RESTRICTEDWORLD TRADE
ORGANIZATIONWT/REG/GEN/M/2
3 February 1999
(99-0414)
Committee on Regional Trade Agreements
EXAMINATION OF THE SYSTEM OF EUROPEAN CUMULATION OF ORIGIN1
Note on the Meeting of 1 December 1998
Chairman: Mr. C. Pérez del Castillo
1. The Chairman said that it was the second time the Committee would be addressing the
European system of cumulation of origin, following the discussion held at the previous Session under
the Chairmanship of Mr. J.M. Noirfalisse.  With the presence of experts from some of the countries
involved in the system, the meeting provided a first opportunity for Members to clarify how the
system worked as well as the nature of the practical changes introduced.  Noting that the summary
records of that meeting had been distributed as document WT/REG/GEN/M/1, the Chairman drew
Members' attention to the REG/GEN symbol, which had been created to deal with issues that concern
simultaneously a number of regional trade agreements  (RTAs).  Documents for that day's discussions
included also WT/REG/GEN/N/1 and G/RO/N/23.  He noted that, following the last meeting, thedelegations of Japan and the United States (US) had submitted written questions, both of a procedural
and substantive nature, which had been distributed to all delegations.  He said that he would invite the
representatives of the United States and of Japan to pose their questions orally, so that replies could
also be given in a similar manner.  Before that, however, he invited delegations to make comments of
a general nature.
2. The representative of the United States said that her delegation was frustrated and
disappointed because the notification of the European system of cumulation had been made
18 months after its request for information.  She was equally disappointed because the notification of
the system, which had been in force for around 2 years, had just been made and frustrated that it
consisted only of four newly-written introductory paragraphs followed by the regulations themselves.
She was, however, pleased that experts from the parties to the system were present at the meeting, so
that meaningful discussions could be held.  Commenting on the fact that it had been said that theEuropean system of cumulation was a technical matter, she said that, while the nuts and bolts of the
system of cumulation was technical, its existence and operation was not only a technical matter but
also a legal issue.  The scope and effect of the regime were enormous;  by her delegation's account,
more than 40 RTAs in Europe already used the scheme and, together, its participating countries were
responsible for more than 42 per cent of world trade.  For all the countries involved, preferential tradewas a very significant portion of their trade.  The rules of origin scheme not only bound those
countries in the various RTAs together technically, but also legally.  It was the legal link that enabled
separate free trade zones established under a number of Free Trade Agreements (FTAs) to merge into
a Europe-wide network, as stated in paragraph 1 of document WT/REG/GEN /N/1.  That statement
                                                     
1 This is of relevance for the examination of the following agreements: the Free-Trade
Agreements (FTAs) between the European Communities (E C) and Bulgaria, Czech Republic, Estonia, Hungary,
Latvia, Lithuania, Poland, Romania, Slovak Republic and Slovenia;  the FTAs between EFTA and Bulgaria,
Estonia, Hungary, Latvia, Lithuania, Poland, Romania and  Slovenia;  the Central European Free-Trade Area(CEFTA);  the FTAs between the Czech Republic and Bulgaria, Estonia, Latvia and Lithuania;  the FTAs
between the Slovak Republic and Bulgaria, Latvia and Lithuania;  and the FTAs between Slovenia and Bulgaria,
Estonia, Latvia and Lithuania.WT/REG/GEN/M/2
Page 2
begged the question as to why so much time had been spent examining individual RTAs if the real
situation was essentially one agreement with multiple parties.  Clearly the answer was because
information had not been given on the rules of origin regime earlier, even though it had been in effect
for most countries since 1 January 1997.  It also raised the question of what kind of discrimination
third parties faced in trading with the European countries.  What third parties were facing was not aseries of individual FTAs between various countries where the magnitude of trade, preferential or not,
was relatively small, but rather one big market where the individual flows between the countries were
really relevant.  Her delegation was reviewing that  regime from two points of view, namely, how it
worked technically and what it meant legally.  She appreciated the information already provided by
the parties, and on the basis of it  written questions had been submitted and distributed in the
Committee on Rules of Origin and also in the Committee on Regional Trade Agreements.  She hoped
to have replies both orally and in written form, so as to enable her delegation to proceed with its owntechnical and legal analysis of the regime.  Pending completion of that analysis and the discussions in
the Committee, it might be necessary to revisit some aspects of the reviews of individual agreements.
That could be necessary, given that the discussion of such important element of the agreements was
taking place only after the completion of the factual examination for most of the agreements
concerned.
3. The representative of Korea informed the Committee that his delegation had also prepared
comments and questions on the system of cumulation, which were available in the room.  While they
had come at a late stage, he hoped that they would be discussed at that day's meeting.
4. The representative of Hong Kong, China said that the fact that her delegation had not
prepared any specific questions did not mean that there was a lack of interest in the topic.  It was
interested in the replies that were to be given to the questions posed.  In the context of the
Committee's discussion on systemic issues, her delegation had put forward views which derived from
the experience gained in the area of rules of origin  in the context of the examination of individual
agreements.
5. The Chairman noted that while some questions had already been put forward and that they
would give some impetus to the debate, that mee ting would not only deal with them.  Any delegation
wanting to comment on what was being said at the meeting could do so, and that was why it had been
decided that that questions would be addressed one-by-one.
6. The representative of European Communities said that his delegation, as well as its European
partners in the system of cumulation, would be happy to reply to any questions posed orally at the
meeting.  Such replies would be supplemented by written replies to be distributed later on.  It had to
be clear to all that at that meeting, the Committee would be examining rules of origin, and notcoverage of the agreements, which had already been examined in other circumstances.  Rules of
origin were the backbone to the RTAs signed between the European Communities (EC) and its
European partners.  He objected to the comment made in relation to the discrimination brought by the
system of cumulation, as that was far from the truth.  The new system of cumulation was not of
interest only to its parties, but also for third part ies.  Until very recently, third parties wanting to have
access to the markets of the EC or its European pa rtners had to respect rules of origin that were
different among the countries, and that was now past history.  Nowadays, an input going into one
country party to the system was treated in the same manner in all other participating countries.
7. The representative of Japan said that his delegation would like to receive written replies to the
questions it had posed in written form.WT/REG/GEN/M/2
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Questions and Replies
8. Addressing Bulgaria, the Czech Republic, Hung ary, Iceland, Liechtenstein, Norway, Poland,
Romania, the Slovak Republic, Slovenia and Switzerland, the representative of the United States
requested information on the method and date of domestic publication of the protocols relating topreferential rules of origin, undertaken in accordance with paragraph 3(c) of Annex II of theAgreement on Rules of Origin in a manner "as to enable governments and traders to become
acquainted with them" as described in paragraph 1 of Article X of GATT 1994.  She also requested
that the date, or dates, of the implementation of the system of cumulation be provided.
