RESTRICTEDWORLD TRADE
ORGANIZATIONWT/REG/GEN/1
21 January 1999
(99-0198)
Committee on Regional Trade Agreements Original:  English
SYSTEM OF EUROPEAN CUMULATION OF ORIGIN1
Questions and Replies
For:  Bulgaria, the Czech Republic, Hungary, Iceland, Liechtenstein, Norway, Poland, Romania, the
Slovak Republic, Slovenia, and Switzerland
1. (a) Please provide the method and date of domestic publication of the subject
protocols relating to preferential rules of origin, undertaken in accordance with
paragraph 3(c) of Annex II of the Agreement on Rules of Origin, and thereforein a manner “as to enable governments and traders to become acquainted with
them” as described in paragraph 1 of Article X of GATT 1994.
(b) Please provide the date or dates that the system of cumulation of origin was
implemented.
1. (a) Norway:  An official circular from relevant Norwegian authorities, namely the
Directorate of Customs and Excise, containing information on the new system, was issued to customs
and traders on 30 July and 2 and 31 December 1996.  In addition, individual circulars were issued on
15 January 1997 for Bulgaria, 14 April 1997 for Lithuania, 5 May 1997 for Romania and 1 July 1997
for Hungary and Poland.  Moreover, a common publication on behalf of the countries participating in
the PEROS was conveyed to the WTO Secretariat, Market Access Division, on 17 September 1998,with a request for the communication to be circulated to members.
Czech Republic:  The Ministry of Finance – the General Directorate of Customs
published the system of Pan-European Cumulation of Origin in early November 1996, e.g. well in
advance before its entering into force.  Since the n, a publication “Rules of Origin – Supplement to the
Czech Integrated Tariff” has been updated to take account of the changes in the territorial coverage
and with a view of providing notice of implementation of the cumulation system to the public and
business community.  Upon completion of respective domestic approval procedures, the subject
protocols relating to preferential rules of origin are published in the Collection of Laws.
Slovak Republic:  Free Trade Agreements between the Slovak Republic and
respective country or group of countries are gradually published in Collection of Laws.  FTA are at
the disposal of all economic operators, as well as at regional customs offices and regional offices of
the Slovak Chamber of Commerce Industry.
                                                     
1This 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-TradeArea (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/1
Page 2
Switzerland:  The new rules of origin were published in the documentation of the
Swiss customs Administration made available to Swiss exporters and traders before the entry into
force of the new rules of origin.  Information was also conveyed through the Chambers of Commerce
(seminars, bulletins, news letter) and various publications.  The new rules applied between
Switzerland and the EC were published in the Swiss compendium of laws on 5 May 1998;  the samerules apply to the other countries of the system.
1. (b) Norway:  With respect to the dates of implementation, Norway implemented the
PEROS on 1 January 1997 for EFTA countries, EU Member States, the Czech Republic, the
Slovak Republic, Bulgaria, Slovenia, Latvia and Estonia, while the system was implemented on
1 April for Lithuania and Romania, and on 1 July 1997 for Hungary and Poland
Czech Republic:  The system of Pan-European Cumulation of Origin entered into
force on 1 January 1997, with exception to Hungary, Lithuania, Poland and Romania.  In the trade
with these countries, the implementation of cumulation started on 1 July 1997.
Slovak Republic:  The system of cumulation of origin was implemented since
1 January 1997.
Switzerland:  The cumulation system was implemented at the same date for all the
countries involved and are presented in Question 4.  Traders and manufacturers had several months
advance notice through government and industry associations information.
For the European Communities
2. In addition to certain WTO members, the notification includes a reference to the Origin
Protocols concerning Estonia, Latvia, Lithuania and “EEA.”
(a) Does the introduction of the “system of  European cumulation of Origin” concern
any countries other than those which are identified in the notification?
(b) Please explain the meaning of the referen ce in the notification to “EEA,” given
that the notification also refers individually to Iceland, Norway, and
Liechtenstein.
