WORLD TRADE
ORGANIZATIONG/RO/52
15 July 2002
(02-3927)
Committee on Rules of Origin
REPORT BY THE CHAIRMAN OF THE COMMITTEE ON RULES OF ORIGIN
TO THE GENERAL COUNCIL
1. Background
1.1 Pursuant to Article 9.2(a) of the Agreem ent on Rules of Origin, the harmonization work
programme for non-preferential rules of origin (HWP) was launched in July 1995 and scheduled to be
completed within three years of its initiation, i.e. by July 1998.   The deadline was extended several
times by the General Council, but these extended deadlines were passed without the  completion of the
HWP.
1.2 At its meeting on 19-20 December 2001, the General Council agreed that the Committee on
Rules of Origin should hold two additional sessio ns in the first half of 2002 to resolve remaining
issues.  In the process, it might identify a limited number of core policy-level issues which in its view
needed to be reported to the General Council for discussion and decision at that level.  The outcome
of the CRO's further work would be reported by the Chairman of the Committee, on his own
responsibility, to the General Council at its first regular meeting after the end of June 2002, at which
point the matter would be in the hands of the Gene ral Council.  The deadline for completion of the
harmonization work programme would be extended to the end of 2002.
2. Assessment of  the progress of the HWP
2.1 In June 1999,  when the WCO Technical Committee on Rules of Origin submitted the final
results of its technical work on the Harmonization Work Programme, 486 outstanding
product-specific issues were before the Committee (G/RO/41).  Despite its best efforts, the Committee
could resolve only 22 issues by September 2000, averaging less than one issue per each of its
23 meetings over the three-year period (G/RO/M/11-33).
2.2 The pace of the HWP began to accelerate in  November 2000.  As summed up in the following
table, the number of resolved issues increased significantly:  eight issues in 2000;  300 issues in 2001.
However the table also shows that the encourag ing progress slowed down in 2002 (G/RO/M/34-41).
Number of  issues referred to the CRO Number of resolved issues by the CRO
486 September 1997-September 2000:  22 (less than 1
per session)
November 2000:  8March 2001:  24
May 2001:  42
July: 2001: 67
October 2001: 115
November 2001: 52April 2002: 10
June: 2002: 8
Total:  348 (with 138 outstanding issues)
It should be noted that out of 348 resolved issues, a number of issues are to be endorsed by the CRO.G/RO/52
Page 2
3. Core policy issue – product specific rules
3.1 As already foreseen and mandated by the General Council (paragraph 1.2), these significant
trade policy issues were difficult to be dealt with at the Committee level, and therefore the CRO
identified the following core policy issues for discussion and decision at the level of the General
Council:
- appendix 1, definition 2(i);- Issue Nos. 4(ii), 6(ii), 12, 15, 2, 16-20, 22, 91, 95, 110, 31, 79, 81, 45, 53, 55-64, 77,78, 98,
99, 101, 36, 66, 76, 100, 106, 121-125, and 35 of Chapters 1-24;
- Issue Nos 1 and 8 of Chapters 25-27;- Issue Nos. 2, 4 and 5 of Chapters 28-40;- Issue Nos 6 and 7 of Chapters 41-43;
- Issues Nos. 12, 13, 35, 37, 47, 58, 45, 46, 49, 50, 48, 55, 59, 61, 62, 69, 63-67, 71, 75 and 77
of Chapters 50-63;
- Issue Nos. 12, 9, 13, 14 of Chapters 64-67;
- Issue Nos. 3 and 5 of Chapters 72-74;
- Issue Nos. 1, 33, 56, 59, 60, 69, 75-77 of Chapters 84, 85 and 90;  and- Issue No. 1 of Chapter 91.
4 Core policy issue – Implications of the implementation of the Harmonized Rules of
Origin on Other WTO Agreements
4.1 Recognizing that, in the view of several Members, a major breakthrough can be made only
through reaching a common understanding on the implications of the Harmonized Rules of Origin on
other WTO Agreements, the CRO, over the past several years, has held intensive discussions on thisissue. The issue of implications was first raised in 1998 and there had been six submissions on the
table:  from India (G/RO/W/28/Rev.1, 30, 42 and 50 );  from the United States (G/RO/W/32, 48 and
65);  from the Dominican Republic and Honduras (G/RO/W/33);  from El Salvador (G/RO/W/34);
from Korea (G/RO/W/38);  and from Japan (G /RO/W/66 and 74) (G/RO/M/15, paragraphs 2.2-2.4;
G/RO/M/16, paragraphs 3.1-3.3;  G/RO/M/19, paragraphs 2.1-2.8; G/RO/M/23, paragraphs 4.1-4.13;
G/RO/M/26, paragraphs 4.1-4.9;  G/RO/M/37, paragraphs 3.1-3.3; G/RO/M/40, paragraphs 4.1-4.27).
4.2 The Chairman at its meeting on 28 June 2002 made the following proposal for adoption by
the CRO:
"1. Pursuant to Article 3(a) of the Agreement on Rules of Origin ("the Agreement"),
Members should ensure, upon the implementation of the results of the HWP, that they apply
the harmonized rules of origin (HRO) equall y for all non-preferential commercial policy
instruments as set out in Article 1 of the Agreem ent, in which rules of origin are used;  and
2. Each Member, in accordance with its rights and obligations under the provisions of
the WTO Agreements [other than this Agreement] , is to decide whether rules of origin are
used in its non-preferential commercial policy instruments."G/RO/52
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4.3 Australia and New Zealand raised the issue of "overall impact of the Harmonization Work
Programme" with a view to ensuring that the product-specific rules developed under the HWP, and
the HWP as a whole, be consistent with the trade-facilitating objectives and principles of the
Agreement (G/RO/W/83 and 88)  They stated that the General Council should consider all elements
of the HWP as a package, which required the General Council to satisfy itself that the HRO made
sense in terms of economic benefit, transparency and certainty, and a reduction in compliance and
transaction costs (G/RO/M/40 and 41).
4.4 After robust discussions on the Chairman's proposal, the CRO agreed to submit this issue to
the General Council as a core policy issue (G/RO/M/41, paragraphs 5.1-5.21).
5. Recommendations of the Chairman of the CRO
5.1 The Chairman of the CRO, on his own respons ibility, recommends that the General Council,
at its first session on this issue, focus its considerations on the following 12 crucial issues out of about
100 core policy issues submitted by the CRO
- Implications of the implementation of the Harmonized Rules of Origin on other WTO
Agreements;
- Dyeing and printing of textile products;- Coating of steel products;- Assembly of machinery;
- Assembly of vehicles;
- Refining of sugars;- Roasting of coffee;- Slaughtering of live animals;- Refining of oils;- Fish taken from the sea of the exclusive economic zone;
- Footwear;  and
- Dairy productsG/RO/52
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ANNEX
CORE POLICY ISSUES SUBMITTED TO THE GENERAL COUNCIL
FOR DISCUSSION AND DECISIONG/RO/52
Page 5
TERMINOLOGY  GUIDE
I. Rules presented at heading level :
(a) If the rule is for the whole heading:
CTH - change to this heading from any other heading
(b) If the rule is for a split heading:
CTHS - change to this split heading from any othe r split of this heading or from any other
heading
CTH - change to this split head ing from any other heading
(N.B.  change from any other split of this heading is excluded.)
II. Rules presented at subheading level:
(a) If the rule is for the whole subheading:
CTSH - change to this subheading from any othe r subheading or from any other heading
CTH - change to this subheading from any other heading   
(N.B.  change from any other subhead ing of this heading is excluded.)
(b) If the rule is for a split subheading:
CTSHS - change to this split subheading from any other split of this subheading or from any
other subheading or heading
CTSH - change to this split subheading from any ot her subheading or heading  (N.B.  change
from any other split of this subheading is excluded)
CTH - change to this split subheading from any other heading
(N.B.  change from any other split of this subheadin g or from any other subheading of this heading is
excluded.)
III. Rules presented at heading or subheading level
CC - change to this chapte r from any other chapterG/RO/52
Page 6
FISH: FISH TAKEN FROM THE SEA OF IN THE EXCLUSIVE ECONOMIC ZONE
APPENDIX 1, DEFINITION 2(i) Related issues:
definition 2(ii) and
(iii)
There was an agreement among all Members that the origin of fish and otherproducts taken from the territorial sea (not exceeding 12 nautical miles) of acountry should be the coastal state.  There was another agreement among all
Members that the origin of fish and other products taken from the high seas
should be the country whose flag the vessel that carries out these operations is
entitled to fly.  The outstanding question concerns the origin of fish and other
products taken from the exclusive economic zone (EEZ) (not exceeding 200
nautical miles).
Considerations:
Alternative text 1 considers the origin of fish and other products taken
from the EEZ should be the country of the flag of the vessel.
Alternative Text 1
[(i)  Products of sea-fishing and other products taken from the sea, outside the
territorial sea of a country, are considered to be wholly obtained in the country
whose flag the vessel that carries out those operations is entitled to fly.]CAN, CHN, EEC,
JPN, KOR, MAR,MEX, NOR, THA,
USA
Alternative texts 2, 4, 5 and 6 consider that the origin of fish and other
products taken from the EEZ should be the coastal state.
Alternative Text 2
[(i)  Products of sea fishing and other products taken from waters beyond the
sovereignty and jurisdiction of a State are considered to be wholly obtained in
the country whose flag the vessel that carries out those operations is entitled to
fly.]
Alternative Text 4
[(i)  Products of sea-fishing and other products taken from the sea outside the
exclusive economic zones, over which the coastal State has jurisdiction, are
considered to be wholly obtained in the country whose flag  the vessel thatcarries out those operations is entitled to fly.]
Alternative Text 5
[(i)  Products of sea-fishing and other products taken from waters beyond the
sovereignty and jurisdiction of a State are considered to be wholly obtained inthe country of registration of the vessel that carries out those operations.]
Alternative Text 6
[(i)  Products of sea-fishing and other products   taken from the sea outside the
territorial sea of a country but within its exclusive economic zone, areconsidered to be wholly obtained in that country.
(iii)  Products of sea-fishing and other products taken from waters in the high
seas are considered to be wholly obtained in the country whose flag the vessel
that obtains such products is entitled to fly.]ARG
BRA
PHL
ECU, INDG/RO/52
Page 7
APPENDIX 1, DEFINITION 2(i) Related issues:
definition 2(ii) and
(iii)
Alternative text 3 considers that the best way to address this issue should
be to leave the importing country to determine the origin of the good in
accordance with its legal standpoint of the Law of the Sea.
