this direct transit. This is permitted in cases where it occurs for geographical reasons, or when there are problems with the transport where the merchandise was shipped, even allowing transshipment in said country. All this in order to avoid fraud in the operation in question, which could consist of storage in the aforementioned country, for reasons of need for the merchandise, but with the customs control of the intervening countries, and even proposing the issuance of a certificate by said country of transit of the merchandise or the means of transport.
In cases where there is a multilateral accumulation agreement, transit through another country that is a signatory to the agreement may be permitted, even if the reasons indicated in the previous paragraph are not met. This is appropriate since, as we have analyzed, the origin of the original State will continue to be granted, even when dealing with merchandise from the other signatory country, transformed into a similar one.
This concept also allows that in the transit country, the merchandise would have been marketed, as long as the new owner directly exports it to the country where it was originally intended for import. All this will be possible, provided that said merchandise is under the control of the customs authority of the intervening countries, as we have indicated. This last point was duly decided on 07/05/68 (case 156/85), by the Court of Justice of the European Communities, considering that with this customs control no fraud can occur in international trade.
Perfectly active
In European legislation there is a temporary import or export suspensive destination, which is legislated in our Code in arts. 258 and 357, by which the merchandise is imported into our customs territory, or exported to another similar territory, in order to be granted active or passive improvement respectively, that is, a transformation of its characteristics.
These destinations, as they are not definitive for import or export, for consumption, are not subject to duties, as they will not enter or leave the national patrimony in a definitive manner. They simply do so for a certain period of time, with the obligation to be re-exported or re-imported within the period granted.
However, under the regulations under study, although it is authorized that the merchandise perfected in a customs territory enjoys tariff preferences when imported, according to the agreements signed between the States, for which the new resulting merchandise must be considered of origin in the State in which it was processed, it must have been definitively imported in the same. Therefore, in the event that they exist, the corresponding import duties must have been paid in that State, if they exist. This payment of duties is not essential in the event that a definitive import destination for consumption has not been granted, that is, if it is nationalized merchandise.
Jorge Luis Tosi is a lawyer and holds a Master's degree in State Law. He was a career official at the General Directorate of Customs in Argentina..
