Customs - How to determine the origin of your products - EU Webinar (September 2014)

EU Anti-Bribery, Trade and Customs
Webinar Series 2014
How to determine the origin of your products
Alexander Bychkov, Partner, Moscow
Jennifer Revis, Of Counsel, London
Vanessa Dersch , Associate, Frankfurt
Alexandra Demper, Associate, London
September 25, 2014
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© 2014 Baker & McKenzie LLP

Moderator
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Speakers
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.
Jenny Revis
London
Tel: +44 20 7919 1381
jennifer.revis@bakermckenzie.com
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).
Alexander Bychkov
Moscow
Tel: +74 95 787 2700
alexander.bychkov@bakermckenzie.com

Speakers
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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.
Vanessa Dersch
Frankfurt
Tel: +49 (0) 69 29 908 376
vanessa.dersch@bakermckenzie.com
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.
Alexandra Demper
London
Tel: +44 (0) 20 7919 1075
alexandra.demper@bakermckenzie.com

Agenda
5
• Non-preferential origin
• Country of origin marking proposal
• Preferential origin
• Update on EU preferential arrangements
• GSP
• Free Trade Agreements
• Update on Russian preferential arrangements
• Top tips for improving compliance

EU Rules of Origin
• 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

Origin
• In international trade a distinction is often made between the
country where products are shipped from and where they
originate from
• Customs law distinguishes between “preferential origin” and
“non-preferential origin”
• “Non-preferential origin” is used to determine:
• Whether the imported products qualify for application of the GATT
Most Favorite Nation (MFN) principle on importation
• Whether a product is subject to anti-dumping duties, safeguard
measures or trade sanctions
• The origin of a product for the purposes of labelling requirements

Origin (II)
• “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

Non-preferential Origin
• In an ideal situation the regulations regarding
origin are clear and easy to apply for importers
and 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
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Non-preferential Origin (II)
• 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/
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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)

Non-preferential Origin (III)
• 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)
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Non-preferential Origin (IV)
• The art. 24 criteria cannot be applied to the
following products (art. 249 CC):
• Textiles (origin is conferred on the basis of
annexes 9 and 10 of the IPCC)
• Products referred to in annex 11 of the IPCC; and
• Spare parts (art. 41 et seq. IPCC)
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Non-preferential Origin (V)
• With regard to “substantial, economically
justified processing or working”, the ECJ
ruled (Gesellschaft für Überseehandel;
49/76):
“[T]he last process or operation is only 'substantial' if the product
resulting therefrom has its own properties and a composition of its
own, which it did not possess before that process or operation”
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Non-preferential Origin (VI)
• 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)
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Non-preferential Origin (VII)
• Assembly operations:
• Starting point:
• Simple assembly operations do not confer origin
• 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)
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Country Of Origin
Marking Proposal

Country of Origin Marking
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• 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 Consumer Product Safety Regulation Proposal
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• 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
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• 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)

Preferential Origin - Uses and Types
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• 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

Preferential Origin - Qualification
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In order to qualify for preference:
1. Goods must meet the relevant rule of origin, i.e., goods must be:
i. wholly obtained in EU/partner or beneficiary country; or
ii. have undergone sufficient working or processing in EU/partner or
beneficiary country
NB: Rules vary according to tariff heading of product, so start
by working out correct tariff classification of product
2. Goods must meet direct transportation requirements
3. Production must go beyond minimal processing (“non-circumvention”
provisions)

Preferential Origin - Main Types
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• Wholly produced
• Change of tariff heading
• Percentage rule
• Stage of production (e.g., textiles)
• Certain non-originating materials can be used but not others
• Combination of the above (e.g., change of tariff heading &
percentage rule)
• Note: the origin rule may specify certain processes which would
not confer origin

Example of Origin Rules
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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

Preferential Origin —
How Do I Know What Origin Rule to Apply?
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1. Determine tariff classification of finished product
2. Determine destination of goods (note: rules of origin differ
depending on trade agreement) so check relevant trade
agreement
3. Determine applicable rule of origin for finished product in
question
4. Check whether finished product in question meets the origin
rule