Alternative Text 3
[(i) Products of sea-fishing and other products taken from the sea outside a
country are considered to be wholly obtained in the country of registration of
the vessel that carries out those operations.]COL
CRO Chairman's recommendation:G/RO/52
Page 8
FISH:  DRYING OF FISH
ISSUE NO. 4(II) (Ch. 1-24) HS ex0305(b),
ex0306(b)
Description of production process:
Input:  FishOutput:  Dried fish
Considerations:
Members considering it a substantial transformation:
Option A:  CTH
The drying of fish, fish livers, roes and fish fillets is a complex process which
completely transforms the initial products used.  That process fully reflects last
substantial transformation.  The process of drying fish takes approximatelythree months.  After the fish have been gutted, they are hung on stocks, hence
the term “stockfish”.  During the drying process, the proteins in the flesh
undergo a complete change in character.  During that process, approximately
70 % of the water is removed.  To produce 1 kg of dried fish, approximately
4.3 kg of gutted and de-headed fish is required.  The value of dried fish is
approximately eight times that of the raw material.  The drying process results
in a new finished product which is sought after by consumers.  Consequently,it cannot be regarded as a process for the preservation of goods during
transportation and/or storage.AUS, ARG, BRA,
CAN, CHE, COL,DOM, EEC, EGY,
HND, ISL, MAR,
MEX, MYS, NZL,
NOR, SGP, USA,
VEN
Members not considering it a substantial transformation:
Option C:  The country of origin of the goods of this heading shall be the
country in which they have been capt ured;  or if farmed, the country in
which the fish has been raised from egg or fry (including fingerling)
Drying is based on controlling or reducing the quantity of water naturally
occurring in a product, with a view to delaying the activity of
micro-organisms. It is intended to preserve goods during transportation and/orstorage and accordingly is a minimal operation.CHL, GTM, [IND],
[JPN
*], KOR, PHL,
THA, TPKM
CRO Chairman's recommendation :  Option A.
                                                     
* Japan is able to join the consensus if full consensu s is reached on this issue, on the condition that its
concerns set out in document G/RO/W/74 are duly accommodated within the context of the discussions on the
implications of the HRO on other WTO Agreements towards the completion of the HWP.G/RO/52
Page 9
FISH:  SMOKING OF FISH
ISSUE NO. 6(II) (Ch. 1-24) HS ex0305(c)
Description of production process:
Input:  Fish
Output:  Dried fish
Considerations:
Members considering it a substantial transformation:
Option A:  CTHS
The smoking of fish, or fish livers and roes or of fish fillets substantially alters
the characteristics of those products, making it possible to obtain new products
that are completely different from the in itial materials used.  Prior to smoking,
these products are sometimes salted.  The taste and the flavour of smoked
products meets an ever increasing demand.  The smoking process, which lastsbetween six and twelve hours, results in a new finished product.  The use of
smoked products differs completely from that of unsmoked products.
Smoking, which is a complete process requiring skills, know-how and
technology, is therefore regarded as reflecting last substantial transformation.AUS, ARG, CAN,
CHE, COL, DOM,
EEC, EGY, ISL,
MAR, MYS, NZL,NOR, SGP
Members not considering it a substantial transformation:
Option C:  The country of origin of the goods of this heading shall be the
country in which they have been capt ured;  or if farmed, the country in
which the fish has been raised from egg or fry (including fingerling)
Smoking is a simple process which does not substantially alter the
characteristics of fish, fish livers and roes or fish fillets.  Consequently,
smoking of those products cannot reflect last substantial transformation.BRA, CHL, [GTM],
HND, IND, [JPN*],
KOR, MEX, PHL,
THA, TPKM, USA,
VEN
CRO Chairman's recommendation :  Option A.
                                                     
* Japan is able to join the consensus if full consensu s is reached on this issue, on the condition that its
concerns set out in document G/RO/W/74 are duly accommodated within the context of the discussions on the
implications of the HRO on other WTO Agreements towards the completion of the HWP.G/RO/52
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FISH:  FILLETING OF FISH
ISSUE NO. 12 (Ch. 1-24) HS ex0304(b)
Description of production process:
Input:  Fish
Output:  Fish fillets
Process:  Fish is processed throug h grading, cutting, skinning, boning,
cleaning, freezing and packing
Considerations:
Members considering it a substantial transformation:
Option A: CTH
Filleting of fish involves complex processes and more than doubles the value
of fishCAN, COL, DOM,
GTM, ISL, MYS,MAR, NOR, NZL,
SGP, THA
Members not considering it a substantial transformation:
Option B: The country of origin of th e goods of this heading shall be the
country in which they have been capt ured;  or if farmed, the country in
which the fish has been raised from egg or fry (including fingerling)
The process for obtaining fish fillets is a simple one.  It is purely and simply a
matter of cutting the fish lengthwise into two symmetric parts and removing
the bones, without the slightest transformation of the fish.[ARG], AUS, BRA,
CHE, CHL, EEC,EGY, HND, IND,
JPN, KOR, MEX,
PHL, USA, VEN,
Compromise proposal:
CTH, except for species subject to conservation measures applied byregional fisheries management organizations
Regarding tuna and tuna-like species of fish, joint measures, including import
bans on these species of fish and their products from certain countries, are now
taken to prevent overfishing under the existing regional frameworks for
conservation and management of these resources.  If it is decided that filletingof tuna and tuna-like species can confer their origin, then circumvention on
import bans ("tuna-laundering") could easily take place, since it would become
extremely difficult for the customs authorities to carry out necessary import
controls, so as to fulfil the obligations under the resource conservation
organizations.  On such a basis, it is not appropriate to authorize an origin rulewhich can hamper the effective implementation of joint measures for the
conservation of these species.JPN, TPKM
CRO Chairman's recommendation:  Option AG/RO/52
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FISH:  SALTING/HEAVY SALTING OF FISH
ISSUE NO. 15 (Ch. 1-24) HS ex0305(b)
Description of production process:
Input:  Fish
Output:  Salted/heavy salted fish
Process:  Fish is processed through brining, dry salting and pickle curing intosalted/heavy salted fish
Considerations:
(1)  Salted fish
Members considering it a substantial transformation:
Option A:  CTH
Definition by the FAO/WHO
Salted/salt fish are fish which have been treated by either brining, dry salting,
pickle curing or a combination of  these treatments increasing the amount of
salt in the fish beyond the limits ordinarily found in the fresh fish.DOM, GTM, MYS
Members not considering it a substantial transformation:
Option B: The country of origin of th e goods of this heading shall be the
country in which they have been capt ured;  or if farmed, the country in
which the fish has been raised from egg or fry (including fingerling)
Salting is based on controlling or reducing the quantity of water naturally
occurring in the products, with a view to delaying the activity of
micro-organisms. It is intended to preserve goods during transportation and/or
storage and accordingly is a minimal operation.ARG, AUS, BRA,
CAN, CHE, COL,
EEC, EGY, HND,IND, ISL, JPN,
KOR, MAR, MEX,
NOR, NZL, PHL,
SGP, THA, USA,
VEN
(2)  Heavy salted fish
Members considering it a substantial transformation:
Option A:  CTHS
Definition proposed by Norway
A "heavy salted fish" under HS heading 03.05 is a fishery product where the
fish meat is fully saturated with salt, such that the amount of salt is at least26.4 grammes per 100 grammes of water
Definition by the FAO/WHO
Heavy salted fish:  salted fish and dried salted fish which has been fully
saturated with salt which may be offered for consumption without furtherindustrial processing.
Members not considering it a substantial transformation:
Option B: The country of origin of th e goods of this heading shall be the
country in which they have been capt ured;  or if farmed, the country in
which the fish has been raised from egg or fry (including fingerling)ARG, AUS, BRA,
CAN, CHE , CHL,COL, DOM, EEC,
GTM, IND, ISL,
KOR, MAR, MEX,
MYS, NOR, NZL,
SGP, THA, USA,
EGY, HND, VENG/RO/52
Page 12
ISSUE NO. 15 (Ch. 1-24) HS ex0305(b)
CRO Chairman's recommendation: Option B for salted fish and Option A
for heavy salted fishG/RO/52
Page 13
SLAUGHTERING OF LIVE ANIMALS
ISSUE NO. 2 (Ch. 1-24) HS 0201-0207,
0209, 0210
Description of production process:Input:  Live animals
Output:  MeatProcess:  Slaughtering of live animals by bleeding, eviscerating, removal of
hair, hide or feathers, removal of extremities, splitting carcasses, chilling,
deboning and grading
Considerations:
Members considering it a substantial transformation:
Option A:  CC
The meat, meat products, hair bristles, hides, blood and other such animal
products which come out of a slaughter plant bear no resemblance to the live
animals which enter the plant.  There is no way that the sum of the parts will
ever be able to reconstitute the live animal.  Holding animals for a time before
slaughter because of sanitary and phytosanitary concerns is not only a misuse
of the rules of origin, but a serious danger to animal health.  If the concern is
the presence of foot and mouth disease (FMD), holding infected animals will
result in the contamination of the surroundings and spread to healthy animals.If the concern is bovine spongiform encephalopathy (BSE), holding an animal
for a few months will prove nothing as the disease takes several years to
manifest itself and even then, only an autopsy provides definitive proof of its
presence.  The proper method for handling suspected disease-harbouring
animals is through quarantine and that is not within the scope of the rules oforigin.ARG, AUS, CAN,
CHE, HND, IND,
MEX, MYS, NOR*,
NZL, [PHL]*, USA
* Flexible
Members not considering it a substantial transformation:
Option B:  Slaughtering confers origin in combination with a certain
period of fattening (e.g. 4 months)
Meat quality depends on the conditions in which the animals are raised, as well
as on the period of time under such conditions.  In some countries, in order to
obtain the preferred meat taste, bovine animals are fed with concentrates and
systematically nurtured for more than 4 months prior to slaughtering.  If the
country of origin for meat is determined by the criterion of where mereslaughtering takes place, it will cause obvious problems of misleading the
public with conflicting information.BRA, DOM, EEC,
EGY, GTM, JPN,
KOR, MAR, THA,
TPKM, VEN
CRO Chairman's recommendation: Option AG/RO/52
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DAIRY PRODUCTS:  OBTAINING COFFEE CREAMER
ISSUE NO. 16 (Ch. 1-24) HS ex0402(a)
Description of production process:
Input:  Skimmed milk powder
Output:  Coffee creamer
Process:  Skimmed milk powder is processed through the addition of milk fat,water, emulsifiers and stabilizer into coffee creamer
Considerations:
Members considering it a substantial transformation:
Option A:  CTHS
In the manufacture of coffee creamer, the starting material is skimmed milk
powder (possibly also from other dairy ingredients).  Milk fat, water,
emulsifiers and stabilisers are added in accordance with specifications. Theproduct is sterilized at a specific temperature, then cooled before putting into
packages.  The final product has a specific use and is intended to be consumed
by putting into coffee.AUS, CHE, CHL,
COL, HKC, NZL,PHL, SGP, THA
Members not considering it a substantial transformation:
Option C: The country of origin of the goods of this split heading shall be
the country in which the milk is obtained in its natural or unprocessed
state.