9. The representative of Switzerland said that the new rules had been published and distributed
by the general customs of Switzerland in its documentation, which had been broadly available for
exporters, traders and authorities in charge of applying the system, before the entry into force of the
modifications all at the same time.  Press conferences at a very high level were also organized.  Thedecision of the Federal Council, or the Council of Ministers, had been widely reported.  Under the
Swiss law, the legal publication of all decisions taken under an international agreement was not
obligatory, but the rules of origin related to the agreement with the EC had been published in May
1998.  The system of cumulation had been implemented by all the countries at the same time.  The
representative of Hungary said that the rules had been officially published in April 1997 and entered
into force 1 July 1997.  That showed that traders had plenty of time to get officially acquainted with
the new rules of origin.  Further, information had also been given for more than a year through
Chambers of Commerce and other means.  His de legation thought his country had also acted in
accordance with the Agreement on Rules of Origin.  He reiterated that his delegation considered that
this Committee was being advised of these preferential rules of origin for information purposes,given their importance, but that the legal aspects were to be dealt with in another Committee.  The
representative of Norway said the system of cumulation had been published in an Official Circular
from the Directory of Customs and Excise, issued to customs and traders on 30 July, 2 and31 December 1996.  In addition, individual circulars were issued on 15 January for Bulgaria, 14 April
for Lithuania, 5 May for Romania and 1 July for H ungary and Poland.  With respect to information
provided to governments, a common communication on behalf of the EC and the participating
countries had been conveyed to the Market Access Division of the WTO Secretariat on 17 September
1998 with the request that it be distributed to Members.  Norway also published in early 1997 a
pamphlet on the pan-European system of cu mulation. The system of cumulation had been
implemented for all countries at the same date, namely 1 January 1997, except for Lithuania and
Romania, with implementation taking place on 1 April 1997, and Hungary and Poland on 1 July 1997.
The representative of Slovenia said that the relevant material had been officially published in the
Official Gazette of the Republic of Slovenia on different dates, but that there had been an average of
30 days advanced notice between publication and implementation.  At the informal level, there had
been a wide distribution of information on the new rules through publications in  trade journals,
seminars and others.  The date of implementation was  1 January 1997 for all countries, except for
Lithuania, with implementation taking place on 1 March 1997, and Romania on 1 July 1997.  Hesupported the comments made by the representative of Hungary and affirmed that legal aspects of that
issue should be handled in another context and that this Committee was simply carrying out an
information exercise.  The representative of Romania said that the official publication of any
international agreement or any law was an obligation laid down by the Constitution.  The Protocolsconcerning the cumulation of origin had been published in the Official Romanian Gazette well inadvance of their implementation, thus allowing the business community and all interested parties to be
informed of the new system.  However, he did not yet have the precise dates of the publication of the
relevant material, but he would provide them later.  The representative of Poland said that new system
of cumulation entered into force in Poland on 1 July 1997 and that it had been published on Poland'sOfficial Journal 104 dated 4 September 1997.  Because of the delay in the publication, a MinisterialCommuniqué that explained the operation of the sy stem, including the amendments to the drawbackWT/REG/GEN/M/2
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system, had been published in advance to the entr y into force of the system and reprinted in the
specialized press.
10. The representative of the United States noted that the notification made by the EC included a
reference to the origin Protocols concerning Estonia, Latvia, Lithuania and European Economic
Area (EEA).  She asked the EC whether the introduction of the system of European cumulation oforigin concerned any countries other than those which were identified in the notification.  She also
requested the EC to provide an explanation of the meaning of the reference in the notification to EEA,
given that the notification also referred individually to Iceland, Norway and Liechtenstein.  Further,
she requested the EC, Bulgaria, the Czech Repub lic, Hungary, Iceland, Liechtenstein, Norway,
Poland, Romania, the Slovak Republic, Slovenia and Switzerland to confirm that, to the extent that
implementation of the protocols resulted in changes to  preferential rules of origin or new preferential
rules of origin, such changes had not been applied retroactively, in accordance with paragraph 3(e) ofAnnex II of the Agreement on Rules of Origin.
11. The representative of the European Communities stated that the introduction of the system of
pan-European cumulation of origin concerned the agreements of the EC with Norway, Iceland,
Switzerland, Poland, Hungary, Czech Republic, Sl ovak Republic, Bulgaria, Romania, Slovenia,
Latvia, Lithuania and Estonia, as well as the EEA.  The fact that some of the countries were notMembers of the WTO did not prevent the EC from notifying all the agreements, without exception.
The EEA and the bilateral agreements with Iceland, Norway and Switzerland were applied at the
same time and for that reason the EC notified all of them.  The representative of the European
Communities, speaking also on behalf of the other parties to the cumulation system, stated that the
implementation of the protocols obviously resulted in changes to the preferential rules.  In some cases,there had been the need for a retro-active application due to the adoption procedure.  Nevertheless, all
the rules had been widely communicated before the final stages of adoption, for example, by means of
a press release of the Commission, the information se nt out by "Agence Europe" and inclusion in the
Bulletin of the Commission.  It had to be added that the text of the Protocols, before adoption, could
be found in CELEX public database from the date of adoption by the Commission, that is, from14 December 1995.  He also pointed out that all modifications related to customs duties were
immediately included in the EC TARIC.
12. Referring to the fact that she had heard in another Committee meeting the representative of
Poland saying that the cumulation system applied to agreements that were not included in the
notification, the representative of the United States requested the other participating countries of the
cumulation system to indicate whether that was the case.  The representative of Turkey recalled that,
as stated in the meeting held on 23 September 1998 on the cumulation system, his country would jointhe system as from 1 January 1999.  Referring again to the comment made by Poland, the
representative of the United States reiterated her question on whether there were any other agreement
using the cumulation system that was not included in the notification.  The representative of Poland
said that the cumulation system also applied to the agreements between Poland and respectively
Lithuania, Latvia and Estonia, and that the latter tw o were not yet ratified.  The representative of the
United States inquired about the situation of Andorra and San Marino. The representative of the
European Communities said that statements relating to each of these countries were included at the
end of the Protocols.  The EC had a customs union with each of these countries, so they had been
integrated in the system of cumulation.  Coverage included all products of San Marino and all but
agricultural products of Andorra.  He drew the attention of the Committee to the fact that thosecountries were not Members of the WTO and that their population together were less than
100,000 inhabitants.
