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Jennifer is Of Counsel in the EU, Competition and Trade Practice of Baker & McKenzie's London Office. She specialises in customs, trade sanctions and anti-bribery and corruption matters. Jennifer has extensive experience in advising clients on compliance issues (including third party due diligence and in M&A transactions). Jennifer routinely undertakes compliance audits for clients and advises on preparation of voluntary disclosures to government authorities. Jennifer has been on secondment to the UK customs authorities (Her Majesty's Revenue and Customs) in their Tax and Excise Litigation department and to the firm's European Law Centre in Brussels. Jennifer is a member of the London office Anti-Bribery and Corruption Unit. Jennifer is frequently invited to speak at external conferences on trade matters and regularly contributes articles to tax journals.
Alexander is a Partner in Baker & McKenzie’s Moscow office. He is the co-Head of the Firm’s CIS Tax practice and the Head of the CIS International Trade and Customs practice, which includes professionals working in the Moscow, St. Petersburg, Kyiv, Almaty and Baku offices. In addition, he is a member of the Firm’s Healthcare and Pharmaceuticals practice group. Mr. Bychkov focuses his practice on advising local and multinational clients on tax, customs, international trade, currency, and general commercial matters, with a particular emphasis on Russian direct and indirect tax advice, distribution structuring, customs regulatory matters, product valuation and classification, international trade compliance, import and export control and sanctions, WTO and anti-dumping issues, and tax/customs dispute resolution (including representation of clients in related criminal investigations).
Vanessa’s practice focuses on the advice of national and international companies with regard to the optimization of inbound transactions under the provisions of customs law, and providing support during tax audits. She mainly deals with customs valuation matters and the implementation of customs procedures with economic impact. Furthermore, she also handles the preparation of claims, appeals and applications for binding tariff rulings and AEO licenses. She has special knowledge with the customs clearance system of the German Customs Administration ATLAS.
Alexandra is a Junior Associate in the EU, Competition and Trade Practice of Baker & McKenzie's London Office whose practice focusses on international trade, specifically on export controls, trade sanctions, anti-bribery and corruption and customs. She advises on all aspects of customs matters, including in relation to tariff classification, valuation, origin, preference and other import requirements and is a regular contributor on customs matters to De Voil Indirect Tax Intelligence.
• Two types:• Non-preferential origin - only confers “economic” nationality, no
benefit; and
• Preferential origin - confers benefit on goods traded between countries that have a trade agreement; criteria generally more demanding than for non-preferential origin
• Origin does not mean country of shipment and is not necessarily the country of manufacture
• “Preferential origin” is used to confer the benefits of reduced import duty rates to products that originate from a benefiting country or jurisdiction and meet specific criteria (these can differ from product to product)
• Rule of thumb: if products have “preferential origin”, they also have “non-preferential origin” of that country of jurisdiction
• However, if products have “non-preferential origin”, it does not automatically mean that they also have “preferential origin” of that country or jurisdiction:
• “Preferential origin” rules more strict
• “Preferential origin” arrangements only apply to a limited number of countries and jurisdictions
• In an ideal situation the regulations regarding origin are clear and easy to apply for importersand lead to a predictable outcome
• However, it has been recognised internationally that this currently (still) not the case
• For that reason the WTO members agreed in 1995 (!) to establish the “Agreement on Rules of Origin”, as part of the Marrakech Agreement establishing the WTO
• A Harmonisation Work Programme has been set-up to achieve harmonisation
• Negotiations under the Harmonisation Work Programme are on-going:
• According to the EU Commission, “it has been commonly agreed that the origin of a product not covered by a specific rule in the IP should be determined in accordance with the position taken by the EU” in these negotiations
• This position is set out in the so-called “List Rules” (http://ec.europa.eu/taxation_customs/customs/customs_duties/rules_origin/non-preferential/article_1622_en.htm)
• However, the List Rules are not legally binding (HEKO, C-260/08, cons. 20)
• As long as the rules of origin are not harmonised, WTO members can apply their own rules (HEKO, C-260/08, cons. 22)
• In the EU, on the basis of arts. 23 and 24 CCC, products have non-preferential origin of a country if:
• Wholly obtained or produced in that country
• Goods whose production involved more than one country shall be deemed to originate in the country where they underwent their last, substantial, economically justified processing or working in an undertaking equipped for that purpose and resulting in the manufacture of a new product or representing an important stage of manufacture (art. 24 CCC)
• In the EU the following activities are considered to not confer origin:
• Activities merely affecting the presentation of the product for the purposes of its use, without bringing a significant qualitative change in its properties (Zentrag; 93/83)
• Simple installation of a product (i.e. no specially trained personnel or undertaking or tools; Brother; 26/88)
• Activities whose sole object was to circumvent the provisions applicable in the Community to goods from specific countries (art. 25 CC) (Anti-circumvention provision)
• Operations resulting in a change of tariff heading do not necessarily confer origin