For the European Communities, Bulgaria, the Czech Republic, Hungary, Iceland, Liechtenstein,
Norway, Poland, Romania, the Slovak Republic, Slovenia, and Switzerland
(c) Please 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 have not been applied retroactively, in accordance with paragraph 3 (e)
of Annex II of the Agreement on Rules of Origin.
Replies from the European Communities
2. (a) The introduction of the "system of pan-European cumulation of Origin" concerns the
agreements of the EC with: Norway, Iceland, Switz erland, Poland, Hungary, the Czech Republic, the
Slovak Republic, Bulgaria, Romania, Slovenia, Latvia, Lithuania and Estonia as well as the EEA.
The fact that some of the countries are not yet part of the WTO did not prevent the EC from notifying
all the agreements, without exception.WT/REG/GEN/1
Page 3
(b) The EEA and the bilateral agreements with Iceland, Norway and Switzerland are
applied at the same time and for that reason the EC notified all of them.
Reply from the European Communities, Bulg aria, the Czech Republic, Hungary, Iceland,
Liechtenstein, Norway, Poland, Romania, the Slovak Republic, Slovenia, and Switzerland
(c) The implementation of the protocols resulted, obviously, in changes to the
preferential rules.  In some cases there was the need for a retrospective application due to the adoption
procedure.
All the rules had been widely communicated before the final stages of adoption.
For the European Communities, Bulgaria, the Czech Republic, Hungary, Iceland, Liechtenstein,
Norway, Poland, Romania, the Slovak Republic, Slovenia, and Switzerland
3. The protocols state that the “cumulation” may only be applied where the requirements
for non-originating materials to obtain origin ating status are identical between protocols.
(a) In view of the notification, is it now the situation that the requirements for non-
originating materials to obtain originat ing status (i.e., the preferential rules of
origin) are identical for all trade betw een each of the following WTO members:
the European Communities, Bulgaria, the Czech Republic, Hungary, Iceland,
Liechtenstein, Norway, Poland, Romania, the Slovak Republic, Slovenia, and
Switzerland?
(b) Please identify the products, if any, in terms of HS heading or subheading,
where the requirements for non-originating materials to obtain originating
status for preferential trade between any of the above-cited members are not
identical.
(c) Please identify any products, if any, in terms of HS heading or subheading,
which are not covered under each specific individual preferential trade
agreement subject to the “cumulation system.”
3. (a) Yes.
(b) None.  There are no such products.(c) All products covered by each one of the agreements are covered by the system.
For the European Communities
4. According to the notification, the date of publication in the Official Journal for
providing notice of implementation of the “c umulation system” to traders and governments was
as follows:WT/REG/GEN/1
Page 4
Country Publication Implementation Number of Days
Advance Notice
Czech Republic 31 Dec. 1996 1 January 1997 1 Day
Slovak Republic 5 Aug. 1997 1 January 1997 No Advance Notice
Hungary 7 April 1997 1 July 1997 84 DaysPoland 11 Aug 1997 1 July 1997 No Advance Notice
Bulgaria 24 May 1997 1 January 1997 No Advance Notice
Romania 24 Feb 1997 31 January 1997 No Advance Notice
Estonia 28 April 1997 1 April 1997 No Advance Notice
Latvia 28 April 1997 1 April 1997 No Advance Notice
Lithuania 27 May 1997 1 April 1997 No Advance Notice
“EEA” 23 January 1997 1 December 1996 No Advance NoticeSwitzerland 23 July 1997 1 January 1997 No Advance Notice
Iceland 23 July 1997 1 January 1997 No Advance Notice
Norway 23 July 1997 1 January 1997 No Advance Notice
(a) Please confirm that the degree of advan ce notice of the implementation of the
“cumulation system” provided to traders and governments as indicated in the
notification is correct.
For Bulgaria, the Czech Republic, Hungary, Ic eland, Liechtenstein, Norway, Poland, Romania, the
Slovak Republic, Slovenia, and Switzerland
(b) Please indicate the number of days advance notice of the implementation of
“cumulation” that was provided, through publication, to traders and
governments.
Reply from the European Communities
4. (a) Yes.  It must be added that according to the legal procedures in force for the adoption
of the decision, these are acts whose publication is not obligatory.  Nevertheless, the EC and the
Member States had widely disseminated the texts to the economic operators beforehand (see answer
to question 2(c).