The process required is not a particularly complex one and, above all, the
product obtained has no specially different characteristics compared with the
products used, since it is also milk.ARG, BRA, CAN,
EEC, EGY, GTM,HND, IND, JPN,
KOR, MEX, USA,
VEN,
CRO Chairman's recommendation: Option CG/RO/52
Page 15
DAIRY PRODUCTS:  OBTAINING RECOMBINED OR RECONSTITUTED MILK
ISSUE NO. 17 (Ch. 1-24) HS 0402(b)
Description of production process:
Input:  Skimmed milk powder and AMF (butter oil) or WMP
Output:  Recombined or reconstituted milk
Process:  Milk powder is processed through addition of milk fat, stirring ofmixture, homogenisation, pasteurisation and boiling into recombined or
reconstituted milk
Considerations:
Members considering it a substantial transformation:
Option A:  CTHS
Milk is reconstituted from two main ingredients which are anhydrous (no
moisture), whereas the end product is hydrous (rich in moisture), i.e. theessential nature of the product is changed considerably.  Its physical
composition and functional properties are diametrically opposed to those of its
components.   The production process is relatively complex and has to be
carried out in a specially equipped facility.  The processes are as follows :
- Reconstitution of the milk powder;
- Addition of milk fat;
- Stirring of the mixture;- Homogenisation, pasteurization, boiling.
New Zealand's proposal (Note for Chapter 4)
To confer originating status on "dairy products" obtained as a result of
recombination or reconstitution and dairy products obtained fromrecombined or reconstituted materials".ARG, AUS, CHE,
COL, DOM, NZL,
PHL, THA
Members not considering it a substantial transformation:
Option B: The country of origin of the goods of this split heading shall bethe country in which the milk is obtained in its natural or unprocessed
state.
The process required is not a particularly complex one and, above all, the
product obtained has no specially different characteristics compared with the
products used, since it is also milk.BRA, CAN, EEC,
EGY, GTM, HND,
IND, JPN, KOR,
MEX, TPKM, USA,
VEN
CRO Chairman's recommendation: Option BG/RO/52
Page 16
DAIRY PRODUCTS:  OBTAINING CONDENSED MILK
ISSUE NO. 18 (Ch. 1-24) HS 0402(c)
Description of production process:
Input:  Milk powder and liquid milk
Output:  Condensed milk
Considerations:
Members considering it a substantial transformation:
Option A:  CTHS
The process (or processes) for obtaining condensed milk from liquid milk or,
by reversibility, from skimmed milk powder or from anhydrous milk fats towhich sugar or sweetening matter may or may not have been added, is a
complex one which results in a product that is completely different from the
products used.AUS, CHE, CHL,
DOM, NZL, PHL,
SGP, THA
Members not considering it a substantial transformation:
Option C: The country of origin of the goods of this split heading shall be
the country in which the milk is obtained in its natural or unprocessed
state.
Neither removal of the water contained in milk nor the addition of sugar or
other sweetening matter in any way alters the milk molecule.ARG, BRA, CAN,
COL, EEC, EGY,
GTM, HND, IND,JPN, KOR, MEX,
TPKM, USA, VEN
CRO Chairman's recommendation: Option CG/RO/52
Page 17
DAIRY PRODUCTS:  OBTAINING MILK POWDER
ISSUE NO. 19 (Ch. 1-24) HS ex0402(d)
Description of production processes:
Input:  Liquid milk
Output:  Milk powderProcess:  Liquid milk is processed through removing the water contained in
liquid milk into milk powder
Considerations:
Members considering it a substantial transformation:
Option A:  CTH/CTHS/CTSH
A solid product is obtained by removing the water contained in liquid milk.
The method of removal is drying of the liquid milk.  The functional propertiesof the end-product (skimmed milk powder or whole milk powder) are a key
element to be taken into account when determining substantial transformation.
Milk powder is solid and usually anhydrous;  it is richer in proteins (skimmed
milk powder) and in fats (whole milk powder) than ordinary fresh milk.  In
addition, it can be kept for far longer than fresh milk – particularly skimmed
milk powder which will keep for three years if conserved under the correct
conditions.
.AUS, CHE, MAR,
NZL, PHL (CTHS),
SGP, THA, VEN,
Members not considering it a substantial transformation:
Option B:  The country of origin of the goods of this split heading shall be
the country in which the milk is obtained in its natural or unprocessed
state.
Partial or total removal of the water in milk in no way alters the milk moleculeARG, BRA, CAN,
COL, EEC, EGY,
GTM, HND, IND,
JPN, KOR, MEX,
TPKM, USA
CRO Chairman's recommendation: Option BG/RO/52
Page 18
DAIRY PRODUCTS:  OBTAINING MILK PRODUCTS
ISSUE NO. 20 (Ch. 1-24) HS ex0403(a) and
(c), 0404.90
Description of production processes:Input:  Liquid, concentrated or reconstituted milk or starter cultures
Output:  Yoghurt, kephir or fermented or acidified milk
Considerations:
Members considering it a substantial transformation:
Option A:  CTH
Obtaining milk products such as yoghurt, kephir, fermented or acidified milk
and the like from liquid milk, from concentrated milk (whether or not in
powder form) or from reconstituted milk fully reflects last substantial
transformation.  Such milk products have a totally different composition frommilk.  They also have characteristics and uses that differ from those of milk.ARG, AUS, BRA,
CAN, CHE, CHL,
COL, DOM, EGY,JPN, KOR , MEX,
NZL, PHL, THA,
USA, VEN
Members not considering it a substantial transformation:
Option B:  The country of origin of the goods of this split heading shall be
the country in which the milk is obtained in its natural or unprocessedstate.
Obtaining milk products such as yoghurt, kephir, fermented or acidified milk
and the like from liquid milk, from concentrated milk (whether or not in
powder form) or from reconstituted milk does not reflect last substantial
transformation, since the process is a simple one which consists, purely and
simply, of adding cultures to the base input products eventually supplementedby small quantities of milk powder in order to slightly increase the dry matter
content.
It is not true that those products have a totally different composition from milk.
Such milk products have a similar composition as milk except that part of thelactose content, approximately 1%, is converted by the cultures into lactic acid.
The fat, protein, mineral and vitamin components are the same as in naturalmilk.EEC, GTM, IND
CRO Chairman's recommendation: Option AG/RO/52
Page 19
DAIRY PRODUCTS:  OBTAINING PROCESSED CHEESE
ISSUE NO. 22(Ch. 1-24) HS 0406.30
Description of production process:
Input:  Natural cheese, emulsifying and acidifying agents;  salt and spices
Output:  Processed cheese
Process:  Natural cheese is processed through addition of other ingredients,melting and emulsifying into processed cheese
Considerations:
Members considering it a substantial transformation:
Option A:  CTSH
Natural cheese is comminuted and then mixed with the emulsifying salts and
other ingredients such as milk solids, milk powder, whey powder,
coprecipitates, cream, butter or butter oil, and in some instances previously
processed cheese.  Processed  cheeses can also contain ingredients such as
meat, fish, crustaceans, herbs, spices vegetables, fruits, nuts and vitamins.Other additives such as preservatives, colouring and flavouring agents,
binders, and salt and water complete the list of the ingredients.  This mix is
then heated and melted which allows the emulsification of the raw ingredients.
The emulsifying salt plays an integral part in the melting of the cheeses.ARG, AUS, DOM,
HND, [JPN
*], MEX,
MAR, NOR*, NZL,
PHL, SGP, THA,VEN
* Flexible
Members not considering it a substantial transformation:
Option B:  CTH
The process for obtaining processed cheese is a simple one which consists,
purely and simply, of mixing various sorts of cheese and melting them by
means of heat or emulsifiers.BRA, CAN, CHE,
EGY, EEC, GTM,IND, KOR, USA
CRO Chairman's recommendation: Option B
                                                     
* Japan is able to join the consensus on this issue, on the condition that its concerns set out in document
G/RO/W/74 are duly accommodated within the context of the discussions on the implications of the HRO on
other WTO Agreements towards the completion of the HWP.G/RO/52
Page 20
DAIRY PRODUCTS:  OBTAINING PRODUCTS CONTAINING OVER 50% OF MILK
SOLIDS
ISSUE NO. 91 (Ch. 1-24) HS ex2106.90(b)
Description of production processes:
Input:  Milk (of Ch. 4) or food prepar ations of milk (HS 1901) or AMF (butter
oil);  vegetable oils, additives and flavouringsOutput:  Food preparations containing over 50% of milk solids
Considerations:
Members considering it a substantial transformation:
Option A:  CTSH/CTHARG, AUS, [BRA],
CHE, COL, EEC,EGY, GTM, HKG,
HND, JPN, KOR,
MEX, NZL, PHL,
THA, VEN
Members not considering it a substantial transformation:
Option B:  CTSH, except from Ch. 4 or from 1901.90
USA's compromise proposal
[Primary rule:  CTSH, provided that the percentage of  milk originating
in a single country is not more than 80% of the total milk solids.
Heading residual rule:  The country of  origin of the goods of this split
subheading shall be the single country of origin of milk that accounts for
not less than 80% of the total milk solids]CAN, USA
CRO Chairman's recommendation: Option AG/RO/52
Page 21
DAIRY PRODUCTS:  OBTAINING BEVERAGES CONTAINING OVER 50% OF MILK
SOLIDS
ISSUE NO. 95 (Ch. 1-24) HS ex2202.90(a)
Description of production processes:
Input:  Milk
Output:  Beverages containing over 50% of milk solids
Considerations:
Members considering it a substantial transformation:
Rule proposed:  CC/CTH/CTSHSARG, BRA, CHE,
EGY, GTM, HND,
IND, JPN, KOR,MEX, NOR*, NZL,
SGP, VEN
* Flexible
Members not considering it a substantial transformation:
Rule proposed:  CTH, except from Ch. 4 or HS 1901/from Ch. 4
USA's compromise proposal
[Primary rule:  CTSH, provided that the percentage of  milk originating
in a single country is not more than 80% of the total milk solids.