Preferential Origin - How to Apply the Rules (I)
• “Materials” mean non-originating materials (NOM) i.e., non-EU/partner
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country materials
• All materials are considered NOM unless evidence confirms otherwise
e.g., supplier’s declaration (should check supplier’s credibility), EUR1
etc.
• Value of NOM = customs value (includes freight
and insurance in addition to price)
• All non material costs (e.g., labour,
overheads, profit) are originating

Preferential Origin - How to Apply the Rules (II)
Can export relief (e.g. IPR) be claimed?
• In many cases (e.g., FTAs with Switzerland, Israel), cannot use
IPR goods in products benefiting from preference
• If IPR goods are used in such a case and IPR is not disclaimed,
preference certificate is invalid
• If exporter raises an invalid certificate, it commits an offence in
EU
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Preferential Origin - Cumulation
• 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)
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Preferential Origin - Example of Cumulation
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• 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)

Preferential Origin - Imports into the EU (I)
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• Need a valid preference certificate (EUR.1/EUR-MED, Form A
or ATR) or invoice declaration (e.g., from an Approved
Exporter)
• Can make provisional claim and present certificate
retrospectively
• Burden of proof is on importer to take reasonable steps to
ensure goods qualify and certificate is genuine

Preferential Origin - Imports into the EU (II)
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Preferential Origin -
What Your Customers May Ask You For (I)
• Warranties & indemnities - seek to limit these (e.g., only for acts
of negligence)
• Invoice declaration (i.e., statement of origin on invoice) - can be
made out by:
• Approved Exporter for any consignment regardless of value
• By any exporter for low value consignment
• Certificate of Origin - EUR.1/EUR-MED or ATR (Turkey); must
be authenticated by Customs or local Chamber of Commerce
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Preferential Origin -
What Your Customers May Ask You For (II)
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• Supplier’s declaration certifying origin - long-term supplier
declarations need to be on headed notepaper & signed
• Exporter must be able to prove that products qualify for
preference
• EUR.1/EUR-MED/invoice declaration proving originating status of
materials (note, may be able to benefit from cumulation)
• Supplier’s declaration proving working or processing in EU
• Direct evidence of processes carried out by exporter/supplier
(e.g., accounts)

Preferential Origin - Approved Exporter Status
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Preferential Origin - Case Study
A drawing set consisting of the following components is sold to
Switzerland to the amount of EUR 10:
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Component Description HS Heading Value (EUR) Origin
1 ruler with scale 9017 1,20 Purchase, EU origin
1 rubber made of plastic 3926 1,00 Purchase, non-EU origin
1 compass 9017 4,50 Purchase, EU origin
1 pencil 9609 0,60
Manufactured of wood (HS heading 4408)
und graphite (HS heading 2504), both
purchased without EU origin
Plastic wrap 3923 0,10 Purchase, non-EU origin

Preferential Origin - Case Study (Cont’d)
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• Set to be classified under HS heading 9017 as compass being the decisive
component (GIR 3 b)
• Purchased components with EU origin: scale (EUR 1,20) and compass (EUR
4,50) – supplier‘s declarations available
• Purchased components without EU origin: rubber (EUR 1,00) and plastic wrap
(EUR 0,10)
• Origin of manufactured pencil must be determined according to origin rules of
HS heading 9609
• Change of tariff heading: (+) for both components
• Qualifies for EU origin according to the EU-Switzerland FTA
• Set consists of components without EU origin to the amount of EUR 1,10
• < 15% of ex-works price
• Qualifies for EU origin according to the EU-Switzerland FTA

Update on EU
Preferential Arrangements

EU GSP: Overview
• 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
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EU GSP: Current Coverage
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• Sliding scale of preferences, based on needs:
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

EU GSP: Graduated Product Sectors
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• Certain sector imports are graduated for the period 1 Jan 2014 to 31
Dec 2016
• Graduated product sections apply in respect of imports from:
• China
• Costa Rica*
• Ecuador*
• India
• Indonesia
• Nigeria
• Thailand
• Ukraine
• See Annex VI for a list of graduated sectors from 1 Jan 2014 to 31
Dec 2016:
http://trade.ec.europa.eu/doclib/docs/2014/may/tradoc_152502.pdf