Replies from Bulgaria, the Czech Republic, Hungary, Iceland, Liechtenstein, Norway, Poland,
Romania, the Slovak Republic, Slovenia, and Switzerland
4. (b) Norway:  Advance notification of the implementation of the PEROS was issued in a
circular as follows:
Countries Publication Implementation No. of days in advance
All except the below: 2 December 1996 1 January 1997 29 days
Lithuania, Romania: 2 December 1996 1 April 1997 119 days
Hungary and Poland: 2 December 1996 1 July 1997 210 days
Czech Republic:  As stated under the reply 1, these rules were published in advance
of about 50 days as a supplement to the Czech Integrated Tariff.
Slovak Republic:  There was no advance notice of implementation provided through
publication, however all information needed available through media, customs offices, Slovak
Chamber of Commerce and Industry.WT/REG/GEN/1
Page 5
Slovenia:  The number of days of advance notice of the implementation of
cumulation of origin were in Slovenia’s case different pertaining to particular agreements.  For
example, in the case of the agreement between the European Communities and Slovenia, the formal
advance notice , i.e. by publication of the Official Gazette was 34 days.  In other cases the advance
notice was not less than 8 days and in one case it was 39 days.  The introduction of the cumulation oforigin was otherwise widely publicised in trade journals and through seminars.
Switzerland:  The cumulation system was implemented at the same date for all the
countries involved and are presented in Question 4.  Traders and manufacturers had several months
advance notice through government and industry associations information.
For the European Communities, Bulgaria, the Czech Republic, Hungary, Iceland, Liechtenstein,
Norway, Poland, Romania, the Slovak Republic, Slovenia, and Switzerland
5. (a) Please confirm that you are not a part y to a single Agreement, involving all of
the members to whom this question is directed, which is 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”).
(b) Please confirm that you are not a party to a single Agreement under
Article XXIV of GATT 1994 which involves all of the members to whom this
question is directed.  If there is such an Agreement under Article XXIV, please
indicate when this Agreement was notified.
5. (a) and (b)   We can confirm that we are not party to a single agreement.
For European Community, Bulgaria, the Czech Republic, Hungary, Iceland, Liechtenstein, Norway,
Poland, Romania, the Slovak Repub lic, Slovenia, and Switzerland
6. According to the notification, diagonal cumula tion of origin allows products of certain
third countries to be considered as “origina ting” under various bilateral preferential trade
agreements, even though such third countries are not parties to the individual agreementswhich provides for the preferential treatment.
(a) Is it true that, under the “cumulation system,” inputs that originate in certain
third countries that are not a party to individual preferential trade Agreements
but are participants in the “cumulatio n system” -- will be treated differently
than inputs that originate in other thir d countries that are also not a party to
such individual preferential trade Agreeme nts -- but are also not participating in
the “cumulation system?”  If this understanding is not correct, please provide an
explanation.
(b) Is it true, for example, that semi-finished auto parts originating in any country
participating in the “cumulation system,” which are further processed or
assembled in any other country particip ating in the “cumulation system,” may
always be considered as originating auto  parts by countries in the “cumulation
system” -- and that such auto parts ca n be traded as subject to preferential
treatment between any of the countries involved in the system – even though
there is no single individual preferential  trade agreement among all participantsWT/REG/GEN/1
Page 6
of the “cumulation system” that provides  for such preferential treatment?  If
this understanding is not correct, please provide an explanation.
6. (a) This question concerns Andorra and San Marino.  These two countries are clearly
identified in each one of the Protocols.
(b) The products will be considered as originating only if a bilateral preferential trade
agreement between the exporting and the importing country exists.
For European Communities, Bulgaria, the Czech Republic, Hungary, Iceland, Liechtenstein, Norway,
Poland, Romania, the Slovak Repub lic, Slovenia, and Switzerland
7. Under the terms of certain product-specific preferential rules of origin set forth as an
Annex to the protocols (e.g., Annex II of the protocol for the Norway/EC Agreement), certain
non-originating materials cannot be used in the manufacture of product if that product is to
achieve “originating” status and preferential treatment.  However, in Article 6.2 of the
Norway/EC protocol (an article which is presumed to exist in every notified protocol), it is
stated that non-originating materials may nevertheless be used, provided that their total value
does not exceed 10 per cent of the ex-works price of the final product.