13. The representative of the United States noted that the protocols stated that the cumulation
might only be applied where the requirements for non-originating materials to obtain originating
status were identical between the protocols.  She then addressed three questions to the EC, Bulgaria,WT/REG/GEN/M/2
Page 5
the Czech Republic, Hungary, Iceland, Liechtenstein, Norway, Poland, Romania, the Slovak
Republic, Slovenia and Switzerland.  First, she wondered whether, in view of the notification, the
situation was that the requirements for non-originatin g materials to obtain originating status - i.e., the
preferential rules of origin were identical for a ll trade between some WTO Members, namely the EC,
Bulgaria, the Czech Republic, Hungary, Iceland, Liechtenstein, Norway, Poland, Romania, the Slovak
Republic, Slovenia, and Switzerland.  Second, she requested those countries to identify the products,
if any, in terms of Harmonized System (HS) he ading or subheading, where the requirements for non-
originating materials to obtain originating status for preferential trade between any of the Members
just cited were not identical.  Third, she asked for the identification of products, if any, in terms of HS
heading or subheading, which were not covered under each specific individual preferential trade
agreement subject to the cumulation system.
14. The representative of the European Communities,  speaking also on behalf of the other parties
to the cumulation system, drew the attention of the Committee to the fact that all countries applying
the cumulation system applied exactly the same rules of origin and there were no exceptions to that.
He said that the reply to the first question was yes;  that was the major basic principle for the system
to work without trade diversions or undue adva ntages to one country.  Concerning the second
question, he said that there were no such products.  Regarding the third question, he said that allproducts covered by each of the agreements were covered by the system and that in any case, it was
always to the economic operator to decide whether he wanted to use the system or not.
15. Reacting to the replies given, the representative of the United States stated that the questions
she had just posed related to the differences in the rules of origin between the different agreements,
given that the preferences in individual agreements did not necessarily match the preferences in otheragreements.  She wondered whether any of the parties to the system could explain how the system
worked where the level of preferences was different.  The representative of Switzerland that, if that
were the case, there would be no effect on cumulation.  The importation of an originating input forwhich the duties had not been completely dismantled would be subject to the payment of a duty, but
the operator could still cumulate it as if it had been produced in his own country.  The representativeof the United States requested, and the parties to the system accepted, that the reply be supplied in a
written form.  The representative of Canada asked whether it was up to the Government to decide
whether or not to apply the system of cumulation, and the representative of the European
Communities replied in the negative, saying that it was up to the operator to make the decision.  The
representative of Australia said that if it was up to the economic operator to make the choice,
presumably different results could be obtained for the same product depending on the choice of the
operator.  He wondered whether that could happen and if so how that was handled.  Giving anexample, the representative of Switzerland said that the duties for pharmaceutical products were zero
and thus many operators would not bother to fulfil the cumulation rules.  If the m.f.n. duties were verylow, the operator might also take that same decisi on.  The operator would chose to apply or not the
cumulation system in light of the advantages it could get.
16. Making reference to the dates of publication in the Official Journal providing notice of
implementation of the cumulation system to traders and governments, which were contained in the
notification, the representative of the United States requested the EC to confirm that the degree of
advance notice indicated therein was correct.  She also requested information from Bulgaria, theCzech Republic, Hungary, Iceland, Liechtenstein, Norway, Poland, Romania, the Slovak Republic,
Slovenia and Switzerland on the number of days of advance notice of the implementation ofcumulation system that was provided, through publication, to traders and governments.
17. Confirming what had been said, the representative of the European Communities added that
according to the legal procedures in force for th e adoption of the decision, these were acts whose
publication was not mandatory.  Nevertheless, the EC and the Member States had widely
disseminated the texts to the economic operators beforehand, as stated in paragraph 9.  TheWT/REG/GEN/M/2
Page 6
representative of Norway said that information on the finalization of negotiations on the system had
been provided in a circular dated 2 December 1996, namely 29 days before its entry into force.
Before that, several circulars had been issued giving an advance warning of the ongoing negotiations
and the system that was about to come, and seminars held on the system.  The representative of
Slovenia said that formal advance notice differed from country to country, in the case of the EC it had
been of 34 days, Lithuania 39 days and there had been cases of 14 and 8 days.  In all cases, there had
been sufficient advance notice of the implementation of the system of cumulation of origin.  The
representative of Romania said that there had been an advance notice of the implementation of the
system but that he could not give the precise date;  that information would be submitted later.  Therepresentative of Switzerland said that the publica tion of such information was not compulsory in the
Swiss law, but that advance notice had been provided through various channels including publication
by the Swiss customs administration, which had been widely distributed to customs offices andcompanies.  Further, various associations of industries were informed of the system, and they had also
informed their members.  Chambers of commerce had also organized seminars explaining the new
system.
18. Addressing her question to the EC, Bulgar ia, the Czech Republic, Hungary, Iceland,
Liechtenstein, Norway, Poland, Romania, the Slovak Republic, Slovenia and Switzerland, the
representative of the United States requested these countries to confirm that each of them was not a
party to a single Agreement, involving all of the members to whom the question was directed, whichwas an Agreement in accordance with Annex II, Paragraph 2 of the Agreement on Rules of Origin -
i.e., a "contractual or autonomous trade regime leading to the granting of tariff preferences going
beyond the application of paragraph 1 of  Article 1 of GATT 1994".  She also requested thosecountries to confirm that individually each country was not a party to a single Agreement under
Article XXIV of GATT 1994 which involved all of  the Members to whom the question was directed.
If that was not the case, she requested that indication be given of the date of its notification.
Responding to both questions, the representative of the European Communities, speaking also on
behalf of the other parties to the cumulation system, confirmed that, with the exception of the
EEA agreement which had already been notified but which did not include all of the countries, thecountries referred to were not parties to any such single agreement.
19. The representative of the United States noted that, according to the notification, diagonal
cumulation of origin allowed products of certain third countries to be considered as originating under
various bilateral preferential trade agreements, even though such third countries were not parties to
the individual agreements which provided for the preferential treatment. Addressing her question to
the EC, Bulgaria, the Czech Republic, Hungary,  Iceland, Liechtenstein, Norway, Poland, Romania,
the Slovak Republic, Slovenia and Switzerland, she asked whether it was true that, under the
cumulation system, inputs that originated in certain third countries that were not a party to individual
preferential trade Agreements but were participants in the cumulation system would be treated
differently than inputs that originate in other th ird countries that were also not a party to such
individual preferential trade Agreements, but were also not participating in the cumulation system,and that an explanation be given if that was not th e case.  Further, she asked whether it was true that
for example, semi-finished auto parts originatin g in any country participating in the cumulation
system, which were further processed or assembled in any other participating country, could always
be considered as originating auto parts by countrie s in the cumulation system, and that such auto parts
could be traded subject to preferential treatment be tween any of the countries involved in the system,
even though there was no single individual preferential trade agreement among all the participants of
the cumulation system that provided for such preferential treatment.  She asked that an explanation be
provided if that understanding was not correct.