• BUT “An assembly operation may be regarded as conferring origin where it represents from a technical point of view and having regard to the definition of the goods in question the decisive production stage during which the use to which the component parts are to be put becomes definite and the goods in question are given their specific qualities” (Brother International, 26/88)
• Currently, there are no EU legislative requirements regarding country of origin marking or labelling on non-food products imported into EU• The national legislation of the Member State concerned - as far as
any such legislation exists - is therefore applicable
• Where origin markings are used, these should not mislead the consumer
• European Commission withdrew a 2005 proposal in October 2012 which would have introduced country of origin marking for certain goods imported from third countries; was deemed incompatible with WTO rules
• 2013 European Commission proposal under a new Consumer Product Safety Regulation (as part of product safety and market surveillance package)• Will apply to all non-food, manufactured consumer products (with a few
exceptions e.g., medicines and antiques) whether imported or not
• Designed to improve traceability of products
• Approved by European Parliament on 15 April 2014; awaiting approval by European Council
• European Commission expects Regulation to come into effect in 2015 at the earliest depending on outcome of Council negotiations
2013 Proposal: New Requirements For Origin Marking
20
• Obliges manufacturers and importers to ensure that either:• The product; or
• Or where the size or nature of the product does not allow it, on the packaging or in an accompanying document,
bears an indication of the country of origin
• Where the country of origin is a Member State, the indication can be to the EU (“manufactured in EU” or “made in EU”) or to the particular Member State
• Country of origin to be determined according to existing non-preferential rules of origin (cf. arts. 23 to 25 CC)
• Reciprocal: EU has a number of bilateral and multilateral preferential agreements in place (EFTA, EEA, ACP, Central and Eastern European countries, Western Balkan countries, Mediterranean countries, OCT, South Africa, Mexico and Chile)
• Imports into EU: Importers can bring “preferential” goods into the EU at a reduced or nil import duty rate
• Exports from EU: Goods qualifying for preferential EU origin benefit from same rates when imported into preferential countries
• Non-reciprocal: Generalised System of Preferences (GSP)
• Imports into EU: Importers can bring “preferential” goods into the EU at a reduced or nil import duty rate
HS Heading Product Description Working or processing, carried out on non-originating materials, which confers originating status
Chapter 2 Meat and edible meat offal
Manufacture in which all the materials of Chapters 1 and 2 used are wholly obtained
ex 21 04 Soups and broths and preparations thereof
Manufacture from materials of any heading, except prepared or preserved vegetables of headings 2002 to 2005
ex 44 07 Wood sawn or chipped lengthwise, sliced or peeled, of a thickness exceeding 6 mm, planed, sanded or end-jointed
Planning, sanding or end-jointing
8411 Turbo-jets, turbo-propellers and other gas turbines
Manufacture: •from materials of any heading, except that of the product, and •in which the value of all the materials used does not exceed 40% of the ex-works price of the product
Manufacture in which the value of all the materials used does not exceed 25 % of the ex-works price of the product
• Allows originating products of Country A to be further processed or added to products originating in Country B, just as if they had originated in Country B
• Can only be applied between countries operating with identical origin rules
• E.g., diagonal cumulation (e.g., between EU & Pan Euro-Mediterranean zone)
• Watch manufactured in EU• Using components from China, Turkey & EU
• Origin rule is “manufacture in which non-originating materials do not exceed 40% of ex-works price”
• Does watch originate from EU? Turkish components treated as EU originating materials if they “originate” from Turkey (bilateral cumulation)
• Watch manufactured in Indonesia with parts “originating” from Singapore & Vietnam - parts all treated as if they originated from Indonesia (regional cumulation)
• Non-reciprocal trade arrangement under which the EU provides preferential access to the EU market to 88 developing countries through reduced tariffs on eligible imports of goods
• Reformed in Oct 12 to better reflect current global landscape and concentrate new preferences, applying from 1 Jan 14, on the “most in need”
• New EU GSP established by EC Regulation 978/2012
• From 1 Jan 2014, 89 beneficiaries ceased to benefit from EU GSP
1. General/standard arrangement (26) → duty reductions for 66% of tariff lines
2. GSP+ (13) → zero duties for essentially the same lines
3. Everything But Arms (“EBA”) for Least-Developed Countries (“LDCs”) (49) → full duty-free, quota-free access for all goods, except arms and ammunition
• EU Guide on Rules of Origin for EU GSP, April 2014: http://ec.europa.eu/taxation_customs/resources/documents/guide-contents_annex_1_en.pdf
• Only GSP beneficiary countries can use regional cumulation
• Complexities when country loses its GSP status or is reinstated• E.g., goods are manufactured in the Philippines using Thai
materials. With cumulation of origin, origin of goods is Philippines. Goods must be exported to the EU by 31 Dec 14 to take into account Thai input
• If goods qualified as originating from Thailand, then they would need to be released for free circulation in the EU before 1 Jan 15 in order to qualify for GSP preference
• Finding alternative ways to reduce duty liability• Take advantage of trade preferences under an FTA (if available) or
take part in FTA lobbying activities where still under negotiation
• Reorganise supply chain to take advantage of other EU GSP or FTA
• Consider using other duty mitigation techniques
• Apply for a duty suspension
• Other options: valuation; tariff classification; duty relief schemes etc.