(a) This provision appears 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 may exist in a product-specific rule of origin with regard to the
use of non-originating material.  Is this correct?  If this understanding is notcorrect, please provide an explanation.
(b) Does the 10 per cent ceiling of the “de minimis” rule (which allows the use of a
certain level of non-originating materials in the production of an originating
product) apply to all third countries that are not participants to the EC/Norway
Agreement, or only to third countries ex cept the participants in the “cumulation
system”?
(c) For purposes of example, under the EC/Norway Agreement, can the value of
materials produced in the third countr ies not a party to the Agreement exceed
the 10 per cent “de minimis” without rendering the final product
non-originating -- if those materials originate in a third country that is aparticipant in the “cumulation system?”
7. (a) Yes.  The understanding is correct.  For comparison, in NAFTA “ de minimis ” is of
7 per cent.
(b) and (c):  The 10 per cent ceiling applies to all products that cannot be considered as
originating according to the agreements betw een the countries involved in the system.
For the EC and Norway
8. Hypothetical Fact Scenario No. I
An automobile engine is assembled in the No rway and exported to the EU.  It is assumed
for this scenario that, in order for the engines to receive preferential tariff treatment under the
EC/Norway Agreement, the value of non-originating inputs may not exceed 40 percent of theWT/REG/GEN/1
Page 7
ex works  price of the automobile engine.  It is also assumed for purposes of this question that the
preferential tariff rate, applicable to the relevant automobile engines and inputs under each of
the individual EFTA preferential trade agreem ents with the Czech Republic, Hungary, Poland,
Romania, Slovak republic, and Slovenia, is not at zero.
In this hypothetical fact scenario, the engi ne will meet the applicable value content
requirement only if a particular steel forging for the engine “originates” (i.e., is forged) - in
either the EU or Norway.  If the steel forging for the engine is “non-originating,” the value of
non-originating inputs for the engine will exceed 40 percent of the ex works  price paid for the
engine.
Please confirm that the following statements are true, or explain otherwise.
Prior to implementation of “cumulation”
(a) Is it true that, if the steel forging fo r the automobile engine assembled in Norway
had been forged in Poland, or the Un ited States, 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), and that the engine would not have been eligible
for a preferential tariff treatment when exported from Norway to the EU?  If
this understanding is not correct, please provide an explanation.
After implementation of “cumulation”
(b) Is it true that, if the steel forging for the engine assembled in Norway is forged in
Poland (or any other participant in the “cumulation system”), the contentrequirement for the engine would be me t (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 preferen tial tariff treatment when exported from
Norway to the EU?  If this understanding is not correct, please provide an
explanation.
Hypothetical Fact Scenario No. II
Automobile engines are assembled in Norway and exported to the EC.  In this
hypothetical fact scenario, the assembly method results in the engine meeting the value content
requirement for preferential tariff treatment, even  though the steel forging used as an input for
the engine does not originate in either Norway or the EC.
Please confirm that the following statements are true, or explain otherwise.
Prior to implementation of “cumulation”
(c) Is it true that, upon export of the automobile engine from Norway to the EC,
drawback would have been 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 United States or any other country that is not a party to the
EC/Norway Agreement?  If this understa nding is not correct, please provide an
explanation.WT/REG/GEN/1
Page 8
After implementation of “cumulation”
(d) Is it true that, under the “cumulation system,” 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 had been imported into Norway as originating in the United States or any
other country that is not a party to the EC/Norway Agreement -- unless such
country is a participant in the “cumulation system”?  In other words, is it true
that, upon export of the engine from Norway to the EC, drawback is available
for a refund of the duties paid on the steel forging only if it was imported into
Norway as an originating product of an y other participant in the “cumulation
system”?  If this understanding is not correct, please provide an explanation.