Heading residual rule:  The country of origin of the goods of this split
subheading shall be the single country of origin of milk that accounts fornot less than 80% of the total milk solids]CAN, EEC, USA
CRO Chairman's recommendation:  CTH HKC, SVNG/RO/52
Page 22
DAIRY PRODUCTS:  ADDING MILK TO OBTAIN PREPARATIONS OF A KIND USED IN
ANIMAL FEEDING
ISSUE NO. 110 (Ch. 1-24) HS ex2309.90(A)
Description of production processes:
Input:  Milk (of Ch.24)
Output:  Preparations of a kind used in animal feeding
Considerations: Preparations of a kind used in animal feeding
Members considering it a substantial transformation:
Option A: CTHGTM, HND, NZL,
TPKM
CRO Chairman's recommendation: CTH except from heading 0401-0403 ARG, BRA, CAN,
CHE, EEC, EGY,
GTM, HKC, IND,
JPN, KOR, MEX,
PHL, USAG/RO/52
Page 23
COFFEE:  ROASTING OF COFFEE
ISSUE NO. 31 (Ch. 1-24)
HS 0901.21,
0901.22Description of production process:Input:  Green coffee bean
Output:  Roasted coffee
Process:  Green coffee bean is processed through roasting into roasted coffee
Considerations:
Members considering it a substantial transformation:
Option A:  CTSH/CTSH, except from HS 0901.21
Coffee is always roasted for use.  Roasting consists of dry distillation with the
formation of new components that produce the flavour and aroma.  The aroma
results from a combination of aldehydes, alcohols and phenols.CAN, CHE, EGY,
[JPN*], NZL, SGP,
THA, USA
Members not considering it a substantial transformation:
Option B: The country of origin of the goods of this subheading shall bethe country in which the plant grew
Roasting of coffee is a simple process practised since 1554, whereby dry heat
is added (between 200
o and 300o C) with the purpose of eliminating water and
facilitating the preparation of the beverage. The process is so simple it can be
done at home in the stove or in the oven, because it does not require precision
with regard to temperature or its duration.  In this process, no new substance is
added and no new product is obtained. All the complex biochemical reactions
that are responsible for the final flavour, aroma, bitterness and acidity, and
which identify the beverage, have occurred in the geographical place where thecoffee trees are cultivatedBRA, CHL, COL,
CRI, CUB, DOM,
ECU, GTM, HND,
IND, KOR, MEX,
PER, PHL, SLV,
URY, VEN,
Compromise proposal:
The country of origin of the goods of this subheading shall be the country
of origin of materials of subheading 09.01 that account for more than
85[x]% by weight of all materials used.  When none of the materials used
meet the percentage required, the or igin of the goods shall be the country
in which roasting was carried outARG, BRA, EEC
CRO Chairman's recommendation: Compromise proposal
                                                     
* Japan is able to support the CRO Chairman's reco mmendation, on the condition that its concerns set
out in document G/RO/W/74 are duly accommodated within the context of the discussions on the implications
of the HRO on other WTO Agreements towards the completion of the HWP.G/RO/52
Page 24
COFFEE:  OBTAINING EXTRACTS, ESSENCES AND CONCENTRATES (INCLUDING
INSTANT COFFEE) OF EXCLUSIVE REAL COFFEE
ISSUE NO. 79 (Ch. 1-24) HS ex2101.11(a)
Description of production process:
Input:  Coffee
Output:  Extracts, essences and concentrates of coffee (including instantcoffee)
Process:  Coffee is processed through roasting, extracting, concentrating,
agglomeration into extracts, essences and concentrates of coffee
Considerations:
Members considering it a substantial transformation:
Option A:  CTH/CTSH
The processes include roasting, extracting, concentrating, agglomeration which
result in a new product with new characteristics.ARG, AUS, CAN,
CHE, CHL, CZE,
EEC, EGY, HKC,
JPN, KOR, MAR,
MYS, NOR, NZL,SGP, THA, USA
Members not considering it a substantial transformation:
Option C: CTH, except from HS 0901
Option D: The country of origin of the goods of this subheading shall be
the country in which the plant grew
Obtaining coffee concentrates, extracts and essences is not a substantial
transformation inasmuch as these coffee forms are obtained through addition
and subsequent removal of water, to a greater or lesser extent, depending on
the form that is desired.  The success of the process lies in obtaining the
extract, concentrate or essence without modifying the organoleptic
characteristics that where already determined in the green coffee bean.
Consequently, the process is done in such a way as not to alter these
organoleptic characteristics, which, in turn, are exclusively dependent on the
variety, the place of cultivation and the methods of obtaining of the greenbean.CRI, [GTM], HND,
MEX, SLV
COL, DOM, IND,
LKA, PHL, VEN
Compromise proposal:
The country of origin of the goods of this split subheading shall be the
country of origin of materials that  account for more than 85% by weight
of all materials used.  When none of the materials used meet the
percentage required, the origin of the goods shall be the country in which
obtaining of extracts, essences or concentrates was carried out.BRA
CRO Chairman's recommendation: Compromise proposalG/RO/52
Page 25
COFFEE:  OBTAINING PREPARATIONS WITH A BASIS OF EXTRACTS ETC. OF
COFFEE
ISSUE NO. 81 (Ch. 1-24) HS ex2101.12
Description of production processes:
Input:  Instant coffee
Output:  Mixture of instant coffee, sugar and creamer
Considerations:
Members considering it a substantial transformation:
Option A:  CTSH
Deliberate blending of instant coffee, sugar and creamer in a specific
formulation and putting the constituents in ready-to-serve sachets for
immediate consumption are carried out.  A new product results with a different
taste from the individual constituents and which is ready to be servedimmediately.AUS, CAN, KOR,
SGP, USA
Members not considering it a substantial transformation:
Option B:  CTH
Obtaining the products merely from extracts, essences or concentrates of
coffee is not a substantial transformation.ARG, BRA, CHE,
CHL, COL, DOM,
EEC, EGY, GTM,
HND, HKC, IND,
JPN, LKA, MAR,MEX (CC), NOR,
NZL, PER, PHL,
SVN, VEN
CRO Chairman's recommendation: Option BG/RO/52
Page 26
 REFINING OF FATS AND OILS
ISSUE NO. 45 (Ch. 1-24) HS 1501-1515
Description of production process:
Input:  Raw fats and oils
Output:  Refined fats and oils
Process:  Raw fats and oils are processed through neutralization, decolourising,deodorising and stabilization into refined fats and oils
Considerations:
Members considering it a substantial transformation:
Option A:  CTH;  or change by refining
(1) All three following operations are carried out in a single country
- Neutralization with alkali or de-acidification (removal of 
the free fatty acids from the oil);
- Decolorizing (removal of colouring substances); and
- Deodorizing (separation of the volatile odorous and 
flavourous substances by distillations)
(2) Three out of the following four operations ar carried out in a 
single country
- Neutralization with alkali or de-acidification (removal of 
the free fatty acids from the oil);
- Decolorizing (removal of colouring substances); and
- Deodorizing (separation of the volatile odorous and 
flavourous substances by distillations)
- stabilization
Crude fats are not suitable for direct consumption or for specific technical
purposes because of their acidity and their organoleptic characteristics.  To
make them suitable for consumption or use for specific technical purposes they
have to be refined.  The refining process (chemical or physical) entailseliminating the odour, taste, colour and acidity of a crude fat and oil.AUS, CHE, EEC,
[DOM], [IND],
JPN, KOR, [NOR],NZL, [VEN]
GTM, ISL, MEX,
[NOR], SGP, THA,
[VEN]
Members not considering it a substantial transformation:
Option B:  CTH
Fats and oils occur widely in nature and are formed in the cells of certain
plants or animals from which they are extracted by various means such as
pressure or use of solvents.  The essential characteristics of fats and oils and
their essential molecular structure as a compound are formed in the source
material and they are also present unaltered in the extracted oil in crude form.
These essential characteristics are not changed by refining.ARG, BRA, CAN,
COL, EGY, HND,
LKA, MYS, MOR,
PHL, USA
CRO Chairman's recommendation: Option A (1)G/RO/52
Page 27
SUGAR: REFINING SUGAR
ISSUE NO. 53 HS 1701-1702
Description of production process:
Input:  Raw sugar
Output:  Refined sugar
Process:  Raw sugar is processed through centrifuging, dissolving,carbonatation, concentration, crystallisation into refined sugar
Considerations:
Members considering it a substantial transformation:
Option A:  CTSH/CTHS/CTSH, excep t from HS 1701.99 (for HS 1701.91)
Raw sugar is more than an intermediate product used to manufacture refined
sugar.  It is used for many other commercial purposes, including cement
manufacturing, animal feed and ethanol  production. Refined sugar is used
almost exclusively as a food product. T hus, refined sugar has uses that are
completely different from those of raw sugar.  During the refining process the
crystal structures in the raw sugar are completely broken down to molecular
constituents so as to completely lose their physical identity. The refined sugar
that emerges is composed of new sucrose crystals that no longer contain
non-sucrose materials occluded within the crystals. In addition, non-sucrose
materials mixed with and coating the raw sugar crystals are removed inrefining through extensive processing operations involving both chemical and
physical reactions and changes. As a result, raw and refined sugar are
fundamentally different products with significant differences in crystal
structure and size, colour, odour, texture, bacterial level, chemical makeup,
taste and shelf-life.
