RESTRICTED
WORLD TRADE G/RO/W/10
9January 1996
ORGANIZATION(96-0136)
Original: English Committee onRules ofOrigin
LEGAL PRESENTATION OFANNEX IIITOTHE WTO AGREEMENT
ONRULES OFORIGIN: HARMONIZED RULES OFORIGIN
Canadian Proposal totheCommittee onRules ofOrigin
Thefollowing communication, dated 2January 1996, hasbeenreceived fromthePermanent
Mission ofCanada.
_______________
Please findattached acopyoftheCanadian submission totheWTO Committee onRules of
OriginregardingthedevelopmentofAnnexIII-HarmonizedRulesofOriginundertheWTOAgreement
onRules ofOrigin. Iwould begrateful ifyoucould ensure thatthiscommunication isdistributed
toWTO Members.G/RO/W/10
Page2
Canadian Proposal totheWTO Committee onRules ofOrigin
Legal Presentation ofAnnex IIItotheWTO Agreement on
Rules ofOrigin: Harmonized Rules ofOrigin
How andinwhat manner thenon-preferential rules arestructured andpresented arethe
responsibility oftheWTO Committee onRules ofOrigin fortworeasons:
(1) Theresults oftheharmonization programme aretobeestablished asanannex tothe
WTO Agreement onRules ofOrigin, andwilltherefore constitute animportant integral
partofaWTO Agreement; and
(2) themajor objective oftheWTO Agreement onRules ofOrigin istofacilitate trade
byestablishing harmonized non-preferential rules oforigin thataretransparent,
predictable,coherentandobjectiveandthatareappliedandadministeredinanimpartial,
uniform andreasonable manner -inshort, toprovide greater certainty fortheprivate
sector andcustoms officials onnon-preferential rules oforigin.
With regard totheabove twoobjectives, there aretwokeyissues related tostructure and
presentation thatrequire early consideration bytheWTO Committee onRules ofOrigin:
(1) General rules, thatis,thegeneral legalinstructions onhowtoapply theproduct-specific
tariff-shift andother rules, including addressing suchissues as:
(a) Thetreatment ofpackaging andpacking materials, spare parts, accessories
andtools thataccompany goods, neutral materials, andfungible goods and
materials;
(b) operational provisions suchasdeminimis andnon-qualifying operations (e.g.,
minimal operations andprocesses); and
(c) definitions (e.g., wholly obtained), asalready started bytheTechnical
Committee inaccordance withArticle 9oftheWTO Agreement onRules of
Origin; and
(2) thepresentation oftheproduct-specific rules (i.e., howtheruleforeachheading,
subheading orex-subheading issetout).
Early attention bytheCommittee anddirection totheTechnical Committee iswarranted on
bothissues forseveral reasons, including:
(1) Toensure therulesoforigin arepresented inaclearandstraight forward manner that
iseasily understood byproducers, traders andcustoms officials;
(2) tobeabletoconsult inameaningful manner within government andwiththeprivate
sector onalloftheaspects ofthedevelopment ofharmonized non-preferential rules
andthetechnical work under wayattheTechnical Committee onRules ofOrigin, both
inthecaseofthegeneral rules andinthecaseoftheproduct-specific rules;
(3) toidentify atanearlystagegeneric issues onwhich theCommittee onRules ofOrigin
maywishtoseektechnical advice from theTechnical Committee; andG/RO/W/10
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(4) tominimize theneedlatertochange orrevise thestructure andpresentation ofthe
technical proposals aftertheyhavebeensubmitted bytheTechnical Committee tothe
Committee.
Attached, asAppendix A,isasuggested schematic outline ofthegeneral rules. Theattached
isnotaformal proposal; instead, itisintended, fordiscussion purposes, to:
(1) Provide asuggested format orarchitecture ofthelegalstructure ofthegeneral rules;
and
(2) identify, fordiscussion, anumber ofgeneric policy andlegalissues thattheCommittee
onRules ofOrigin maywishtoconsider atanearlystageforinclusion under thegeneral
rules, intandem withseeking technical advice fromtheTechnical Committee onRules
ofOrigin.
Consistent withArticle 9oftheWTO Agreement onRules ofOrigin, theattached outline is
based ontheprinciple thattheprimary method forexpressing substantial transformation willbechanges
intariff classification.
Attached, asAppendix B,aretwopossible approaches topresenting theproduct-specific rules
oforigin.