(e) Please substitute Bulgaria, the Czech Republic, Hungary, Iceland, Liechtenstein,
Poland, Romania, the Slovak Republic, Slovenia, and Switzerland for “Norway”
in the above two hypothetical fact scen arios and, respectively, confirm that the
understandings set forth in 8a through 8d are true, or explain otherwise.
(f) Under each of the respective individual preferential agreements for which
protocols have been submitted by participants of the “cumulation system,” does
the distinction in drawback treatment of inputs -- based on whether inputs have
as their origin one of participants in the “cumulation system” -- also apply to
inputs used in “preparations” that are classified in HS Chapters 16 through 21?
(g) Please identify the products, if any (in terms of HS heading or subheading),
within Chapters 16 through 21 these HS Chapters for which there is no
differentiation of drawback treatment be tween goods originating in participants
in the “cumulation system” and other members.
8. (a) Yes, the understanding is correct.
(b) Yes, the understanding is correct.
(c) No.  The "no-drawback" rule has always been foreseen in the EC-Norway agreement.
(d) The "no-drawback" rule is applicable to all third country materials used to obtain an
originating product.
(e) Concerning 8(a), 8(b) and 8(d), the understandings are correct.  Concerning 8(c), in
the framework of the Agreements with Iceland and Switzerland, the understanding is correct; in the
framework of the Agreements with Bulgaria, the Czech Republic, Hungary, Poland, Romania, the
Slovak Republic and Slovenia, the understanding is correct, transitional arrangements
notwithstanding.
(f) and (g):  As has already been stated, the same rules are applicable to all products covered
by the existing agreements.
For the European Communities, Bulgaria, the Czech Republic, Hungary, Iceland, Liechtenstein,
Norway, Poland, Romania, the Slovak Republic, Slovenia, and Switzerland
9. The protocols published in the Official Journal and submitted by the European
Communities in the “joint notification” address the treatment of “sets” (as defined in General
Rule 3 of the Harmonized System).  For example, Article 10 of the amendment of the protocol toWT/REG/GEN/1
Page 9
the EC/Norway Agreement states that when a “set” is composed of originating and non-
originating products, the set as a whole shall be  regarded as originating, provided that the value
of the non-originating products does not exceed 15 per cent of the ex-works price of the set.
(a) For purposes of determining whether a “set” originates (and is therefore subject
to preferential tariff treatment), can th e value of products that originate in
participants in the “cumulation system” exceed 15 per cent?  For example, Is it
true that preferential treatment will be a ccorded to a “set” that is exported from
the EC to Norway which includes products of which 55 per cent of the value
originates in the EC and 45 percent origin ates in the Czech Republic?  If this
understanding is not correct, please provide an explanation.
9. (a) The answers to both questions is yes.
For the European Communities, Bulgaria, the Czech Republic, Hungary, Iceland, Liechtenstein,
Norway, Poland, Romania, the Slovak Republic, Slovenia, and Switzerland
10. According to the notificati on, the “cumulation system” appears to allow for production
operations to take place in a limited number of third countries that are not parties to the
particular trade agreement under which originating status and preferential treatment are being
conferred.
Reference is again made, for purposes of example, to the protocol to the EC/Norway
Agreement.  Article 12 paragraph 1 (“Principle of Territoriality”) which states that achieving
originating status must be fulfilled “without interruption” in the European Community or
Norway, except as provided in Article 4 (“Diagonal  cumulation of origin”).  It is assumed that
provisions similar to Articles 12 and 4 exist in each of the relevant prot ocols included in the
notification.
Hypothetical Fact Scenario No. III
An automobile engine and its parts are manufactured in Norway and the European
Communities.  It is assumed for this scenario th at, in order for the automobile engine to receive
preferential tariff treatment when exported from Norway to the European Communities under
the EC/Norway Agreement, the value of non-originating inputs may not exceed 40 percent ofthe ex works  price of the engine.
However, before the engine is exported fr om Norway to the EC, most of the assembly
and testing of the engine takes place in Poland.  The engine is then returned to Norway for some
final assembly, undergoes commercial markings a nd is shipped as a final product to the EC.