The change from raw sugar to flavoured or coloured sugar of HS 1701.91,
through both refining and the addition of flavouring or colouring, should be
considered as substantial transformation.  However, the mere addition of
flavouring or colouring to refined sugar of HS 1701.99 is not origin-conferring.AUS, CAN, CUB,
HND, [JPN
*], KOR,
NZL
                                                     
* Japan is able to join the consensus if full consensu s is reached on this issue, on the condition that its
concerns set out in document G/RO/W/74 are duly accommodated within the context of the discussions on the
implications of the HRO on other WTO Agreements towards the completion of the HWP.G/RO/52
Page 28
ISSUE NO. 53 HS 1701-1702
Members not considering it a substantial transformation:
Option B:  CC
Refining raw sugar does not constitute substantial transformation. Raw sugar
already has a sucrose content of 97.5 %.  Much of the impurities in the canejuice would have been removed in the crystallisation process at the raw sugar
stage. The refining process, which employs such steps as affination, melting,
filtration, colour absorption and recrystallisation, while further removing
impurities raises sucrose content only marginally from 96 %- 99 % in raw
sugar to 99.5 % or higher in refined sugar.  The sugar refining process does not
alter the original sucrose formed in the cane plant which gives sugar its
essential character as a sweetener. The chemical reactions which occur inrefining affect only the non-sucrose components but preserve the original
sucrose molecule.ARG, BRA, CHE,
CHL, CRI, DOM,
ECU, EEC, EGY,
GTM, HKC, IND,
MEX, PHL, SLV,
SGP, THA, USA,VEN
CRO Chairman's recommendation: Option BG/RO/52
Page 29
SUGAR:  MANUFACTURING INVERT SUGAR
ISSUE NO. 55 HS ex1702(b) and
(c)
Description of production processes:Input:  Sugar
Output:  Invert sugarProcess:  Sugar is processed through acidic or enzymatic hydrolysis into invert
sugar
Considerations:
Members considering it a substantial transformation:
Option A:  CTHS, except from HS 1701.91 or 1701.99
Hydrolysing refined sugars to obtain invert sugar is not substantial
transformation.  It is substantial, however, if one starts from raw sugar.AUS, CAN, NZL
Members not considering it a substantial transformation:
Option B:  CCARG, BRA, CHE,
CHL, CRI, DOM,
ECU, EEC, EGY,
GTM, HKC, IND,
MEX, PHL, SLV,
SGP, THA, USA,VEN
CRO Chairman's recommendation:  Option BG/RO/52
Page 30
SUGAR:  OBTAINING SUGAR SYRUPS, ETC.
ISSUE NO. 56 HS ex1702(e)
Description of production processes:
Input:  Sugar
Output:  Sugar syrups, sugar juices, caramelised molasses
Considerations:
Members considering it a substantial transformation:
Option A:  CTH, except from HS 1701.99
Liquefying refined sugar to obtain a syrup is not substantial transformation.  It
is substantial, however, if one starts from the plant or from raw sugar.AUS, CAN, NZL
Members not considering it a substantial transformation:
Option B:  CCARG, BRA, CHE,
CHL, CRI, DOM,
ECU, EEC, EGY,
GTM, HKC, IND,MEX, PHL, SLV,
SGP, THA, USA,
VEN
CRO Chairman's recommendation: Option BG/RO/52
Page 31
SUGAR:  OBTAINING MOLASSES
ISSUE NO. 57 HS ex1702(e)
Description of production processes:
Input:  Sugar plants
Output: Molasses
Considerations:
Members considering it a substantial transformation:
Option A:  CTHAUS, CAN, [JPN*],
NZL
Members not considering it a substantial transformation:
Option B:  CCARG, BRA, CHE,
CHL, CRI, DOM,
ECU, EEC, EGY,
GTM, HKC, IND,
MEX, PHL, SLV,
SGP, THA, USA,VEN
CRO Chairman's recommendation: Option B
                                                     
* Japan is able to join the consensus if full consensu s is reached on this issue, on the condition that its
concerns set out in document G/RO/W/74 are duly accommodated within the context of the discussions on the
implications of the HRO on other WTO Agreements towards the completion of the HWP.G/RO/52
Page 32
COCOA:  OBTAINING COCOA PASTE
ISSUE NO. 58 (Ch. 1-24) HS 1803
Description of production process:
Input:  Cocoa beans
Output:  Cocoa paste
Process:  Roasting beans, winnowing (cleaning), alkalisation and grinding intococoa paste
Considerations:
Members considering it a substantial transformation:
Option A:  CTHCAN, CHE, HKC,
KOR, MAR, MYS,NZL,  SGP, SLV,
USA
Members not considering it a substantial transformation:
Option B:  CTH, except from HS 1801 or 1802ARG, BRA, COL,
CZE, DOM, ECU,
EGY, EEC, GTM,HND, IND, JPN,
LKA, MEX, PHL,
THA, VEN
CRO Chairman's recommendation: Option BG/RO/52
Page 33
COCOA:  OBTAINING COCOA BUTTER, FAT AND OIL
ISSUE NO. 59 (Ch. 1-24) HS 1804
Description of production process:
Input:  Cocoa paste
Output:  Cocoa butter, fat and oil
Process:  Cocoa paste is processed through pressure or by extraction into cocoabutter, fat and oil
Considerations:
Members considering it a substantial transformation:
Option A:  CTHARG, CAN, CHE,
GTM, HKC, KOR,MAR, NZL, SGP,
SLV,
Members not considering it a substantial transformation:
Option B:  CTH, except from HS 1803BRA, COL, CZE,
DOM, ECU, EEC,
EGY, HND, JPN,LKA, MEX, PHL,
THA, USA, VEN,
CRO Chairman's recommendation: Option BG/RO/52
Page 34
COCOA:  OBTAINING COCOA POWDER FROM COCOA PASTE
ISSUE NO. 60 (Ch. 1-24) HS 1805
Description of production process:
Input:  Cocoa paste
Output:  Cocoa powder
Process:  Cocoa powder is processed by heating and pressing to remove fat,tempering and pulverising into cocoa powder
Considerations:
Members considering it a substantial transformation:
Option A:  CTHAUS, CAN, HKG,
KOR, MAR, NZL,SGP, SLV, USA,
Members considering it a substantial transformation, except from defatted
cocoa paste:
Option B:  CTH, except from HS 1803.20
Defatted cocoa paste is already in powder form or requires only minor
processing to obtain cocoa powder.ARG, ECU, GTM
Members not considering it a substantial transformation:
Option C:  CTH, except from HS 1803BRA, COL, CHE,
CZE, DOM, EEC,EGY, HND, IND,
JPN, LKA, MEX,
NOR, PHL, THA
CRO Chairman's recommendation:  Option CG/RO/52
Page 35
COCOA:  ADDING SUGAR TO COCOA POWDER
ISSUE NO. 61 (Ch. 1-24) HS 1806.10
Description of production process:
Input:  Cocoa powder
Output:  Sweetened cocoa powder
Process:  Cocoa powder is processed through the addition of sugar intosweetened cocoa powder
Considerations:
Members considering it a substantial transformation:
Option A:  CTHNZL
Members not considering it a substantial transformation:
Option B:  CTH, except from Ch. 17 or HS 1805
Option C: CTH, except from HS 1803 or 1805
Option D: CTH, except from HS 1805ARG, AUS, BRA,
CAN, COL, CUB,ECU, EGY, HND,
GTM, PHL, SLV,
USA
CZE, DOM, EEC,
IND, [NOR], VEN
HKC, MEX, KOR,
[NOR], SGP
CRO Chairman's recommendation: Options B, C, D CHL, JPNG/RO/52
Page 36
CRUCIAL ISSUE:  MAKING CHOCOLATE PREPARATIONS FROM COCOA POWDER
ISSUE NO. 62 (Ch. 1-24) HS 1806.20(a)
Description of production process:
Input:  Cocoa powder
Output:  Chocolate preparations
Considerations:
Members considering it a substantial transformation:
Option A:  CTSHGTM, MAR, MEX,
NZL
Members considering it a substantial transformation, except from a sweetened
cocoa powder:
Option B:  CTHARG, BRA, CAN
CHE, COL, DOM,
ECU, EEC, EGY,
HKC, HND, IND,
JPN, KOR, NOR,
PHL, VEN
Members not considering it a substantial transformation:
Option C:  CTSH, except from Ch. 17, 1805 or 1806.10SVL, LKA, USA
CRO Chairman's recommendation: Option BG/RO/52
Page 37
COCOA:  MAKING CHOCOLATE IN BLOCKS FROM SWEETENED COCOA POWDER
ISSUE NO. 63 (Ch. 1-24) HS 1806.20(b)
Description of production process:
Input:  Sweetened cocoa powder
Output:  Chocolate in blocks, slabs or bars
Considerations:
Members considering it a substantial transformation:
Option A:  CTSH
Chocolate is composed essentially of cocoa paste and sugar (or other
sweetening matter) usually with the addition of flavouring and cocoa butter; in
some cases, cocoa powder and vegetable oil may be substituted for cocoa
paste.  Other ingredients such as milk, coffee, nuts, raisins, etc. may sometimes
also be added.  Processing cocoa, including cocoa powder whether or notsweetened, into the cocoa preparations in blocks, slabs or bars weighing more
than 2kg of subheading 1806.20 is a substantial transformation.  The product is
a new product with different appearance, uses and characteristics to the cocoa
powder or other ingredients.AUS, CAN, HKC,
NZL, PHL
Members not considering it a substantial transformation:
Option B:  CTH
Processing cocoa, including cocoa pow der unless already sweetened, into the
cocoa preparations in blocks, slabs or bars weighing more than 2kg of
subheading 1806.20 is a substantial transformation.  The product is a new
product with different appearance, uses and characteristics to the cocoapowder or other ingredients.  However, if sweetened cocoa powder is used the
transformation is not sufficient to be considered as a substantial
transformation.ARG, BRA, CHE,
COL, DOM, ECU,
EEC, EGY, GTM,
HND, JPN, KOR
MEX, NOR, USA,
VEN
CRO Chairman's recommendation: Option BG/RO/52
Page 38
COCOA:  MAKING FINISHED RETAIL CHOCOLATE FROM CHOCOLATE CRUMB
ISSUE NO. 64 (Ch. 1-24) HS 1806.31-
1806.90
Description of production process:Input:  Chocolate crumb
Output:  Finished retail chocolateProcess:  Chocolate crumb is processed through the addition of lecithins and
butters, refining, conching and tempering into finished retail chocolate
Considerations:
Members considering it a substantial transformation:
Option A:  CTSH
From the chocolate crumb (1806.20b), which is the pre-cursor to the finished
retail chocolate, to the retail chocolate bar there are at minimum five processesincluding the addition of lecithins and butter, refining, conching and
tempering.  These do not include the deposition or enrobing, moulding and
cooling of the bars.  Clearly, the transformation of the 2 kg + blocks of
chocolate crumb to the final retail product entails more than breaking up and
melting of a 2 kg + block into smaller pieces.ARG, AUS, CAN,
CHL, HKC, [JPN
*],
KOR, LKA, MAR,
MEX, NZL, USA
Members not considering it a substantial transformation:
Option B:  CTHBRA, CHE, COL,
DOM, ECU, EEC,
EGY, GTM, HND,
KLA, PHL, NOR,
VEN
CRO Chairman's recommendation: Option B
                                                     
* Japan is able to join the consensus on this issue, on the condition that its concerns set out in document
G/RO/W/74 are duly accommodated within the context of the discussions on the implications of the HRO on
other WTO Agreements towards the completion of the HWP.G/RO/52
Page 39
PRODUCING JUICES FROM FRUITS OR VEGETABLES
ISSUE NO. 77 (Ch. 1-24) HS 2009
Description of production process:
Input:  Fruits or vegetables
Output:  Juices
Process:  Fruits or vegetables are processed through extraction into juices
Considerations:
Members considering it a substantial transformation:
Option A:  CTH
Option B: CCCAN, DOM, EEC,
GTM, HKC, [JPN*],
KOR, NZL, SGP,SVN
ARG, CHE, CHL,
COL, HND, MAR,
MEX, THA, USA,VEN
Members not considering it a substantial transformation:
Option C: the country of origin of the goods of this subheading shall bethe country in which the fruits are harvestedAUS, BRA, EGY,
IND, LKA, PHL
CRO Chairman's recommendation: Option B
                                                     
* Japan is able to support the CRO Chairman's reco mmendation on this issue, on the condition that its
concerns set out in document G/RO/W/74 are duly accommodated within the context of the discussions on the