EU GSP: Next to Lose EU GSP Beneficiary Status
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• From 31 Dec 14:
• China
• Ecuador
• Maldives
• Thailand
From 1 Jan 16:
•Colombia
•Costa Rica
•Equatorial Guinea
•Panama
•Peru

Consequences for Regional Cumulation
• Only GSP beneficiary countries can use regional cumulation
• Complexities when country loses its GSP status or is reinstated
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• 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

Impact for Companies
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• 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 Free Trade
Agreement Negotiations

Recently Concluded & Provisionally Applied FTAs
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• EU-Andean Community Regional Association Agreement:
• Peru from 1 Mar 13
• Colombia from 1 Aug 13
• EU-Central America Association Agreement:
• Honduras, Nicaragua and Panama from 1 Aug 13
• Costa Rica and El Salvador from 1 Oct 13
• Guatemala from 1 Dec 13
• EU plans to remove these from EU GSP; likely from 1 Jan 16

With Former-GSP Beneficiaries
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• 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

With Former-GSP Beneficiaries
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• EU-Mercosur FTA (Argentina, Brazil, Paraguay and
Uruguay)
• Paraguay is now the only EU GSP beneficiary; others removed 1
Jan 14
• 9 negotiating rounds (last in Oct 12) since relaunched in 2010
• Pledge to exchange market access offers on goods, services and
investment by end Jan 14, but delayed due to differences between
Mercosur members
• Mercosur reached internal agreement on an initial joint tariff offer in
July 14
• Mercosur is now waiting for the EU to finalise their offer prior to
exchange of offers

With Soon-To-Lose GSP Beneficiaries
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• China, Ecuador, Maldives and Thailand will lose GSP status from 1
Jan 15; none will have an FTA in place with the EU by this date
• Ecuador to accede to EU-Andean Community Regional
Association Agreement (ACRAA)
• Talks concluded on 17 July 14 during 4th round
• Necessary steps underway to ensure implementation asap (e.g., legal
scrubbing then translation)
• Provisional application anticipated in Spring 2015
• EU-Thailand FTA
• Fourth round of negotiations delayed due to political and social unrest and
General Prayuth’s military coup in May
• EU position is that no further talks until a democratically elected civilian
government is in place with a mandate to engage in negotiations
• Technical talks may resume in Autumn 2014

Negotiated with Current GSP Beneficiaries
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• EU-India FTA
• 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 DCFTA
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• 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

Negotiated with Non-GSP Beneficiaries
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• 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

Under Negotiation with Non-GSP Beneficiaries
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• EU-Japan FTA
• “Key priority” for the EU – EU exports could increase by over 30%
• Market access and tariff offers exchanged during 5th round in Apr 14
• One-year review of Japan’s commitment to remove non-trade barriers (NTBs) found
that sufficient progress made and negotiations to continue
• 6th round - offers on services, investment and procurement exchanged
• 7th round scheduled for w/c 20 Oct 14 and 8th round pencilled in for Dec 14 / Jan 15
in Japan
• On track to reach a political agreement in 2015

Update on EU-US TTIP (I)
• Potential economic benefit:
• EU economy to be boosted by €120 billion
• US economy to be boosted by €90 billion
• Rest of the world economy to be boosted by €100 billion
• 7th negotiating round from 29 Sep to 3 Oct 14; political stock-take to follow
and 8th round likely before year end
• Tariffs are understood to be relatively minor part of deal, accounting for
approx. 20% of TTIP's projected value
• Progress likely to depend on other contentious areas e.g., investment
protection, agriculture, public procurement
• Objective: Political agreement of an ambitious agreement in 2015
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On the Horizon: EU-ASEAN FTA Negotiations
• 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
market and production base

Update on Russian
Preferential Arrangements

Russian Rules on the Country of Origin (1)
• Russia is a member of the WTO and WCO, and Russian legislation on country
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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

Russian Rules on the Country of Origin (2)
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• Tariff preferences in the CU:
• Rule of direct supply - the exporter should be located in the
developing country, and the goods on their way to Russia should
not cross other countries, except for transit purposes under
permanent customs control
• Rules on substantial processing
• List of operations that do not meet the substantial processing
criteria
• Certificate of Origin of “Form A”
• Note: For goods originating in the CIS special CIS rules of
origin and preferences apply (for details please see the
following section)