Itisproposed thatmatters ofgeneral rules andpresentation oftheproduct-specific rules be
placed ontheagenda ofthenextmeeting oftheWTO Committee onRules ofOrigin. Itisalsosuggested
thatmembers beencouraged tosubmit views orproposals inadvance ofthatmeeting tofacilitate a
fulldiscussion ofthevarious issues atthatmeeting. Indiscussing these matters atthenextmeeting,
members maywishtofocus onidentifying particular issues onwhich theCommittee should express
itsviews totheTechnical Committee onRules ofOrigin orrequest technical views fromtheTechnical
Committee.G/RO/W/10
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APPENDIX A
PART IV
Harmonization ofRules ofOrigin
Annex III
1. Basic rules fordetermining country oforigin
1. Except asotherwise provided, thecountry oforigin ofagood isthecountry inwhich:
(a) Thegood iswholly obtained;
(b) thegood isproduced exclusively from domestic materials; or
(c) eachoftheforeign materials usedintheproduction ofthegoodundergoes anapplicable
change intariff classification setoutforthegoodinAppendix 1[Appendix 1contains
thetariff shiftrules, based ontheHarmonized System, foreachgood] ,andsatisfies
anyother applicable requirements setoutforthatgood inthatAppendix;
(d) thegood isproduced, butoneormore oftheforeign materials provided forasparts
under theHarmonized System thatareusedintheproduction ofthegooddonotundergo
achange intariff classification because:
(i) theheading forthegood provides forboththegood itself anditsparts and
isnotfurther subdivided intosubheadings; or
(ii) thesubheading forthegood provides forboththegood itself anditsparts;
if...[rule fordetermining thecountry oforigin forthose limited cases where, under the
Harmonized System, thegoodanditsparts areclassified under thesamesubheading or,where
aheading isnotsubdivided intosubheadings, thesame heading] ,
andthegood satisfies allother applicable requirements ofthisAnnex.
2. Where thecountry oforigin ofagood cannot bedetermined under paragraph 1,thecountry
oforigin ...[rules fordetermining country oforigin forthose cases where agood doesnotsatisfy
anyoftherequirements ofparagraph 1asaresult ofproduction inonecountry, andtherefore the
country oforigin cannot bedetermined under paragraph 1].
2. DeMinimis
(Provision todisregard foreign materials thatfailtoundergo thechange intariffclassification
ortheother requirements ofAppendix 1ifthevalue ofallthose foreign materials isnotmore than
Xpercentofthevalue ofthegood.)
3. Materials notrequired tobetaken intoaccount
(Provision thatthecertain enumerated materials aredisregarded indetermining whether foreign
materialsundergoanapplicablechangeintariffclassificationorsatisfyanyotherapplicablerequirementsG/RO/W/10
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ofAppendix 1when determining thecountry oforigin ofthegood, forexample, accessories, spare
parts ortools delivered withthegood, andpackaging materials andcontainers.)
4. Fungible goods andmaterials
Provision toallow producers andimporters touseinventory control methods (e.g., FIFO, LIFO)
fordetermining thecountry oforigin offungible materials usedintheproduction ofgoods andfor
determining thecountry oforigin offungible goods thatarecommingled instorage before shipment.)
6. Tariff classification
(Provision tosetoutthatthebasis fortariffclassification forrulesoforigin istheHarmonized
System.)
7. Non-qualifying operations
(Provision indicating which operations donotconfer origin, forexample achange intariff
classification thatismerely theresult ofchange inend-use ofthegood, andminimal operations or
processes.)
8. Definitions
Minimal operations orprocesses means ...
wholly obtained means ...
....
Appendix 1
Applicable changes totariff classification, and,ifrequired, other applicable requirements for
goods, classified under eachheading, subheading orex-subheading.G/RO/W/10
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APPENDIX B
Presentation ofProduct-Specific Rules Under Annex IIIto
theWTO Agreement onRules ofOrigin
Asshown ontheattachment tothisappendix, thereare,amongst others, twopossible approaches
forexpressing theproduct-specific rulesunder Annex IIItotheWTO Agreement onRules ofOrigin:
(1) The"cascading" approach, which involves establishing ageneric ruleforallgoods
covered byachapter oftheHarmonized System andthenspecifying additional rules
forspecific products where these rules aredifferent from thegeneric rule; and
(2) the"sequential" approach, which setsouttherules inascending numerical order by
tariff heading, subheading orex-subheading.