implications of the HRO on other WTO Agreements towards the completion of the HWP.G/RO/52
Page 40
 PRODUCING RECONSTITUTED JUICES FROM FRUIT OR VEGETABLE JUICE
CONCENTRATES
ISSUE NO. 78 HS 2009
Description of production processes:
Input:  Fruit or vegetable juice concentrates
Output:  Reconstituted juices
Considerations:
Members considering it a substantial transformation:
Option A:  CC or change to reconst ituted juices in retail packets of
subheadings 2009.11 through 2009.80, from concentrates of subheadings
2009.11 through 2009.80, provided the change involves adding oil and
essence, blending and sterilising/CTH or change to reconstituted juices of
these subheadings from concentrates of the same subheadingsCAN, CHE, DOM,
HND, HKC, [JPN*],
NZL, SGP
Members not considering it a substantial transformation:
Option B: CTH /  the country of origin of the goods of this subheading
shall be the country in which the fruits are harvestedARG, AUS, BRA,
CHL, COL, EEC,EGY, GTM, IND,
LKA, MAR, MEX,
PHL, THA, USA,
VEN
CRO Chairman's recommendation: Option B
                                                     
* Japan is able to join the consensus on this issue, on the condition that its concerns set out in document
G/RO/W/74 are duly accommodated within the context of the discussions on the implications of the HRO on
other WTO Agreements towards the completion of the HWP.G/RO/52
Page 41
WINE:  PRODUCING WINE FROM GRAPES
ISSUE NO. 98 (Ch. 1-24) HS 2204
Description of production process:
Input:  Grapes
Output:  Wine
Considerations:
Members considering it a substantial transformation:
Option A:  CTH/CTSH
Wine is a totally different product from grapes or grape must.  It is
substantially changed and given new characteristics by a fermentation process.
Therefore, producing wine from grapes should be regarded as origin
conferringAUS, CAN, CHE,
EGY, GTM,HKC,
HND, IND, JPN,
KOR, MEX, MYS,PHL, THA, USA
Members not considering it a substantial transformation:
Option B:  The country of origin of the goods of this subheading shall be
the country in which the grapes grew
Wine is a special product, whereby the concept of quality is a crucial element
in the differentiation of wines. The distinctive features of a wine are defined bythe quality and thus the origin of the raw material, the grapes, in combination
with certain vinification techniques.  Of these two criteria, the origin of the
grapes is by far the most decisive factor in forming the character of a wine.
The particular soil and the particular climate in a given region determines the
quality of the grapes. When wine is prepared in a country different from the
country the grapes come from, the origin is determined by the country where
the grapes grew.ARG, BRA, CHL,
CZE, EEC, NZL
CRO Chairman's recommendation: CTHG/RO/52
Page 42
CRUCIAL ISSUE:  PRODUCING WINE FROM GRAPE MUST
ISSUE NO. 99 (Ch. 1-24) HS 2204
Description of production process:
Input:  Grape must (HS 2204.30)
Output:  WineRelated issues:
Considerations:
Members considering it a substantial transformation:
Option A:  CTSH/CTSH, excep t from HS 2204.10, 2204.29/CTH;  or
change from HS 2204.30/CTSHS, except from HS ex2204.29(b) for
ex2204.29(a)/CTSH, except from HS ex2204.21(a) or ex2204.29(a)
Wine is a totally different product from grapes or grape must.  It is
substantially changed and given new characteristics by a fermentation process.
Therefore, producing wine from grapes should be regarded as originconferringAUS, CAN, HKC,
JPN, KOR, MYS,
MEX, PHL, THA,
USA
Members not considering it a substantial transformation:
Option A1:  CTH
Option B: The country of origin of the goods of this subheading shall be
the country in which the grapes grew
Wine is a special product, whereby the concept of quality is a crucial element
in the differentiation of wines. The distinctive features of a wine are defined by
the quality and thus the origin of the raw material, the grapes, in combination
with certain vinification techniques.  Of these two criteria, the origin of the
grapes is by far the most decisive factor in forming the character of a wine.The particular soil and the particular climate in a given region determines the
quality of the grapes. When wine is prepared in a country different from the
country the grapes come from, the origin is determined by the country where
the grapes grew.CHE, IND
ARG, BRA, CHL,
CZE, EEC, EGY
HND, NZL
Compromise proposal:
"Producing wine from grape must whose alcohol content just prior to the
production of wine is less than 1.0% is origin-conferring."   Grape must is
imported in a concentrated condition for the convenience of transportation andfor the purpose of preventing decaying.  Then it is reconstituted before the
production of wine.  "Alcohol content just prior to the production of wine"
means the alcohol content of grape must in a reconstituted condition.JPN
CRO Chairman's recommendation: CTHG/RO/52
Page 43
WINE:  OBTAINING GRAPE MUST
ISSUE NO. 101 (Ch. 1-24) HS 2204.30
Description of production process:
Input:  Grape
Output:  Grape must
Considerations:
Members considering it a substantial transformation:
Option A: CTHAUS, JPN, MYS
Members not considering it a substantial transformation:
Option B:  The country of origin of the goods of this subheading shall be
the country in which the grapes grewARG, BRA, CAN,
CHE, CHL, CZE,EEC, EGY, HKC,
HND, IND, KOR,
MEX, NZL PHL,
SVN, USA
CRO Chairman's recommendation: Option BG/RO/52
Page 44
MIXTURES/BLENDS
ISSUE NOS. 36, 66, 76, 100, 106, 121, 122, 123 & 124 (Ch. 1-24)
Description of production process:
Mixing or blending of identical or similar goods of various origins
Considerations:
No. 36:  Obtaining curry or other mixed spices (HS ex0910(a), ex0910(c))
Members considering it a substantial transformation:
Option A:  CTHSARG, BRA, CAN,
CHE, CHL, EEC,
GTM, JPN, KOR,MEX, PHL, SGP,
USA, VEN
Members not considering it a substantial transformation:
Option B: The country of origin of th e goods of this split heading shall be
the country in which the plants grew
Residual rule:
Option A (G/RO/W/64):  Origin shall be conferred to the country of origin
of materials that account for more than 50% by weight of all materialsused.  When none of the materials us ed meets the percentage required, the
origin of the goods shall be the count ry in which mixing was carried out
Option B (general residual rule):  Or igin shall be conferred to the country
in which the major portion of materials originated.IND, LKA, MYS
EEC
IND
CRO Chairman's recommendation:  Option A
No. 66:  Production of mixes and doughs for preparation of bakers' wares
using materials of 1901.90 (HS 1901.20)
Rule endorsed:  CTSH
No. 76:  Mixing and seasoning of nuts or seeds (HS 2008.19, 2008.92)Rule endorsed:  WO for HS 2008.19
CC except from Ch. 8 for HS 2008.92
No. 100:  Blending of wine (HS 2204)
Members considering it a substantial transformation:
Option A:  Change within the subheading resulting from blending
Members not considering it a substantial transformation:
Option B:  No specific proposal (general residual rule)
Compromise proposal:
G/RO/W/64 (threshold:  85%)AUS, CHL, JPN,
MEX
CZE, HND, IND,
GTM, LKA
ARG, BRA, CHL,
EEC, EGY, JPN,
KOR, NZL,  CAN
(75%), USA (75%)G/RO/52
Page 45
ISSUE NOS. 36, 66, 76, 100, 106, 121, 122, 123 & 124 (Ch. 1-24)
CRO Chairman's recommendation:  Compromise proposal
No. 106:  Blending whisky or other spirit drinks (HS 2208)
Members considering it a substantial transformation:
Option A:  Change within the subheading resulting from blending and
putting into bottles or other containers for retail sale
Members not considering it a substantial transformation:
Option B:  No specific proposal (general residual rule)
Compromise proposal:
Option C:  G/RO/W/64 (threshold:  85%)
Option D:  G/RO/W/77 (non-originating alcoholic ingredients constitute
no more than 10% of the alcoholic content of the good)JPN, MEX (for
tequila and mezcal
mixture or blending
confers origin), PHL
BRA, GTM, IND,
HND, LKA
ARG, CHE, EEC,
JPN, KOR, MEX
CAN
CRO Chairman's recommendation:  Option C
No. 121:  Obtaining mixtures of vegetables or fruits (0710.90, 0711.90,
0712.90 and 0813.50)
Members considering it a substantial transformation:
Option A:  Specific proposalMembers not considering it a substantial transformation:
Option B:  No specific proposal (general residual rule)
Compromise proposal:  G/RO/W/64CAN, MEX
ARG, BRA, GTM,
HND, IND, NZ
EEC
CRO Chairman's recommendation:  Deletion
No. 122:  Obtaining mixtures of coffee or tea (0901, 0902)
Members considering it a substantial transformation:
Option A:  No specific proposalMembers not considering it a substantial transformation:
Option B:  No specific proposal (general residual rule)
Compromise proposal:  G/RO/W/64[JPN*]
CAN, CHL, COL,
DOM, ECU, GTM,
HND, IND, LKA,MEX, PHI
BRA (85%), EEC
                                                     
* Japan is able to support the CRO Chairman's reco mmendation, on the condition that its concerns set
out in document G/RO/W/74 are duly accommodated within the context of the discussions on the implications
of the HRO on other WTO Agreements towards the completion of the HWP.G/RO/52
Page 46
ISSUE NOS. 36, 66, 76, 100, 106, 121, 122, 123 & 124 (Ch. 1-24)
CRO Chairman's recommendation:  G/RO/W/64
No. 123:  Obtaining mixtures cl assified in Ch. 15 (Ch. 15)
Members not considering it a substantial transformation:
Option B:  No specific proposal (general residual rule)
Compromise proposal:  G/RO/W/64ARG, BRA, CAN,
CHE, GTM, HND,
IND, SGP
EEC, [NOR]
CRO Chairman's recommendation:  Deletion MEX, [NOR]
No. 124:  Obtaining mixtures classified in each of the subheadings of
heading 1901 (of Chapter 18) from mat erials classified in each of those
same subheadings
Members considering it a substantial transformation:
Option A:  No specific proposalMembers not considering it a substantial transformation:
Option B:  No specific proposal (general residual rule)
Compromise proposal:  G/RO/W/64CAN
ARG, BRA, EGY,
GTM, HON, IND
EEC
CRO Chairman's recommendation:  Deletion MEX
No. 125:  Obtaining mixtures of tobacco (2401 and 2403)
Members considering it a substantial transformation:
Option A:  Chapter Note
For the purposes of headings 24.01 and 24.03, any deliberate and
proportionally controlled mixing or blending of tobacco resulting in a
product with a determined composition confers origin
Members not considering it a substantial transformation:
Option B:  No specific proposal (general residual rule)
Compromise proposal:  G/RO/W/64ARG, EGY, JPN,
NZL, SEN
CAN, GTM, HND,
IND
EEC
CRO Chairman's recommendation:  Deletion MEXG/RO/52
Page 47
CRUSHING/GRINDING OF SPICES
ISSUE NO. 35 (Ch. 1-24) HS 0904.12,
ex0904.20(a),
ex 0905(a),ex0906.20,
ex 0907(a),
ex0908(a),
ex 0909(a),
ex0910.10(b),
ex 1211(b)
Description of production process:Input:  Spices
Output:  Crushed or ground spicesRelated issues:
Considerations:
Members considering it a substantial transformation:
Option A:  CTSH/CTSHS/CTHS
For spices of Chapter 9, crushing and/or grinding are considered to reflect the
last substantial transformation. They change the character of the goods by :
- Increasing their surface area, thereby enhancing the transfer of
flavouring agents to the product to be flavoured;
- Releasing essential oils that are inside the seed or leaf, making these
flavouring ingredients more easily available and more intense; and
- Creating a form of the seasoning that can be precisely measured for
dispensing during cooking.