• Need to stay abreast of changes and disseminate this information to the right parts of the business (e.g., procurement). What impact might this have on the business (e.g., cumulation)?
• EU-Malaysia FTA• Lost EU GSP status from 1 Jan 2014
• Negotiations paused for General Elections in May 2013
• Indications that Malaysia planned to rule out certain sectors from the FTA, contrary to EU’s approach to only negotiate “ambitious and comprehensive agreements”
• EC to consider whether negotiations can be restarted in Spring 2015 (at earliest) on the basis of informal discussions with Malaysia
• Negotiations postponed due to India’s General Elections
• EU using opportunities for engagement with the new government to assess their appetite for the FTA and relaunch of negotiations
• EU-Ukraine Deep and Comprehensive Free Trade Area (DCFTA) (addressed later)
• EU-Vietnam FTA
• In spite of very strong progress during 2014 and negotiations entering final stages, not enough progress was made during 8th round (June 14) to reach a political agreement in Oct 14 (as had been hoped)
• 9th round in progress (started 22 Sep 14) and will reveal whether a deal is possible before the end of 2014
• EU-Ukraine Association Agreement (AA) signed 27 June 14 and ratified by Ukraine and European Parliament on 16 Sep 14, however, implementation of DCFTA delayed until 31 Dec 15
• In the meantime:• EU autonomous trade preferences for Ukraine to be extended until 31 Dec
15
• GSP continues to apply in parallel• May prove beneficial to use GSP where the sometimes stricter rules of origin
under the new measures cannot be met or if a particular quota is exhausted
• Note that, from 23 April 2014, the Crimean Chamber of Commerce and the Chamber of Commerce of Sevastopol were no longer authorised to endorse EU GSP Form A certificates and these will not be accepted to claim preference
EU Import Ban for Goods Originating in Crimea & Sevastopol
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• From 25 June 2014, it is prohibited to:• Import into the EU “goods originating in Crimea or Sevastopol”
• Provide financing, financial assistance, insurance or reinsurance related to such goods
• Carve out(s):• Goods are made available to the Ukrainian authorities for examination, they verify
compliance with the conditions conferring entitlement to preferential origin and issue a certificate of origin in accordance with EU GSP or the EU-Ukraine autonomous measures or in accordance with the EU-Ukraine AA
• Until 26 Sep 14 only – the execution until this date, of trade contracts concluded before 25 June 14, or of ancillary contracts necessary for the execution of the same, provided that at least 10 working days notice is given by person/entity seeking to rely on contract to competent authority of Member State in which established
• EU-Canada Comprehensive Economic and Trade Agreement (CETA)
• Text finalised on 1 Aug 14 following drawn-out negotiations on outstanding legal and technical elements and domestic approval by EU Member States underway
• Prime Minister Harper and President Barroso expected to formally announce conclusion of negotiations at EU-Canada Summit on 26 Sep 14
• Provisional application anticipated in 2016
• EU-Singapore FTA
• Draft text initialled 20 Sep 13, but implementation delayed by continued negotiation on investment chapter
• Technical talks during the summer
• Agreement on investment chapter hoped for soon with provisional application expected within 6 months of this
• Bilateral FTAs are seen as building blocks to the broader regional EU-ASEAN FTA
• Following 20th EU-ASEAN Ministerial Meeting (July 2014):• The two sides’ commitment to strengthening cooperation
between the two regions was reaffirmed at this meeting
• Co-Chairs’ stated that negotiations may be resumed once the ASEAN Economic Community (AEC) comes into effect by the end of 2015• AEC’s end goal is regional economic integration, including a single
• Russia is a member of the WTO and WCO, and Russian legislation on country of origin is based on the principles and standards of the WTO and WCO
• Russian rules on country of origin are based on the supranational legislation of the Customs Union (Russia, Belarus and Kazakhstan, the “CU”):• The Customs Code of the CU effective from 6 June 2010 (Chapter 7)
• General terms on substantial processing and confirmation documents
• Agreement of the CU on the Rules of Origin 2008
• Agreement of the CU on the Rules of Origin in Developing and Least Developed Countries 2008
• The CU Agreement on Unified Customs-Tariff Regulation 2008
• Three lists of: developing/least developed countries and goods subject to tariff preferences
• The listed goods originating in developing countries get 25% off the normal rate of import customs duty