Documents and Responsibility
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• 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)

The CIS Rules on the Country of Origin
DM Ref:
63
• 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

Free Trade Agreement of the CIS
• 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
DM Ref:
64

Free Trade Agreement of the CIS (Cont’d)
• 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
DM Ref:
65
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
DM Ref:
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

Russia vs Ukraine
DM Ref:
68
• 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

Anti-dumping and Safeguard Measures (Customs
Union)
DM Ref:
69
Code Goods Country of Origin Expires on Measure
(rate of ADD or
import quota)
AD-1 Certain steel pipes, HS codes 7304, 7305, 7306 Ukraine 18.11.2015 18,9% up to 37,8%*
AD-3 Rolling bearings HS code 8482 China 20.01.2018 31,3% up to 41,5%*
AD-7 Forged steel rolls for rolling mills HS code 8455 Ukraine 27.02.2015 26%
AD-8 Metal rolling with polymer coating, HS codes
7210, 7212, 7225
China, Taiwan,
Hong Kong, Macau
30.06.2017 8,1% up to 22,6%*
SG-1 Stainless steel pipes, HS codes 7304, 7306 All countries 01.11.2014 Import quotas
AD-9 Graphite electrodes, HS code 8545 India 25.01.2018 16,04% up to 32.83%*
AD-11 Seamless stainless steel pipes, HS code 7304 China 14.05.2018 19.15%
AD-12 Enameled cast iron bathtubs, HS code 7324 China 25.01.2018 51,87%
AD-10 Light commercial vehicles, HS codes 8704 Germany, Italy,
Turkey
14.06.2018 11.1% up to 29,6%*
SG-8 Porcelain table- / kitchen-ware, HS code 6911 All countries 28.09.2016 591.6 – 1,479 USD/ton
SG-7 Combiners and harvesters, HS code 8433 All countries 21.08.2016 Import quotas
*Note: The rate of anti-dumping duty depends on a particular manufacturer

Ongoing Anti-Dumping Investigations
(Customs Union)
DM Ref:
70
Code Goods Investigatuions Country of Origin
AD-18 Truck tires anti-dumping China
AD-17 Crawler dozers anti-dumping China
AD-8 Metal rolling with polymer coating review of anti-dumping
measure
China, Chinese Taipei, China's
Special Administrative Regions
of Hong Kong and Macau
AD-16 Oil and gas pipes anti-dumping China
AD-7 Mill rolls review of anti-dumping
measure
Ukraine
AD-15 Citric acid anti-dumping China
AD-14 Kitchen and tableware of
stainless steel
anti-dumping China
AD-13 Rods anti-dumping Ukraine

“Made in Russia” and
Public Procurement in
Russia

Government Procurement
DM Ref:
72
• 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
DM Ref:
73
• 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
DM Ref:
74
• 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

Top Tips
DM Ref:
76
On import:
•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
“What is the
country of origin
of this product?”
“Why are you
asking?”

Top Tips
DM Ref:
77
On export:
•Is preference available in importing country? If not, why is an origin certificate
required?
•Identify rule of origin and apply this correctly
•Obtain supplier declaration and keep records
•Obtain certificate of origin or issue invoice declaration (check destination is
covered by approved exporter authorisation)
•Are there any drawback (IPR) restrictions?
•Keep records
•Limit indemnities/ warranties as far as possible

EU Anti-Bribery, Trade and Customs
Webinar Series 2014
How to determine the origin of your products
Alexander Bychkov, Partner, Moscow
Jennifer Revis, Of Counsel, London
Vanessa Dersch , Associate, Frankfurt
Alexandra Demper, Associate, London
September 25, 2014
The webinar recording for this presentation is available here:
http://www.bakermckenzie.com/WBTCEUCustomsWebinarSeries/
Baker & McKenzie LLP is a member firm of Baker & McKenzie International, a Swiss Verein with member law firms around the world. In accordance with the common terminology
used in professional service organisations, reference to a "partner" means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an "office" means an
office of any such law firm.

Customs - How to determine the origin of your products - EU Webinar (September 2014)

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