The same changes are obtained when crushing and/or grinding plants or parts
of plants (including seeds and fruits) of a kind used primarily in perfumery, in
pharmacy or for insecticidal, fungicidal or similar purposes, fresh or dried,whether or not cut.
The process therefore substantially changes those products into a new and
different product.  Consequently, the origin of these products is the country
where the crushing and/or grinding takes place.ARG, CAN, GTM,
SGP, USA
Members not considering it a substantial transformation:
Option B:  The country of origin of this [split sub]heading shall be the
country in which the plant grew
Crushing and/or grinding are not substantial transformations.  All the
characteristics of the spices of Chapter 9 or of the above-mentioned plants andparts of plants are determined when they are growing.  Crushing and/or
grinding merely release properties already present in those products.
Consequently, the origin is the country where the plants grew.BRA, CHE, CHI,
COL, DOM, EEC,EGY, HND, IND,
JPN, KOR, LKA,
MEX, MOR, NOR,
NZL, PHL, VEN
CRO Chairman's recommendation:  Option BG/RO/52
Page 48
PRODUCTION OF CEMENT FROM CLINKER
ISSUE NO. 1 (Ch. 25-27) HS 2523.21-
2523.29
Description of production process:Input:  Clinker
Output:  CementProcess:  Clinker is processed through grinding into cement
Considerations:
Members considering it a substantial transformation:
Option A:  CTSH
Characteristics of clinkers and cement:  Cement and clinkers are two different
articles of commerce with different character and properties, uses and name.
Clinkers are obtained from firing limestone containing a suitable proportion ofclay.  Clinkers consist mainly of calcium silicates in pebble form.  The clinkers
cannot be used as a building material unless transformed into cement.  They do
not have the same bonding effect as cement when mixed with fine and coarse
aggregates to produce concrete for use in construction.  Cement, on the other
hand, has to meet certain specifications like minimum fineness of 225 m²/kg
and minimum compressive strength in order to be used in concrete work.
Various types of cement can be produced from the same clinkers.  To obtaincement from clinkers, the clinkers have to be ground to higher fineness and
interground ingredients and additives are introduced during the grinding
process.  It is considered that it is the fact of a new product and not the process
which determines that a substantial transformation has occurred.[CZE], EEC, MUS,
NZL, PHL
Members not considering it a substantial transformation:
Option B:  CTH
Production of cement from clinker is a “simple” process.  It is merely ground
to reduce the size of clinkers to cement.  Grinding alone is not considered a
substantial transformation.  It was noted that the HS subheading explanatorynote defines “Portland cement”  as “cement obtained by grinding Portland
clinker with the possible addition of a small quantity of calcium sulphate” and
that it might be necessary to define supplementary criteria to qualify the rule in
order to separate “simple” grinding.AUS, CAN, CHL,
[CZE], EGY,[GTM], IND, JPN,
MEX, USA
Mixture rule proposed by Australia:
The origin of cement produced thro ugh the deliberate and proportionally
controlled mixture of unmixed clinker of different origins, or of unmixed
clinker of different origins with addi tives like gypsum and limestone and
other additives, shall be the country of  origin of the greatest proportion of
clinker by weight of the total clinker in the cementAUS, [USA]G/RO/52
Page 49
ISSUE NO. 1 (Ch. 25-27) HS 2523.21-
2523.29
Australia continues to support Option B – that the country of origin of any
types of cement  (including both OPC and blended cements) is the country of
origin of the clinker.  Discussion of and reasons for this support follow:
• In some cases, there is likely to be a mixture of clinker of different
origins, in which case a second rule will need to be applied.  The Australianview is to apply a ‘mixtures’ rule that determines the country of origin of the
cement based on the country of origin of at least 50% by weight of the total
clinker in the cement (as opposed to the total weight of the cement – see below
for ‘value-added’ discussion).
• In the event that this mixture criterion for clinker origin cannot be met
(i.e., the origin of no single clinker component in the cement is greater than
50%), then the country of origin should be assigned based on the country from
which the greatest quantity of clinker was sourced, rather than the country of
mixing.
Origin based on clinker vs. all inputs to cement
• The value-added component in cement is clinker.
• Grinding of clinker and addition of other components such as gypsum,
mineral additions, and SCMs are not regarded as significant value-addingsteps; nor does the transformation process of grinding and blending of clinker
and the other additions change the chemistry of the clinker component.
• On this basis Australia argues that there is no basis for a ‘mixtures
rule’ that takes account of these various additions to the ground clinker.
However, there is a need for a ‘mixtures rule’ to deal with cement
made by combining clinker from more than one country:
• The ‘Mixtures rule’ currently under consideration proposes a
threshold of 75% for clinker from a single source, and in default, the country
of origin is the country of mixing.
• Australia argues for a ‘mixtures rule’ that sets a 50% threshold for
clinker from a single source and a default provision that determines the
country of origin being that from where the greatest proportion of clinker (tothe total weight of clinker) is sourced.
• It will be important for the mixing rule to be clear that the threshold
applies to a percentage of the total clinker component (by weight), and not of
the total cement (by weight).G/RO/52
Page 50
ISSUE NO. 1 (Ch. 25-27) HS 2523.21-
2523.29
Reasons for Australian position
At present, the non-clinker component in OPC can be as high as 15%
by weight – and there is no guarantee that the cement standards won’t change
in the future to allow for a higher figure for non-clinker component.  This
means that a ‘mixtures rule’ with a 75% threshold for clinker will be relatively
easy to circumvent through the inclusion of clinker from a second country, and
potentially in the future through the addition of more non-clinker material.  In
either situation, the mechanism in the ‘mixtures rule’ to handle cases which do
not reach the threshold, becomes critical.
Australia believes a 50% threshold would be more workable, in the
sense that it would still provide recognition for the value-adding componentand that the default would not be as easily triggered (as it would under a higher
threshold).
In the case of ‘Blended Cements’, inclusion of all components will lead to the
same problems in relation to a very significant proportion of the blended
cement market, unless the clinker threshold is reduced from 75% to 50% and
the threshold applies to the clinker content only (by weight) and not the total
cement (by weight).
CRO Chairman's recommendation:  CTH; orCTSH provided Chapter Note X is satisfied
Chapter Note X:The production of cement through the  deliberate and proportionally
controlled mixture of unmixed clinker of not more than[75%] by weight of
the total weight of the finished good with additives like gypsum and
limestone and other additives is origin conferringARG, BRA, CHE,
COL, KORG/RO/52
Page 51
MIXING AND BLENDING OF PETROLEUM PRODUCTS
ISSUE NO. 8 (Ch. 25-27) HS 2707, 2710-
2715
Description of production process:Input:  Petroleum products
Output:  Mixed or blended petroleum products
Considerations:
Option A:
Chapter Note 3(a)
[For the purposes of headings 2707and 2710 to 2715, the deliberate andproportionally controlled mixing or blending (including dispersing) of
materials to conform to predetermined specifications which results in the
production of a good having physical, chemical characteristics which are
relevant to the purposes or uses of the good and are different from the
input materials is to be considered to be origin conferring.]
Option B:
Chapter Note 3(b)
[Goods of headings 27.07 or 27.10 that have been blended to conform to
specific predetermined physical specifications, which are different from
the specifications of  the input materials, are deemed to be goods of the
country where the blending occurred, provided that not more than [70]
per cent by volume of the product is  composed of blending components
originating from a single country other than the country where the
blending occurred.]BRA, CAN, CHE,
CHL, COL, EEC,
EGY, IND, JPN,KOR, MEX, PHL,
SGP
USA
CRO Chairman's recommendation:  Option AG/RO/52
Page 52
CHEMICALS:  INCREASE IN PARTICLE SIZE
ISSUE NO. 4 (Ch. 28-40) Chs. 28-30, 32, 38,
39
Description of production process:Input:  Chemicals in dust form
Output:  Chemicals with increased particle sizeProcess:  Chemicals in dust form are processed through granulation,
pelletizing, extrusion, rotoforming, pril ling and/or flaking into chemicals with
increased particle size
Considerations:
Members considering it a substantial transformation:
Option A:  Chapter rule:  The deliberate and controlled [modification] in
particle size of a good, other than by merely crushing [or pressing,]
resulting in a good having a defined particle size, defined particle sizedistribution or defined surface area, which are relevant to the purposes of
the resulting good and have different physical or chemical characteristics
from the input materials is considered to be origin conferring.