20. The representative of the European Communities,  speaking also on behalf of the other parties
to the cumulation system, said that the first question was not completely clear.  If the question was
supposed to raise the matter of Andorra and San Marino, these two countries were clearly identified inWT/REG/GEN/M/2
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each one of the Protocols, they were in customs unions with the EC and that as a consequence they
applied the same preferences as the EC.  They were not Members of the WTO;  further, it had to be
pointed out that their combined population accounted for less than 100,000 inhabitants.  He responded
in the negative to the second question, saying that the products would be considered as originating
only if a bilateral preferential trade agreement between the exporting and the importing countryexisted.  For example, if parts of  a car were produced in Bulgaria and the production fulfilled the
origin rules, then, if those car parts were exported to the EC, they would be treated as originating and
could, as such, be assembled into a motor vehicle.  If the same parts were exported to Latvia, they
would be treated as non-originating as no agreement existed between Bulgaria and Latvia.
21. The representative of the United States said that the first question did not concern Andorra
and San Marino, and she provided an example to illustrate the issue.  The EC and Poland had a FTA
and neither Slovenia nor the US were parties to it.  She wondered whether the inputs of Slovenia,which was a participant in the system of cumulation, and those of the US, which did not participate in
such system, would be treated differently.  Replying to that, the representative of Switzerland said that
inputs from the US were third-country inputs and would pay the duty when going into the EC.
Slovenia was not a party to the agreement but it had FTAs both with the EC and Poland;  therefore,
through cumulation, Slovenian input could be included into the ratio of originating inputs.  Therepresentative of the European Communities said that Members should leave the meeting with clear
ideas.  Until the end of 1996, each agreement was self-limited, i.e. the EC had agreements withSwitzerland and Poland, which in turn had an agreement with Switzerland.  However, the goods
obtained through the bilateral cumulation under the EC/Switzerland agreement were considered as
third-country goods when exported to Poland.  The pan-European cumulation system dismantled allthose barriers, so that, for example, goods obtain ed in the framework of Norway-Lithuania bilateral
cumulation would be considered as originating by a ll the countries in the area.  A multiple agreement
had not been concluded, what was in force was a series of bilateral agreements.  Whenever a
modification was to be made, it had to be made to all of them and at the same time.  That implied a lot
of work from all the participants but at the same time the result was that a good originating in the
framework of any kind of relation within the zone would be considered as originating by all the other
countries of the area. For example, an input from Canada, US or Australia which was used Poland
would be limited until 1996 to the preferential orig in between the EC and Poland, while with the new
system it would be considered as originating within the zone.  That was also the objective that the EC
wished to obtain in the context of EC relations with the Mediterranean basin countries.
22. Referring to the example proposed by the US, the representative of the Korea wondered what
would be the situation if Slovenia was replaced with Latvia.  The representative of Switzerland said
that Latvia inputs into the EC would be treated for cumulation because there was a FTA between the
EC and Latvia.  If  Poland imported from Latvia, then, given that there was not yet a FTA between the
two, cumulation could not yet apply.  However, that situation would only last during a transition
period because such FTA was going to be ratified and enter into force in the near future.  The
representative of Norway added that the system was not yet fully operating as some agreements were
still lacking, but they were under way.  In the trade between Latvia and the EC, cumulation was
applied.  If the final product was going to be exported to Poland, then, provided it had EC origin, most
probably it would receive preferential treatment into Poland.  If the product had Latvian origin, most
certainly it would not be liable to preferential treatment into Poland, because there was no agreement
between the two.  The representative of Australia requested confirmation on his understanding
according to which in the case involving Poland, Latvia and EC, cumulation, which produced tariff
preferences, did not operate between Poland and Latvia because there was no agreement between the
two.  He also presumed that the good originating in Poland and traded under the terms of the
agreement with the EC, i.e. deemed to have EC origin, would then attract preferences if it went to
Latvia.  His delegation wanted to be sure that, notwithstanding the fact that both countries participatedin the cumulation system, cumulation did not operate between the two countries if there was no
preferential agreement between them. The representative of Norway reaffirmed that cumulation wasWT/REG/GEN/M/2
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not possible between Poland and Latvia because there was no agreement between the two.  If there
was cumulation in trade between the EC and Poland, and cumulation with Latvian products, that was
possible because there was an agreement between the EC and Latvia.  If the product exported from
the EC to Poland had EC origin, there would certainly be a preference into Poland.  However, if the
product had Latvian origin, the customs authorities of Poland would most probably not give apreference to it because there was no agreement between Poland and Latvia.
23. The Chairman called the attention of Members to the fact that, while it was very clear that the
system was not yet fully operational, the purpose of the meeting was to clarify the philosophy of the
system and how in practice it would work.  From the examples presented, it seemed very clear to him
that in order to have cumulation, bilateral pref erential agreements between the countries involved
were needed.  While the Committee could look at various examples, the important was to be clear on
how the system would function once it would be fully operational.
24.  The representative of the United States asked how products from the Faroe Islands, and in
particular agricultural products, were treated in the system.  Further, she noted that the EC had signed
but not yet ratified a number of FTAs with the Mediterranean countries, including one with Morocco
which was not yet in force.  In light of that, and also of the fact that France continued to have a waiver
under Article IX of the WTO to govern its historical preferences with Morocco, she wondered howthe products of Morocco imported into the EC were treated under the system. The representative of
the European Communities said that the EC and the Faroe Islands had an FTA, but that the Faroe
Islands did not participate in the cumulation system.  The cooperation agreement concluded in the1970s with Morocco still applied, and once concluded, the FTA being negotiated would put an end to
the historical preferences that concerned certain tomatoes, beans and other agricultural products.  Therepresentative of Norway said that his country also had a bilateral agreement with the Faroe Islands
but that the Faroe Islands did not participate in the cumulation system.  The States of the  EuropeanFree Trade Association (EFTA) had also signed a FTA with Morocco, but the agreement had not yet
entered into force.
25. The representative of the United States stated that, under the terms of certain product-specific
preferential rules of origin set forth as an Annex to  the protocols, for example Annex II of the protocol
for the Norway/EC Agreement, certain non-originatin g materials could not be used in the manufacture
of a product if that product was to achieve originating status and preferential treatment.  However, in
Article 6.2 of the Norway/EC Protocol, an article which was presumed to exist in every notified
protocol, it was stated that non-originating materials might nevertheless be used, provided that their
total value did not exceed 10 per cent of the ex-works price of the final product.  She asked the EC,
Bulgaria, the Czech Republic, Hungary, Iceland, Liechtenstein, Norway, Poland, Romania, the Slovak
Republic, Slovenia and Switzerland whether it was correct to state that such a provision appeared to
allow for the use of a certain de minimis amount of non-originating content as a general exception to
whatever prohibition or limitation that might exist in a product-specific rule of origin with regard to
the use of non-originating material.  If that was not correct, she requested that an explanation be
provided.  She then asked whether the 10 percent ceiling of the de minimis rule, which allowed theuse of a certain level of non-originating materials in the production of an originating product, applied
to all third countries that were not participants  to the EC/Norway Agreement, or only to third
countries except the participants in the cumulation system.  Further, she asked whether, for example
under the EC/Norway Agreement, the value of materials produced in third countries not parties to the
Agreement could exceed the 10 percent de minimis without rendering the final product non-originating if those materials originated in a third country that was a participant in the cumulation
system.