• The listed goods originating in the least developed countries get 100% off the normal rate of import customs duty
• Documents confirming the country of origin:• Declaration of Origin
• Certificate of Origin (Form “A” for goods originating in non-CIS countries, or “Form ST-1” for goods originating in the CIS)
• Preliminary decision on the country of origin – recommended in cases of biases; the document is issued by the Russian customs authorities
• Approximate timeline - 90 calendar days
• Term of validity - 3 years
• Incorrect declaration by Russian importers of the country of origin may result in administrative and even criminal penalties, if this entails:• Illegal application of tariff preferences when the preferences should not have been
applied (i.e., underpayment of import customs duties and taxes) or
• Evasion from application of non-tariff measures (e.g., ADDs)
• If goods are originating in the CIS and traded within the CIS territory, their origin should be determined in accordance with the CIS rules of origin:• The CIS FTA 2011
• The CIS Country of Origin Rules 2009
• The principles on determination of the country of origin are similar to the CU rules of origin,
• The CIS Certificate of Origin of “Form ST-1”
• Special criteria on substantial processing for certain specifically listed goods, for example:
Goods Local processing criteria/operations required for granting of CIS origin
HS 8501 Electric engines and generators (except for electro-generating units)
Manufacture, where the value of all foreign materials should not exceed 50% of price of the finished products. The above 50% cannot include more than 10% of foreign materials classified under HS 8503.00
• The CIS FTA was executed on 18 October 2011 by the following 8 CIS countries: Russia, Belarus, Kazakhstan, Armenia, Ukraine, Kirgizstan, Moldova, Tajikistan
• By the end of 2012 The CIS FTA was ratified by and came into force for 7 countries (except for Tajikistan)
• On 31 May 2013 Uzbekistan issued a Protocol on Application of the CIS FTA• The Protocols provides for a number of exceptions
• The CIS FTA complies with the general provisions of GATT and WTO rules
• The CIS FTA finally documents the regime of free movement of goods within the CIS that was first approved in Agreement On the Country of Origin (Moscow, 1994)
• The goods originating from the CIS are not subject to import customs duties in the country of import except for certain cases (i.e., sugar originating from Ukraine and supplied to Russia)
• The CIS FTA fixes the maximum rates of export customs duties that primarily cover Russia raw materials and agricultural products (e.g., cellulose - 10%, vegetables - 7%, oil, coal, etc.); 4 positions for Ukraine and 76 for Russia
• The member states agree not to apply quantitative limitations in trade
• Free transit (exception is made for pipeline transit that is subject to a separate agreement between the signees)
Country of Origin Non-Tariff and Safeguard Measures in Russia
Restrictions on Goods Originating in the EU, US, Canada and Australia
67
• As response to Ukraine-related sanctions Russia issued Presidential Executive Order No. 560 of 6 August 2014, implemented by Governmental Decree No. 778 of 7 August 2014 establishing a 1-year ban on imports of agricultural and food products originating in the EU, US, Canada, Australia or Norway specifically listed by HS codes:
• Meat and meat products of HS codes 0201 - 0203, 0207
• Certain types of fish and sea products of HS codes 0302 – 0308
• Milk and dairy products of HS codes 0401 – 0406
• Certain types of vegetables of HS group 07
• Fruit and nuts of HS groups 0801 – 0813
• Sausages and similar products of HS code 160100
• Certain food products of HS codes 1901 and 2106
• Special exemptions effective 29 August 2104 for: fish fries (Salmo salar and Salmo trutta), lactose-free milk and milk products; sweetcorn hybrids, onion and peas for sowing, seed potato; biologically active supplements, dietary supplements and vitamins
• The Russian customs authorities pay special attention to the country of origin of goods listed in Governmental Decree No. 778
• Legally, the CIS FTA is still in force between Russia and Ukraine providing for preferential regime in mutual trade in goods (i.e., 0% rate of import customs duty, except for certain specifically listed goods like raw materials and energy resources), but
• Russia already issued draft Governmental Decree on application of standard rates of import customs duties for a wide range of products originating form Ukraine
• If the draft is adopted, the following types of Ukrainian goods, for example, will be charged with import customs duties upon importation:
• Meat and poultry
• Food products
• Light industry products
• Cement
• Certain types of machinery
• All the goods listed in the draft are determined by HS codes
• Government procurement is the biggest market in Russia, for example:
• For the first half of 2013 the total market of government procurement exceeded USD 70 bn
• In the sphere of medical equipment in 2013 it exceeded USD 4.3 bn
• Formally, the Russian law on government procurement provides national treatment for goods of foreign origin on the mutual basis (i.e., if the access for Russian products to public procurement in a country is restricted, Russia may impose similar restrictions for goods originating from that particular country)
• But, Russia did not sign the WTO Government Procurement Agreement (“GPA”) and did not take any obligations in this sphere, but agreed to become an observer to the GPA and to initiate negotiations for membership within 4 years
• The Russian law on public procurement No. 44-FZ directly preserves the right to restrict access of foreign companies and foreign goods to its biggest market
• Relevant regulations are already introduced (please see the next slide)
• Quite often tenders on state/municipal orders include a mandatory condition that the purchased products should have CU origin only (for the determination of country of origin the CU/CIS rules on the country of origin are applied)
Limitations on Foreign Products for Public Tenders
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• Governmental Decree No. 1224 dated December 24, 2013 limited access of foreign goods to procurement in the sphere of defense and national security
• The supply of specifically listed foreign products requires an official confirmation that their analogues are not produced locally (e.g., machinery for metallurgic sector, measurement devices for geometric values)
• Order of the Ministry for Economic Development No. 155 of March 25, 2014
• Applies to a wide range of goods (e.g., meat, food, fish, metal, machinery and engines, medical equipment and medicinal preparations, etc.)
• Goods are listed by Russia’s internal goods classification “OKP” Codes that do not coincide with HS codes)
• A 15% preference for goods originating in CU on government and municipal tenders
• Ban on state procurement of the following non-CU products:
• Machinery and vehicles (Governmental Decree No. 656 dated July 14, 2014, which lists 66 items by OKP codes)
• Products of light industry for federal purposes (Governmental Decree No. 791, lists 19 items listed by OKP codes)
• Exceptions are granted in cases of official confirmation that analogues are not produced locally
“Made in Russia”/“Made in the Customs Union” Status
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• Currently there are no regulations on the country of origin of goods manufactured in Russia and designated for Russian market
• The CIS / Customs Union rules of origin apply only to goods imported into / exported from Russia
• Russian origin of goods is important for public procurement, but how to confirm “Made in Russia”/”Made in Customs Union” status of goods?
• Local Chamber of Commerce issues Certificates of Origin for locally manufactured goods only if such goods are intended for exportation
• Some companies apply minimum processing requirements in Russia and use “Made in Russia” mark on their products
• But:
• Localization rules already start to be apply (e.g., Decree No. 656 on machinery and vehicles procurement provides for 11 types of manufacturing operations that must be performed in Russia/Customs Union)
• Legally, if local manufacturing operations of goods do not meet the substantial processing criteria set forth by CIS Rules of Origin the goods cannot be viewed as originating in Russia, even if designated for local market
•Check that imported goods qualify for preference (does the exporter understand the rules? Which rule has been applied?)
• “Good faith” defence, enabling waiver of post-clearance entry of import duties in accounts, available only in limited circumstances (Art. 220 (2)(b) Customs Code)
•Are the certificates authentic? Are the invoice declarations valid?
•Submit within the time limits and keep records
•Direct transportation/ non-manipulation rule
•Contractual protection to enable importer to seek damages against supplier if preference is disallowed
EU Anti-Bribery, Trade and Customs Webinar Series 2014How to determine the origin of your productsAlexander Bychkov, Partner, MoscowJennifer Revis, Of Counsel, LondonVanessa Dersch , Associate, FrankfurtAlexandra Demper, Associate, London
September 25, 2014
The webinar recording for this presentation is available here: http://www.bakermckenzie.com/WBTCEUCustomsWebinarSeries/