The value-added by the operation in Poland is 35 percent of the ex works  price, which does not
exceed the value of the materials, used in th e production of the automobile engine, which
therefore originated in Norway and the EC  for purposes of the EC/Norway Agreement.
(a) Is it true that the operations in Poland performed on the engine would not be
viewed as violating the normal require ment that originating status must be
achieved “without interruption” in the Community or Norway.  If this
understanding is not correct, please provide an explanation.
(b) Is it true that the final engine, asse mbled in Poland, would be “originating” and
receive preferential tariff treatment unde r the Agreement between the EC and
Norway?  If this understanding is not correct, please provide an explanation.WT/REG/GEN/1
Page 10
(c) Is it true that if the operations described as taking place in Poland would have
taken place in the United States or another country that is not a party to the
EC/Norway Agreement -- but not a partic ipant in the “cumulation system” -- the
engine would be “non-originating” and th erefore ineligible for preferential tariff
treatment under the Agreement between the EC and Norway.  If thisunderstanding is not correct, please provide an explanation.
(d) Please confirm that the exception to the “principle of territoriality” provided to
participants in the “cumulation system” is in place and operational for all
members that have submitted the notifica tion -- for each of their respective
individual agreements with other participants in the “cumulation system.”  If
there are products that are not covered by the exception to the “principle of
territoriality” please indicate, in terms of HS heading or subheading.
10. The following answers assume that the examples relate to the period after the implementation
of the system.
(a) Yes(b) Yes
(c) Yes.
(d) Yes.  The textile products of Section XI of the Harmonised System are not covered
by the exception.
11. Reference is again made, for purpose of example, to the protocol for the EC/Norway
Agreement.  Article 13,  paragraph 1 (“Direct Transport”) states that preferential treatment
provided for under the Agreement between Norway and the EC “applies only to products,
satisfying the requirements of this Protocol, which are transported directly between the
Community and Norway or through the territories of the other countries referred to inArticle 4.”
Hypothetical Fact Scenario No. IV
An automobile engine, and its inputs, are the product of manufacturing operations in
Norway and the European Community.  It is assumed for this scenario that, in order for the
automobile engine to receive preferential tari ff treatment under the EC/Norway Agreement, the
value of non-originating inputs may not exceed 40 percent of the ex-works  price of the engine.
As a last step in the production operations, the product is exported from European
Community to Poland, where final assembly and testing of the engine takes place, as well as
commercial marking and final packing.  The valu e-added by the operation in Poland is 35 per
cent of the ex works  price, which does not exceed the va lue of the materials used in the
production of the engine, which originates in Norway and the EC.  The engine is then shipped
from Poland to Norway.
(a) Is it 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 re gard to “direct transport” and “principle
of territoriality that are provided under “cumulation” to Poland and otherWT/REG/GEN/1
Page 11
countries referred to in Article 4 of the Protocol?  If this understanding is not
correct, please provide an explanation.
11. (a) No.  This rule is not applicable for trade between the countries covered by the system
since there is a geographical continuity that makes it unnecessary.
12. Japan understands that the rules of origin introduced to implement regional trade
agreements are different from those set out in  the framework of rules of origin for
non-preferential goods.  However, the nature of  an item is determined solely by its own
technical description.  Thus, we can assume that in some cases, such as in the treatment of live
animals (Article 5, paragraph 1(c) of the Syst em of European Cumulation of Origin), there
exists certain rules common with that of no n-preferential rules of origin.  Therefore, when
examining rules of origin for the implementation  of regional trade agreements, we consider it
worthwhile focusing our discussions on those ru les different from the non-preferential rules of
origin.
Under the System of European Cumulation of Origin, what are the common standards
with non-preferential rules of origin that ea ch EU Member country provides in the context of
each respective regional trade agreement?
12. The Member States of the EU do not have national standards for applying non-preferential
rules of origin.  There is only an EU standard for the non-preferential rules of origin and that is
applicable in all situations that are not covered by the preferential agreement.