26. Replying to the first question, the representative of the European Communities, speaking also
on behalf of the other parties to the cumulation system, said the understanding was correct and that,
for comparison, the de minimis ceiling in the North American Free Trade Agreement was of 7 perWT/REG/GEN/M/2
Page 9
cent, and 10 per cent in the Canada-Israel agreement and in the Central American Common Market.
He then provided an example of how that worked to indicate the purpose of such rule.  The rule
applying up to 1996 for canned fish was that of totally obtained product, that is, basically the fish had
to be caught by vessels belonging to nationals of the area.  The new system allowed a producer to use
in its preparation, for example, in a soup, a fish that could only be caught in the China sea and retainthe originating status provided that non-originatin g fish did not account for more than 10 per cent.
Replying in the affirmative to the second question, he said that the 10 per cent ceiling applied to all
products that could not be considered as originat ing in the framework of the EC-Norway Agreement.
That meant that the rule applied to products orig inating in all countries except those participating in
the system which had a similar agreement with the EC and Norway.  Replying to the third question,
he said that the products originating in other countries with which Norway had an agreement in the
framework of the pan-European cumulation were considered as originating in Norway and in thatcase, the 10 per cent ceiling was not applicable.  The ceiling referred to products imported from
outside the zone.  Complementing that reply, the representative of Norway said that products
originating from other countries within the zone were not counted when using the 10 percent ceiling,and that all of the ceiling was available for countries outside the zone.  That was not the case
previously, and that new situation was in favour of third countries.  The representative of  Switzerland
said that the 10 per cent could be used on each input, provided they were bought from different
suppliers.  Replying to a question posed by the representative of the United States on whether that
meant that different shipments were required, that is whether different packages from differentsuppliers coming in the same shipment would be c onsidered as one, the representative of  Switzerland
said that the ceiling applied to originating goods and how they were classified in terms of HS tariff.
27. The representative of the Korea requested that the given example be modified, so to have the
agreement between EC and Poland and products fr om Lithuania.  He wondered whether the
Lithuanian products would be considered as third-country inputs since there was no agreement
between Poland and Lithuania.  The representative of Norway said that presumably there would be no
possibility for cumulation and the 10 per cent tolerance rule would be applied.  If however the
Lithuanian products were exported to the EC as or iginating products, the EC could cumulate them and
export the final product to Poland;  the whole of the 10 per cent tolerance rule would be open to
countries outside the zone.  The representative of the United States said that it was his understanding
that, in the case of a product manufactured in the EC having a 10 per cent input from Latvia and a10 per cent input from the US and ultimately exported to the Czech Republic, the 10 per cent from the
US would qualify under the de minimis rule.  However, if 10 per cent of the inputs came from the US
and 10 per cent from Japan, neither the inputs from Japan nor those from the US would qualify.Essentially, this meant that the product coming from Latvia had a more favourable treatment that that
of Japan, even thought Latvia was not a party to the EC-Czech Republic agreement.  He wondered
whether that was correct.  The representative of Switzerland responded by saying that, while it was
correct to say that in the case of inputs from Latvia and the US, the inputs from the US would be usedunder the de minimis, in the case of inputs from the US and Japan the producer could use either theUS or the Japanese input under the de minimis, depending on how the rule was made.  That worked in
the same way as in the NAFTA and in the Canada-Israel agreements.  The representative of Norway
said that the tolerance rule existed before the pa n-European system of cumulation, but that after the
new system such rules were extended to all countries of Central and Eastern Europe.  The
representative of the European Communities said that he appreciated the efforts made by delegates to
understand the system insofar as it concerned Estonia, Latvia and Lithuania, but noted that it
concerned a temporary situation.  What was important was to assess the objectives of the agreements
and what had already been achieved.
28. The representative of the United States said that she would start posing questions based on
different hypothetical scenarios.  In the first such scenario, an automobile engine was assembled in
Norway and exported to the EC and, in order for it to receive preferential tariff treatment under the
EC/Norway Agreement, the value of non-originatin g inputs might not exceed 40 per cent of theWT/REG/GEN/M/2
Page 10
ex-works price of the automobile engine.  Also, the preferential tariff rate applicable to the relevant
automobile engine and to inputs under each of the individual EFTA preferential trade agreements with
the Czech Republic, Hungary, Poland, Romania, Sl ovak Republic and Slovenia was not at zero.
Further, the engine would meet the applicable value content requirement only if a particular steel
forging for the engine originated - i.e. was forged - in either the EU  or Norway.  If the steel forging
for the engine was non-originating, the value of non-originating inputs for the engine would exceed
40 per cent of the ex-works price paid for the engine.  She said that it was her understanding that,
prior to implementation of the system of cumulati on, if the steel forging for the automobile engine
assembled in Norway had been forged in Poland or the US or any other Member not a party to the
Norway-EC Agreement, the content requirement for the engine would not have been met because the
steel forging would not have originated in either Norway or the EC.  Further, the engine would not
have been eligible for a preferential tariff treatment when exported from Norway to the EU.  She thenrequested EC and Norway to confirm such under standing, or otherwise explain.  Regarding the
situation after the implementation of the system of cumulation, she requested those countries to
confirm that if the steel forging for the engine assembled in Norway was forged in Poland, or any
other participant in the cumulation system, the content requirement for the engine would be met,
because the steel forging originating in Poland would be deemed to originate in either Norway or the
EC, and the engine would be eligible for a preferenti al tariff treatment when exported from Norway to
the EU.  If that understanding could not be confirmed, she requested that an explanation be given.