Itisproposed thattheissue ofthepresentation orexpression oftheproduct-specific rulesbe
placed ontheagenda ofthenextmeeting oftheWTO Committee onRules ofOrigin, sothatthe
Committee canconsider theappropriate approach forpurposes ofenhancing boththetechnical work
oftheTechnical Committee ofRules ofOrigin andthedeliberations bythisCommittee ontheproposals
submitted bytheTechnical Committee.
Withregardtothetwoalternativesmentionedabove,itissuggestedthatthe"sequential"approach
offers twoimportant advantages:
(1) Thereader doesnothavetoreadalltherules under achapter oftheHarmonized
System; instead thereader needs onlytolookattheruleforthetariffprovision under
which his/her product isclassified; and
(2) itprovides clarity andtransparency since there isnoneedtosetoutlegalprovisions
tointerpret therelationship between thegeneric ruleforeachchapter oftheHarmonized
System andtheadditional product-specific rules (e.g., foraspecific good, doboth
thegeneric andadditional rules apply; ifso,which ruleprevails inthecaseofa
conflict).G/RO/W/10
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SEQUENTIAL APPROACH
Chapter 27 MineralFuels,MineralOilsandProductsofTheirDistillation;Bituminous
Substances; Mineral Waxes
Note: Forpurposes ofthisChapter, a"chemical reaction" means aprocess inwhich
chemical bonds inmolecules arebroken andnewchemical bonds areformed
between thefragmented molecules oradded elements sothatoneormore of
theoriginal bonds nolonger linkthesame chemical elements orfunctional
groups.
27.01-27.06 Achange toheading 27.01 through 27.06 fromanyother heading, including
another heading within thatgroup.
2707.10-2707.99 Achange tosubheading 2707.10 through 2707.99 from anyother heading;
or
Achange tosubheading 2707.10 through 2707.99 fromanyother subheading,
including another subheading within thatgroup, provided thatthegoodofthe
other subheading undergoes achemical reaction.
27.08-27.09 Achange toheading 27.08 through 27.09 fromanyother heading, including
another heading within thatgroup.
27.10 Achange toheading 27.10 from anyother heading; or
Achange toagood ofheading 27.10 from anyother good ofthatheading,
whether ornotthere isalsoachange from anyother heading, provided that
theother good ofheading 27.10 undergoes achemical reaction.
2711.11-2711.19 Achange tosubheading 2711.11 through 2711.19 fromanyother subheading,
includinganothersubheadingwithinthatgroup,exceptfromsubheading2711.21
through 2711.29.
2711.21-2711.29 Achange tosubheading 2711.21 through 2711.29 fromanyother subheading,
includinganothersubheadingwithinthatgroup,exceptfromsubheading2711.11
through 2711.19.
27.12-27.14 Achange toheading 27.12 through 27.14 fromanyother heading, including
another heading within thatgroup.
27.15 Achange toheading 27.15 fromanyother heading, except from subheading
2713.20 orheading 27.14.
27.16 Achange toheading 27.16 from anyother heading.G/RO/W/10
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CASCADING APPROACH
Chapter 27 MineralFuels,MineralOilsandProductsofTheirDistillation;Bituminous
Substances; Mineral Waxes
General rule
Except asotherwise provided intheadditional rulesspecified below, forgoods ofthisChapter
thatarenotwholly obtained inonecountry, achange toaheading ofthisChapter from anyother
heading, including another heading within thisChapter.
Additional rules
Note: Forpurposes ofthischapter, a"chemical reaction" means aprocess inwhich chemical bonds
inmolecules arebroken andnewchemical bonds areformed between thefragmented molecules
oradded elements sothatoneormore oftheoriginal bonds nolonger linkthesame chemical
elements orfunctional groups.
1. Achange tosubheading 2707.10 through 2707.99 fromanyothersubheading, including another
subheading within thatgroup, provided thatthegood oftheother subheading undergoes a
chemical reaction.
2. Achange toagood ofheading 27.10 fromanyother good ofthatheading, provided thatthe
other good ofheading 27.10 undergoes achemical reaction.
3. Achange tosubheading 2711.11 through 2711.19 fromanyothersubheading, including another
subheading within thatgroup, except from subheading 2711.21 or2711.29.
4. Achange tosubheading 2711.21 through 2711.29 fromanyothersubheading, including another
subheading within thatgroup, except from subheading 2711.11 or2711.19.
5. Achange toheading 27.15 from anyother heading, except from subheading 2713.20 or
heading 27.14