SADC Rules of Origin Tomasz Iwanow Southern Africa Trade Hub August, 26th 2011
Introduction Why Rules of Origin (ROO) in SADC. Negotiations for ROO. What are the Rule of Origin in SADC What criteria does an exporter need to fulfill. How to obtain a SADC Certificate of Origin. Impact of SADC ROO Future of SADC ROO 2
SADC ROO: some background facts SADC FTA provides preferential or duty-free access for products produced by the countries that have signed the Protocol on Trade. ROOs are used to define the origin or nationality of a product. ROO serve to certify that only products that meet the origin requirements would benefit from tariff preferences, provided for under specific trade agreements. Only goods that originate within a SADC Member State are eligible to receive the preferential market access that the SADC Protocol on Trade provides. For example: Malawi and Zambia are signatories the SADC Trade Protocol. Malawi also imports products from Vietnam, but if it exports those products to Zambia, without any value addition or substantial transformation, it must then pay Zambian Customs duties that apply to those Vietnamese products. 3
Conditions for Product to originate in SADC (1) SADC Rules of Origin are a set of criteria that are used to distinguish between goods that are produced within the SADC Member States and are entitled to preferential tariff treatment and those that are considered to have been produced outside SADC region that attract MFN tariff rates imported. Good in a country originating from. SADC has adopted a specific rule of origin for every product. Companies must consult the rules of origin to determine whether their products would meet the origin requirements. These rules are: Wholly produced Sufficiently worked or processed in a Member State 4
Wholly produced Criterion A product originates in a SADC Member State if it is wholly produced within that state, or if imported inputs were used only to raise or grow agricultural products. Example of wholly produced products include: minerals extracted within the Member State, vegetables harvested in the Member State, animals born and raised in the Member State, fishing products obtained within the waters of the Member State or any other product that does not contain material from outside the Member State. 5
Sufficiently worked or processed origin criteria Many products made within the SADC Member States include non originating materials imported from outside the SADC region. This complicates the determination of whether a good is originating from SADC or not. The country of origin of a product is usually where the last substantial transformation takes place. (6 digit level of HS level) classification. The final product is entitled to receive preferential access into other SADC Member States Within the Sufficiently worked or processed Origin criteria There are 3 test for product to meet SADC ROO: Value Added test Material content test Change of Tariff Heading Origin Test 6
Sufficiently worked or processed Origin criteria Change of tariff heading Manufacturing or processing carried out in the member States is substantial and results in a product which falls under a heading of the Harmonized Commodity Description and Coding System (HS) which is different from that under which the non-originating materials used in its manufacture. Example: Margarine of tariff heading 15.07 manufactured in a SADC Member State can only qualify as a SADC originating product if it is manufactured from imported materials classified in headings other than 15.07, 15.12 and 15.15. 7
Sufficiently worked or processed Origin criteria Material content test If a goods is produced in a Member State partially from imported materials the c.i.f. value of materials imported from third countries does not exceed 60% of the total cost of the materials used in the production of the goods (details Appendix I of Annex I at TRALAC website). Materials whose origin is unknown are considered as imported. Price of imported material should be determined by the customs authorities on clearance for home consumption. Formula for Calculation of Imported Material Content is: Import mat. content = c.i.f. value of imported materials Cost of Reg. mat + c.i.f. value of imported mat. 8
Sufficiently worked or processed: Value Added test This rule states that: the value added resulting from the process of production accounts for at least 35 per cent of the ex-factory cost of the goods The ex-factory price of a good, which is sometimes called the ex-works price, is the price that the manufacturer receives. The value added is the difference between the exfactory price of the finished product and the c.i.f. value of imported materials used in production (in %). 9
Sufficiently worked or processed: Value Added test (2) The formula for value added under this is: V-A = Example: Ex factory price Cost of material inputs Ex factory price Country A makes product X from imported material Y (worth $2) and domestic material Z (worth $3). Ex-factory price of X is $10. Then the value added of the production process is $10 - $2 - $3 = $5 per unit, or $5/$10 = 50%. 50%>35% (SADC ROO threshold) - hence the production process has met the rule of origin. 10
Certificates of Origin in Tanzania Certificates of Origin If you are able to meet SADC ROO your company should approach the Tanzania Chamber of Commerce, Industry and Agriculture. This entity is the issuer of all Certificates of Origin for products originating from Tanzania. These are necessary documents to take advantage of duty-free export to SADC. It issues several types of certificates namely East African Certificate of Origin, EUR1 Movement Certificate, SADC Certificate of Origin, AGOA etc. 11
Additional rules regarding SADC ROO Processes not conferring origin: Packaging or repacking, drying, freezing, loading and unloading, mixing, dilution, or blending Principle of Cumulation No ROO for wheat flour. Problems of ROO in coffee and spices 12
ROO in Textiles and Apparel Special Double Transformation Rules of Origin for garments. Important for many SADC members (local or foreign) yarn weaving / knitting fabric cut, make & trim garment aimed to generate regional value chains or to protect local production? Encouraged local producers to source regionally but not enough supply Move to Single transformation ROO like AGOA? MMTZ lapsed 13
SADC ROO the history SADC duty free and quota free market access can be diminished if ROO are strict. SADC had initially adopted a simple set of RoO similar to those of COMESA. Lengthy negotiation process ROO strict Varies across chapters Similar to SA/EU - TDCA 14
The impact of SADC ROO Local processing requirements and related rules can prevent the use of tariff preferences. Restriction of the choice of inputs increases the cost of production. Can impede SADC s global competitiveness if not able to source globally. Can be onerous to apply (increase time and hence the cost) Little evidence that cumulation provisions of the RoO are used by SADC countries. 15
SADC ROO under review Follow the 2004 Mid-Term Review of the SADC Protocol on Trade, SADC engaged in a review process of ROO. The outcome of review was a revision of thresholds and processes for most of the tariff items provided for in the List Rules schedule of Appendix I of Annex I. Continued work on ROO in Textile and Apparel and Wheat Flour. 16
THANK YOU If you have further questions please contact me at: tiwanow@satradehub.org This presentation was based on the following two documents: SADC Secretariat (2008) Procedures Manual on the Implementation of the Rules of Origin: Appendix I of Annex I of the SADC Protocol on Trade. The Services Group (2008) Business Guide to the SADC Protocol on Trade. 17