29. The representative of the European Communities, speaking also on behalf of Norway
congratulated the US for the example given, and said  it referred to Note 3.1 of the Annex I of the
Protocol on pan-European cumulation, which gave as an example "an engine of heading No.8407, for
which the rule states that the value of the non-originating materials which may be incorporated may
not exceed 40 per cent of the ex-works price, made from "other alloy steel roughly shaped by forging"
of heading No.ex 7224.  If this forging had been forged in the State Party concerned from a non-
originating ingot, it has already acquired originating status by virtue of the rule for heading
No.ex 7224 in the list.  The forging can then count as originating in the value calculation for the
engine regardless of whether it was produced in the same factory or in another factory in the State
Party concerned.  The value of the non-originating ingot is thus not taken into account when adding
up the value of the non-originating materials used".  That meant that if in the manufacture of any
product an intermediate product was given originating status, then the whole product should be
considered as originating.  For example, the rule s concerning TVs provided that, to be originating,
added value within the area should be 60 per cent.  That rule was also applicable to the manufacture
of cathodic tubes.  If in the manufacture of th e tube there was a third-country input which amounted
for less than 40 per cent of its value-added, then th e whole tube would be originating.  The TV set
would make use of that tube, and once again a maxi m of 40 per cent of the final value could be non-
originating.  At the end, all the non-originating inputs would far exceed 40 per cent.  He summarized
saying that Note 3.1 of Annex I allowed for much more third-parties inputs then it would initially
appear.  Concerning the specific questions posed by the US, he replied in the affirmative to both ofthem.
30. The representative of the United States referred to a second scenario in which automobile
engines were assembled in Norway and exported to the EC, with the assembly method resulting in the
engine meeting the value content requirement for preferential tariff treatment, even though the steel
forging used as an input for the engine did not originate in either Norway or the EC.  She thenrequested both these countries to confirm that he r understandings were true, or explain otherwise.
First, it was her understanding that, that prior to implementation of cumulation and upon export of the
automobile engine from Norway to  the EC, drawback would have be en available for a refund of the
duties paid on the steel forging used as an input for the engine if it had been imported into Norway as
originating in the US or any other country that was not a party to the EC/Norway Agreement.Second, she also understood that after implemen tation of cumulation, drawback would not be
available for a refund of the duties paid on the steel forging used as an input for the engine if it hadWT/REG/GEN/M/2
Page 11
been imported into Norway as originating in the US or any other country that was not a party to the
EC/Norway Agreement, unless such country was a participant in the cumulation system.  In other
words, she wondered whether it was correct to say th at upon export of the engine from Norway to the
EC, drawback was available for a refund of the duties paid on the steel forging only if it was imported
into Norway as an originating product of any other participant in the cumulation system.  Third, sheasked the representatives of Bulgaria, Czech Republic, Hungary, Iceland, Liechtenstein, Poland,
Romania, Slovak Republic, Slovenia and Switzerl and whether the understandings just presented by
her, as well as those contained in paragraph 28, remained true if their respective countries were
replaced for Norway in the scenarios described in those paragraphs.  Addressing a fourth question to
the EC and Norway, she asked whether under each of the respective individual preferential
agreements for which protocols have been submitted by participants of the cumulation system, the
distinction in drawback treatment of inputs, based on whether inputs had as their origin one ofparticipants in the cumulation system, also applied to inputs used in "preparations" classified in
HS Chapters 16 through 21.  Fifth, she requested these countries to identify the products, if any, in
terms of HS heading or subheading, within HS Chapters 16 through 21, for which there was no
differentiation of drawback treatment between goods  originating in participants in the cumulation
system and other Members.
31. The representative of the European Communities, speaking also on behalf of Norway replied
in the negative to the first question, saying that the "no-drawback" rule had always been in force in the
EC-Norway agreement.  That meant that since 1973 all third-country materials covered by the
agreement and used to obtain an originating product  had to be subject to the customs duties in the
country where the origin was obtained and that those duties could not be refunded on exportation.Regarding the second question, he said that the "no-drawback" rule was applicable to all third-country
materials used to obtain an originating product.  As already mentioned, the products originating from
one of the other countries with which the exporting country had an agreement were considered as
originating.  As for the third question, the representative of the European Communities, speaking also
on behalf of the other parties to the cumulation system, said that the understandings referred to in
paragraph 28, as well as the second understanding presented in paragraph 30, remained correct.  Thefirst understanding spelled out in that same paragraph 30 remained correct in the framework of the
Agreements with Iceland and Switzerland and in the framework of the Agreements with Bulgaria, the
Czech Republic, Hungary, Poland, Romania, the Slovak Republic and Slovenia.  As for the fourth and
fifth questions, the representative of the European Communities, speaking also on behalf of Norway
replied that, as already stated, the same rules were applicable to all products covered by the existingagreements and that, from the point of view of the cumulation system, no differentiation existed.  Asfar as it concerned the product coverage of each one of the bilateral agreements, that was indicated in
each one of the agreements and the preferential rates applied could be easily found in the each
national TARIC.  He repeated that the "no-drawback" rule applied to all the products imported from
outside the zone.
32. Given that there was no agreement on what the term "coverage" meant, the representative of
the United States requested the EC representative to indicate whether the answer to her fourth
question was yes or no.  Reaffirming that that day's discussion did not concern coverage of theagreements, the representative of the European Communities said that the rules were identical for all
products covered by the agreements and that it was up to the economic operator to decide whether itwas going to apply the cumulation rules or not.  The "no-drawback" rule applied to all the products
covered by the agreement and there were no exceptions for agricultural products covered by
Chapters 16 to 21.  The representative of the United States asked whether it was not possible to
respond to her question simply in the affirmative or in the negative because the products inChapters 16-21 were treated differently by different agreements.  The representative of the
European Communities said that, with respect to  rules of origin, all products were dealt with in the
same manner in all agreements.WT/REG/GEN/M/2
Page 12
33. The representative of the United States proposed a case in which durum wheat was exported
from Hungary to Poland to make pasta subject to a tariff rate.  He asked whether there would be a
duty drawback for the input from Hungary into Poland if the product was re-exported to Italy duty-
free.  The representative of the European Communities said that drawback was applicable only to
third-country inputs.  In a case where flour was imported from Canada into Hungary to make pasta,
which would then be exported to Italy, a Hungarian operator wishing to make use of the cumulation
system would have to pay the duty for the Canadian flour before a certificate of origin providing for
the preferential treatment of the pasta into Italy could be issued.  That was identical for all the
cumulation system.  In reply to a clarification requested by the Chairman, the representative of the
European Communities responded that there would be no drawback when the pasta was exported to
Italy, as inputs from third countries had to pay a duty somewhere in the zone.  Referring back to his
example, the representative of the United States asked whether there would be a duty drawback on the
duty paid to the Polish authorities.  The repres entative of the European Communities responded that
the no-drawback rule was applicable in the framew ork of the pan-European system;  flour imported
from Canada into Hungary and thereon exported to  the EC was not an originating product so it was
most likely that the flour imported would not be li able for a tariff in Hungary but in the EC.  The
representative of Norway said that if the flour from Hungary was sent to Poland, where pasta was
made and then exported to the EC, the first question was whether that Hungarian flour was covered by
the CEFTA;  if that was the case, then there was the possibility for preferential treatment because it
was an originating product.  In the export of the pasta from Poland to the EC, the question was
whether the pasta was originating;  if that was the case, preferential treatment would be involved if
pasta was covered by the EC-Poland agreement.  If no duty had been paid when the flour enteredPoland, no drawback would be refunded but if a pr eferential duty had been paid, he was of the
opinion that drawback would be paid, because it was an originating product in the framework of
Central European Free Trade Agreement and because the no drawback rule related to third-country
inputs.  Concerning the example given by the EC , the representative of Hungary said that the
Hungarian operator had the choice to either opt for a preferential export to the EC and thus not make
use of drawback possibilities or to go for m.f.n. tr eatment and have the possibility to use the drawback
system.  However, in order to provide for a smooth transition, there was an exemption for these rules
until January 2001.