The EU preferential trade agreements and the respective tariff reductions are granted only to
the products that are originating according to the preferential rules of origin.  If a product
manufactured in a country with which the EU has a preferential agreement fails to meet the
preferential origin rules, that product cannot bene fit from the preferential treatment although in some
cases it might have the non-preferential origin of the country of production.
13. By adopting the European Cumulation of Origin on products, which goods require
different standards than that of non-preferential rules of origin?  For example, a criterion of
change in tariff classification is applied when a non-preferential rules of origin is adopted,
whereas an added value standard is applied w h e n  t h e  S y s t e m  o f  E u r o p e a n  C u m u l a t i o n  o f
Origin is adopted, thus requiring a higher added value than that of a non-preferential rules of
origin.
13. To make this comparison between the EU prefer ential and non-preferential rules of origin it is
sufficient to look at the EU preferential agreements and to the common position presented by the EUon the framework of the Agreement on Rules of Origin.  Considering that the non-preferential rules of
origin are to be harmonised at the WTO, the Community believes that it is not relevant at this point to
do that comparison, pending the completion of the harmonisation.
Nevertheless, the EU would like to point out that it is not necessarily the case that the added
value rule always requires a higher added value than the criterion of change of tariff classification.  Itdepends on the added value required and in same cases the change of tariff heading criterion is
impossible to fulfil.  As an example please look at the printing of fabrics of Chapters 50 to 55, which
confers origin without any change of tariff heading.WT/REG/GEN/1
Page 12
14. What is the necessity and the reason fo r having goods with a different standard than
that of non-preferential rules of origin?
14. This question does not concern the communication on the "system of pan-European
cumulation".
Nevertheless, the EU would like to refer to the Agreement on Rules of Origin and to the
previous discussions during the Uruguay Round which foresees the existence of both preferential and
non-preferential rules of origin.
15. Subject to the provisions of paragraphs 2 and 3 of Article 4 of Protocol No. 4, material
originating in Poland, Hungary, the Slovak Republic, Bulgaria, Latvia, Lithuania, Slovenia,
Iceland, Norway or Switzerland within the me aning of the Agreements between the Community
or the Czech Republic and these countries shall be considered as originating in the Community
or the Czech Republic when inco rporated into a product obtained there.  It shall not be
necessary that such materials have und ergone sufficient working or processing.
Products which have acquired originating status by virtue or paragraph 1 shall only
continue to be considered as products originating in the Community or the Czech  Republic
when the value added there exceeds th e value of the materials used originating in any one of the
other countries referred to paragraph 1.  If this is not so, the products concerned shall be
considered as originating in the country referred to paragraph 1 which account for the highest
value of originating materials used.  In the allo cation of origin, no account shall be taken of
materials originating in the other countries referred to in paragraph 1 which have undergone
sufficient working or processing in the Community or the Czech Republic.
Paragraphs 1 and 2 of Article 4 are not easy to understand.  To verify whether our
understanding is accurate, we would like to sugg est the following interpretation with a simple
example.
- Material A originates in Switzerland and is worth 20.
- Material B originates in France and is worth 15.
- Material C originates in Italy, incorporating material B, and is worth 25 (added
value on material C is 10.  Material B should be considered as originating in
Italy because of bilateral cumulation).
(a) Let us presume that in the Czech Republic, product D is made using both
materials A and C and its total value becomes 75.  The added value is 30.  In this
case, product D obtains originating status in the Czech Republic and materials A
and C are then considered as originat ing in the Czech Republic pursuant to
paragraph 1.  Is this correct?
(b) However, if the value of product D is 60 and the added value in the
Czech Republic is 15, the origin of produc t D will be Italy.  This is because its
added value in the Czech Republic did not exceed the value of each material and
the value of material C is the highest.  Is this interpretation correct?  Are
materials A and C considered originatin g in Italy according to paragraph 1 of
Article 4?WT/REG/GEN/1
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15. As a preliminary remark it is important to note that the Agreement between the European
Union and the other countries are signed in the name of the European Union.  Consequently, any
materials which originate in France, Italy or any other Member State are regarded as “Community”-
originating materials”.
(a) Yes, Czech origin.