34. The representative of the European Communities proposed a case in which the if parts of a
TV set were imported from Japan into Hungary, where those third-country inputs would pay a duty.
A Hungarian producer would  manufacture TV sets a nd export them to the EC.  If he wanted these
exports to the benefit from preferential treatment, he would have to respect the rule of a maximum of40 per cent of third-country inputs and give up the possibility for having drawback on duties paid for
these inputs.  However, if he preferred not to use the pan-European system he would not pay the
duties on the Japanese parts but he would pay duties when the TV sets were sent to the EC.  The
representative of Australia sought confirmation that his understanding on what had been said by
Norway was correct, that is, in the case of fl our exported from Hungary to Poland and, after
transformation, exported to Italy, drawback could take place if there was a rate of duty, though
preferential, on the imports of Hungarian flour to Poland.  He also asked what would happen if the
m.f.n. rate applied because flour was not covered in terms of duty reductions, irrespective of whether
it was actually mentioned in the agreement.  The representative of Norway drew the attention of
delegates to Article 15 of the Protocol, where paragraph 1 clearly stated that "non-originating
materials used in the manufacture of products … shall not be subject ... to drawback".  In other words,
no drawback was possible on non-originating material  used and drawback was allowed if originating
materials were used.  That was the scenario he used before, where drawback could be paid with
respect to preferential duty paid on the origin ating flour used.  Drawback could however not take
place if a third-country input was used and not if th e m.f.n. rate was used.  The representative of the
United States said that his understanding was that the Protocols to most of the agreements concerned
used a positive listing so that when an item was not included therein, it was not eligible for
preferential treatment.  In light of that, and given the comment just made regarding the m.f.n. rate, heWT/REG/GEN/M/2
Page 13
asked whether the duty drawback would apply for products not inscribed in the Protocols' positive
lists.  The representative of Canada asked whether only Article 15 was relevant, as the only distinction
made there was whether the product was or not a non-originating material.  Her understanding wasthat for originating materials, drawback was allowed whether or not there was a preference and
whether or not m.f.n. rate was paid.
35. The Chairman said that his understanding was that Article 15 said that non-originating
materials would not qualify for drawback.  Thus, in the case concerning Canadian flour drawback
would not be possible, while drawback would apply in the case of  Hungarian flour if duties had been
paid.  The representative of Norway confirmed  that such understanding was correct.  He hoped that if
the cumulation system would be in the agenda of another meeting, questions could be submitted inwritten form in advance, as it was difficult to tackle on the spot numerous additional questions.  He
also drew the attention of delegates to paragraph 5 of Article 15, where it was said that the nodrawback provisions "shall apply only in respect of materials which are of the kind to which the
Agreement applies".  That meant that if the actual agreement did not cover a particular product, the
m.f.n. duty would apply and drawback could then be granted to that product.  The representative of
the United States asked whether, putting aside the question of whether bilateral agricultural
agreements were or not covered by the respective FTAs, all products included in the bilateral
agricultural agreements were traded by better than m.f.n. rates if they met the rules of origin.  In other
words, whether it was true that there were no products in the bilateral agreements that would not have
some sort type of preference attached to them. The representative of Switzerland requested that the
question be put in writing.  The Chairman agreed with that, noting that the Committee had already
devoted some time to that discussion but that so me issues remained yet to be clarified.  The
Committee would look forward for receiving the written replies promised by the parties to the system,
and also any additional questions that Members might have following the debate.  The representative
of the United States noted that, before tabling any additional question, she would like to receive first
the written replies of the parties to the system to the questions posed by the various delegations andthe Secretariat's minutes of that day's meeting.  The Chairman agreed with that approach.
36. The representative of the United States noted that the protocols published in the Official
Journal and submitted by the EC in the joint notification addressed the treatment of sets, as defined in
General Rule 3 of the Harmonized System.  For exam ple, Article 10 of the amendment of the protocol
to the EC/Norway Agreement stated that when a se t was composed of originating and non-originating
products, the set as a whole should be regarded as originating, provided that the value of the non-
originating products did not exceed 15 per cent of the ex-works price of the set.  Addressing her
question to the EC, Bulgaria, the Czech Republic, Hungary, Iceland, Liechtenstein, Norway, Poland,
Romania, the Slovak Republic, Slovenia and Switzerland, she asked if for purposes of determining
whether a set was originating and thus subject to preferential tariff treatment, the value of products
that originated in participants in the cumulation sy stem could exceed 15 per cent.  She wondered if it
was true that preferential treatment would be accorded to a set that was exported from the EC to
Norway which included products of which 55 per cent of the value originated in the EC and 45 percent originated in the Czech Republic.  If that understanding could not be confirmed, she requested
that an explanation be given.
37. The representative of the European Communities,  speaking also on behalf of the other parties
to the cumulation system, said that as already indicated, the products originating in the other countries
with which Norway had an agreement were considered as originating in Norway.  In that case, if, for
instance, the set was composed of 50 per cent of Czech originating materials, 35 per cent of EC
originating materials and 15 per cent of US originating materials, it could be exported from the EC to
Norway as a Czech originating product.
38. The representative of the United States noted that, according to the notification, the
cumulation system appeared to allow for production operations to take place in a limited number ofWT/REG/GEN/M/2
Page 14
third countries that were not parties to the particular trade agreement under which originating status
and preferential treatment were being conferred.  She referred again to the protocol to the EC/Norway
Agreement, in which Article 12 paragraph 1 on the Principle of Territoriality stated that achieving
originating status had to be fulfilled "without interr uption" in the EC or Norway, except as provided in
Article 4.  She then provided a third scenario, in which an automobile engine and its parts weremanufactured in Norway and the EC.  It was assu med that, in order for the automobile engine to
receive preferential tariff treatment when exported from Norway to the EC under the EC/Norway
Agreement, the value of non-originating inputs might not exceed 40 percent of the ex works price of
the engine.  However, before the engine was exported from Norway to the EC, most of the assembly
and testing of the engine took place in Poland.  The engine was then returned to Norway for some
final assembly, underwent commercial markings and was shipped as a final product to the EC.  The
value-added by the operation in Poland was 35 percent of the ex works price, which did not exceedthe value of the materials used in the production of the automobile engine, which therefore originated
in Norway and the EC for purposes of the EC/Norway Agreement.  Assuming that provisions similar
to Articles 12 and 4 existed in each of the relevant protocols included in the notification, she
requested that the EC, Bulgaria, the Czech Rep ublic, Hungary, Iceland, Liechtenstein, Norway,
Poland, Romania, the Slovak Republic, Slovenia and Switzerland confirm that her understandingsbased on that scenario were true, or explain otherwise.  First, she asked whether it was true that the
operations performed in Poland on the engine would not be viewed as violating the normal
requirement that originating status had to be achi eved "without interruption" in the EC or Norway.
Second, she asked whether it was true that the final engine assembled in Poland would be
"originating" and receive preferential tariff treatment under the Agreement between the EC and
Norway.  Third, she asked whether it was true that if the operations described as taking place in
Poland would have taken place in the US or anot her country not party to the EC/Norway Agreement,
but not a participant in the cumulation system, the engine would be non-originating and therefore
ineligible for preferential tariff treatment under the Agreement between the EC and Norway.  Fourth,
she asked whether it was true that the exception to the principle of territoriality provided toparticipants in the cumulation system was in place and operational for all Members that had submitted
the notification, for each of their respective indi vidual agreements with other participants in the
cumulation system.  She also requested that products not covered by the exception to the principle of
territoriality, if any, be indicated in terms of HS heading or subheading.
39. The representative of the European Communities,  speaking also on behalf of the other parties
to the cumulation system, said that it had to be kept in mind that all the 30 countries involved in the
pan-European cumulation were united in an unique system, so that the assumption made that Polish
materials would be considered non-originating was not correct.  He also said that the answers
assumed that the examples referred only to a situation after the implementation of the system.
Concerning the first question, he said that the operation performed in Poland would be covered by the
EFTA-Poland agreement and therefore they were considered as covered by Article 12.1.  Replying to
the second question, he said that the final engine assembled in Poland would be originating andreceive preferential treatment.  Depending on whether the highest value added was Norwegian or
Polish, the product would be considered originating in Norway or Poland and would be granted, at
importation into the EC, the preferential treatment foreseen in the EC-Norway or EC-Poland
agreement.  He replied in the affirmative to third question.  As for the fourth question, he said that the
exception to the principle of territoriality existed at that time in the framework of the EEA, the EC-Norway, the EC-Iceland and the EC-Switzerland agreem ents and that it would be introduced in the
agreements with the other countries on 1 January 1999.  The products excluded through that exception
were the textile products of Chapter XI of the HS .
40. Referring again to the Protocol for the EC/Norway Agreement, the representative of the
United States noted that Article 13, paragraph 1 on Direct Transport stated that preferential treatment
provided for under the Agreement between Norway a nd the EC applied "only to products, satisfying
the requirements of this Protocol, which are transported directly between the Community and NorwayWT/REG/GEN/M/2
Page 15
or through the territories of the other countries referred to in Article 4."  She proposed a fourth
scenario in which an automobile engine and its inputs were the product of manufacturing operations
in Norway and the EC.  It was assumed that in orde r for the automobile engine to receive preferential
tariff treatment under the EC/Norway Agreement, the value of non-originating inputs might not
exceed 40 per cent of the ex works price of the engine.  As a last step in the production operations, theproduct was exported from the EC to Poland, where final assembly and testing of the engine took
place, as well as commercial marking and final packing.  The value-added by the operation in Poland
was 35 per cent of the ex works price, which did not exceed the value of the materials used in the
production of the engine, which originated in Norway  and the EC.  The engine was then shipped from
Poland to Norway.  She wondered whether it was true that the automobile engine exported to Norway
from Poland would receive preferential treatment under the Agreement between Norway and the EC,
by virtue of the exceptions with regard to direct transport and principle of territoriality that wereprovided under cumulation to Poland and other countries referred to in Article 4 of the Protocol.  If
that understanding was not correct, she requested that an explanation be given.
41. The representative of the European Communities said that the example given could not be
covered by the direct transport rule since a last step of production was done in Poland.  In that
situation, Article 4 would be applied.  He then provided an example to indicate what was intended bythe direct transport rules.  If an engine origin ating in the EC was exported to Romania through the
territory of Ukraine, either the situation was fore seen from the beginning of the transportation of the
engine and thus the single transport document as well as the proof of origin would already have
foreseen Romania as the country of destination, or, the situation was not foreseen at the start of the
transport but the engine would have been under customs control in Ukraine, in which caseArticle 13.2 provided for the use of a non-manipulati on certificate issue by the customs authority of
Ukraine or any other substantiating documents to prove that the engine was the same that left the EC.
The direct transport rule was very well known all around the world, as it was applied in the
US-Caribbean Basin Initiative, the US-Israel FTA, Canada-Israel FTA, ASEAN FTA, Cartagena
Agreement and  in the GSP schemes of the US, Japan, Canada and New Zealand.  He stressed the factthe rule simply allowed products to go from one party to that  the other within the pan-European zone
while ensuring that the products crossing different countries remained the same all the time.  If that
included crossing a third country, a non-manipulation ce rtificate issued from that country's authorities
was needed, indicating that the goods arriving and leaving the country were exactly the same.  The
direct transport rule was also widely used in the G SP scheme of the EC.  For example, if a preferential
treatment was applied to goods coming from the Philippines which had been unloaded and reloaded
somewhere during the transportation, a certificate was issued by the authorities of the country wheresuch operation took place indicating th at the goods had not been manipulated.
42. The Chairman said that the Committee had had a fruitful discussion on the pan-European
system of cumulation of origin at that meeting.  The Committee had been able to progress somewhat
in examining the issue, and that was due to a large extent to the fact that some delegations had posed
written questions in advance of the meeting.  That was an useful lesson that could be used in othermeetings.  During the meeting, the questions posed by the US had been addressed, and he thought
that, to a large extent, they had received replies.  The parties to the system had indicated that the
written replies would be submitted in the near future.  He requested that the replies reach the
Secretariat by 11 December if possible, and that they address the written questions posed by the
delegations of the US, Japan and Korea and also the questions posed orally during the meeting.  TheSecretariat would do its best to issue the minutes of the meeting between 11 December and early
January.  He set the deadline of 11 January 1999 for submitting new written questions and indicated
that replies to those additional questions, if any, should reach the Secretariat by 31 January 1999.  The
next meeting on the issue would be planned for mid-February.WT/REG/GEN/M/2
Page 16
43. The representative of the United States requested that the date of the next meeting be
scheduled in coordination with the Committee on Rules of Origin, so that their experts on rules of
origin could attend both meetings.
44. The Committee took note of the comments made.
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