(b) Yes, EC origin
16. Paragraph 2 of the joint notification states  that semi-finished products originating in
any country of the system and which are further processed or assembled in any other partner
may always be considered as originating.
(a) Let us presume that Switzerland, Lithuania and Korea produce the same
material A (it is wholly obtained, and A1 is made in Switzerland, A2 in
Lithuania, A3 in Korea) and export it to the EC. Materials A1 and A2 will get
preferential treatment according to bilatera l FTAs.  But A3 will not.  In the EC,
A1, A2 and A3 undergo a certain processing which goes only beyond that
referred to in Article 7(1) of the Protocol No.4 and become products B.   Product
B1 which incorporates material A1 from Switzerland, and product B2 which
incorporates material A2 from Lithuania get originating status in the EC
according to the bilateral cumulation provision of Article 3 of the Protocol.However, product B3 incorporating Korean material A3 cannot get originating
status in the EC since the above proces sing is not enough to confer origin
according to Article 6 of the Protocol .  Is this interpretation accurate?
(b) Afterwards, when product B is exported to Poland, will preferential tariff be
granted to products B1 and B2 that incorporated material A1 from Switzerland
and A2 from Lithuania respectively?  If product B2 incorporating Lithuanian
material A2 gets preferential treatm ent (according to the above-mentioned
paragraph 2), it would be a violation of MFN principle because there is no
bilateral FTA between Lithuania and Poland.  Therefore, Korea and Lithuania
should be treated equally by Poland.
(c) If  a preferential tariff is not granted to product B2, is it because the underlined
part of paragraph 1 of Article 4 is not satisfied?
16. (a) Yes.
(b) Yes.  (lines 1-2 of the question)
(c) Yes.
17. Paragraph 2 of this Article 6 of Protocol No.4 provides general tolerance for a third
country.  However, HS Chapters 50 to 63 (textile and clothing) are not subject to this general
tolerance.  Why are only these products excluded from general tolerance?
17. Other provisions are foreseen for textiles and clothing.  For textiles materials, there is a 10 per
cent tolerance of the total weight for mixed products made from two or more basic materials.  Fortextile products, there is an 8 per cent tolerance based on the value provided that the materials are
classified in a heading other than that of the product.  Reference is made to Annex 1 to the respective
origin protocol, Note 5.1 and Note 6.1.WT/REG/GEN/1
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18. In general, non-originating materials used in the manufacture of products originating in
a participating country of the cumulation system shall not be subject to drawback of, or
exemption from, customs duties of whatever kind.  Exemption is allowed for agricultural
products and non-originating material exported from certain participating countries subject to
paragraph 6 of Article 15 of Protocol No.4.
(a) Which countries can enjoy the exemption provided for in paragraph 6?(b) Would it be appropriate to believe th at one of the reasons why the exemption is
given to those countries is to promote foreign direct investment in these
countries?
(c) Are there any other reasons?  And how different is the new exemption compared
to the ones provided for in bilateral FTAs?
18. (a) Poland, Hungary, the Czech Republic , the Slovak Republic, Slovenia, Romania,
Bulgaria, Estonia, Latvia and Lithuania.
(b) and (c)  The aim of this transitional arrangem ent is to take into account the differences in
the external tariffs (customs duties) applied by the countries participating in the system of European
cumulation.  This approach avoids strongly different calculation situations for operators using
imported materials.
19. Why are agricultural products only products  granted a special treatment?  Are there
similar provisions in all individual FTAs?
19. Agricultural products are not granted a special origin treatment and corresponding provisions
are the same in all FTAs.  The treatment mentio ned in paragraph 6 refers to a special price
compensation regime.
Product specific rules
20. An agreement has not been reached yet whether preferential rules of origin fall within
the meaning of "other regulations of commerce" in Article XXIV 5:b of the GATT 1994.
However, by harmonizing the product sp ecific rules through the new cumulation
system, a certain product specific rule may be more restrictive than before.  Korea, as one of the
countries who are of the view that preferential ru les of origin are one of the "other regulations
of commerce", is concerned about the impact of product specific rules which become morerestrictive on trade of non-participating countries.
20. (No reply given.)
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