Crude solid chemicals from synthesis are normally in the form of powders
with a very broad particle size distribution. In this form, they generally cannot
be used by the processing industry, as they also contain very small particles(below 50 microns) behaving as dust. Products with intrinsically valuable
chemical characteristics, but being prevented from their use by detrimental
(mean) particle size, particle size distribution or surface area can be physically
modified into valuable products, by the controlled increase of particle size.
Such increase of particle size represents a substantial transformation, whichshould confer origin.AUS, BRA, CHE,
NZL, SGP
Members not considering it a substantial transformation:
Option B:  This Chapter Note is not needed
The production of chemical goods having increased particle size  is a finishing
operation performed for ease of handling resulting in no changes in essential
chemical characteristics.CAN, EEC, EGY,
JPN, MEX, PHL,
THA, USA
CRO Chairman's recommendation: For Chapter 30:  reduction of
particle size only
For Chapters 28, 29, 32, 38 and 39:  the Chapter rule is not neededINDG/RO/52
Page 53
CHEMICALS:  ADDITION OF DILUENTS
ISSUE NO. 5 (Ch. 28-40) Chs. 30-35, 37-40
Description of production process:
Input:  Chemicals
Output:  Diluted chemicalsRelated issue:  24
Considerations:
Members considering it a substantial transformation:
Option A:  Exclusion of the words "[ other than the addition of diluents
only]" from Notes of Chapters 30-35 and 37-40
Note 2 of Chapter 32(a):
The deliberate and proportionally controlled mixing or blending (including
dispersing) of materials [other than the addition of diluents only] to conform topredetermined specifications which results in the production of a good having
physical or chemical characteristics which are relevant to the purposes or uses
of the good and are different from the input materials is to be considered to be
origin conferring.
Note 1 of Chapter 33:
For the purposes of headings 33.02, 33.04, 33.05, 33.06 and 33.07, the
deliberate and proportionally controlled mixing or blending (including
dispersing) of materials [other than the addition of diluents only] to conform to
predetermined specifications which results in the production of a good having
physical or chemical characteristics which are relevant to the purposes or usesof the good and are different from the input materials is to be considered to be
origin conferring. However, the mere addition of the goods of headings 33.01
or 33.02 to the goods of other headings of this Chapter should not be
considered as producing a good having physical or chemical characteristics
which are relevant to the purposes or uses of the good under this Chapter.
The addition of a diluent alone to a chemical or a pre-mix, in deliberate and
proportionally controlled conditions, may constitute the critical aspect of a
mixing and blending operation and can result in physical or chemical
characteristics relevant to the purposes or uses of the good which are differentfrom those of the input materials.  In many instances, the addition of a non-
active substance to pure chemicals or pre-mixes containing active substances is
crucial in the overall manufacturing process to achieve the required physical
and chemical characteristics for the product.CHE, EECG/RO/52
Page 54
ISSUE NO. 5 (Ch. 28-40) Chs. 30-35, 37-40
Members not considering it a substantial transformation:
Option B:  Inclusion of the words "other than the addition of diluents
only" in Notes of Chapters 30-35 and 37-40
Dilution alone, which might include the addition of liquids or solids, does
nothing to change the essential character of the primary input materials, but
merely serves to put them into a less concentrated state.  The performance
characteristics of the primary materials are established before dilution, which
serves the purpose merely of facilitating usage but does not create new goods.ARG, AUS, BRA,
CAN, IND, JPN,
LKA, MEX, PHL,
SGP, THA, USA
CRO Chairman's recommendation:  Option BG/RO/52
Page 55
CHEMICALS:  PUTTING UP OF MEDICAMENTS INTO MEASURED DOSES
ISSUE NO. 2 (Ch. 28-40) HS 3004
Description of production process:
Input:  Medicaments
Output:  Medicaments in measured dosesRelated issues: 1
and 3
Considerations:
Members considering it a substantial transformation:
Option A:  CTH
The production of tablets, capsules, granules, or other administrable forms of
medicaments, such as in diffusion, dissolution, osmotic and other systems, are
highly complex operations performed under controlled conditions which result
in new products which have been substantially transformed.AUS, CHE, CHL,
COL, HKC, IND,
JPN, PHL
Members not considering it a substantial transformation:
Option B:  [CTH, except from headin g 30.03;  or except when this change
results from putting up in measured doses of unmixed products of other
headings;  or change from heading when this change results from a
mixing operation][CTH except when the change results from putting up in measured doses
or for retail sale]
Changes between the relevant tariff headings, from the mixed medicaments of
heading 30.03 to mixed medicaments in dosage form of heading 30.04, can
take place as a result of simple dosaging operations alone.BRA, CAN, EEC,
EGY, MEX, USA
CRO Chairman's recommendation:  CTH, except by mere pressing of
tablets or by mere encapsulationG/RO/52
Page 56
LEATHER:  RETANNING OF LEATHER
ISSUE NO. 6 (Ch. 41-43) HS ex4104(c)-
ex4107(c)
Description of production process:Input:  Tanned leather
Output:  Retanned leather
Considerations:
Members considering it a substantial transformation:
Option A:  CTHSAUS, BRA, COL,
EEC, EGY, GTM,
KOR, NZL, PHI,THA, VEN
CRO Chairman's recommendation:  Compromise proposal for Issue Nos.
6 and 7, headings 4104 through 4107, based on the following example for
heading 4104:
4104 – Leather of bovine or equine animals
Provisionally prepared – CTH except from heading 4101Tanned, in the wet state – CTHS
Other – CTHS
The definition of "retanned" and "finished leather" and perhaps "tanned
leather" could be droppedARG, CAN, CHE,
IND, JPN, MEX,
USAG/RO/52
Page 57
LEATHER:  FINISHING OF LEATHER
ISSUE NO. 7 (Ch. 41-43) HS ex4104(d)-
ex4107(d)
Description of production process:Input:  Unfinished leather
Output:  Finished leatherProcess:  Unfinished leather is proce ssed through dyeing, graining, stamping,
sizing, polishing, waxing, etc. into finished leather
Considerations:
Members considering it a substantial transformation:
Option A:  CTHSEEC, NZL, PHL,
THA
Members considering it a substantial transformation, except from retanned
leather:
Option C:  CTHS except from ex4104(c)-ex4107(c)BRA, COL, EGY,
GTM, VEN
Members considering it a substantial transformation, except from tanned or
retanned leather:
Option D:  CTHS except from ex4104(b) or (c)-ex4107(b) or (c)CHL, KOR, PAK
CRO Chairman's recommendation:  Compromise proposal for Issue Nos.
6 and 7, headings 4104 through 4107, based on the following example for
heading 4104:
4104 – Leather of bovine or equine animalsProvisionally prepared – CTH except from heading 4101
Tanned, in the wet state – CTHS
Other – CTHS
The definition of "retanned" and "finished leather" and perhaps "tanned
leather" could be droppedARG, CAN, CHE,
IND, JPN, MEX,
USA
AUS (CTHS, atleast 3 operations
must occur for
origin to be
conferred)G/RO/52
Page 58
TEXTILES:  DYEING OR PRINTING OF YARN
ISSUE NOS. 12 & 13 (Ch. 50-63) Chs. 50-63
Description of production process:
Input:  Yarn
Output:  Dyed or printed yarn
Considerations:
Members considering it a substantial transformation:
Option A/1:  Permanent dyeing or printing
Permanent dyeing or printing alone can be considered as substantial
transformation because the dyed or printed good is often used as a finished
product without being subjected to any other processes.
Option A/3:  Permanent dyeing or printing from unbleached or
prebleached yarn with at least two preparatory or finishing operations
Permanent dyeing or printing from unbleached or prebleached yarn with at
least two preparatory or finishing operations is a substantial transformation.
Permanent dyeing or printing substantially transforms uncoloured yarn into
coloured yarn.  Dyeing not only adds great value to the yarn but also
transforms the good into a distinct and different commercial product withdifferent uses.  The resulting product has new characteristics and qualities.
This process permanently change the grey yarn by imparting new
characteristics and permanently giving colour or pattern to the yarns, which
gives them final appearance.IND
AUS, CHE, CHN,
EEC, EGY, KOR,
MOR, NOR, NZ,
PHL, SVN, TUR
(50% value
addition), VEN
Members not considering it a substantial transformation:
Option B:  Deletion of the splits
Neither dyeing alone nor dyeing and printing together result in a substantial
transformation. A yarn of one country that is dyed and/or printed in another
country should not be considered to originate in the latter country.ARG, BRA, CAN,
COL, GTM, HND,JPN, MEX, THA,
USA
CRO Chairman's recommendation:  Option A/3G/RO/52
Page 59
DYEING OR PRINTING OF FABRICS
ISSUE NOS. 12 & 13 (Ch. 50-63) Chs. 50-63
Description of production process:
Input:  Fabrics
Output:  Dyed or printed fabrics
Considerations:
Members considering it a substantial transformation:
Option A/1:  Permanent dyeing or printing
Permanent dyeing or printing alone can be considered as substantial
transformation because the dyed or printed good is often used as a finished
product without being subjected to any other processes.
Option A/2:  Permanent dyeing or printing from unbleached or
prebleached fabrics with at least tw o preparatory or finishing operations
Dyeing or printing substantially transforms an uncoloured or dyed fabric
(textile article) into an attractive beautifully designed fabric (textile article).
The resultant product becomes commercially distinct and is put to different
and specific uses.  The resulting product has new characteristics and qualities.
The said operations actually transform a raw material, such as a raw fabric(textile article), unusable as it stands, into a fabric that can undergo subsequent
transformations such as making-up.  These processes permanently change the
grey fabric (textile article) by imparting new characteristics and permanently
giving colour or pattern to the fabrics (textile article), which gives them final
appearance.  Permanent printing from unbleached or prebleached fabrics withat least two preparatory or finishing operations is a substantial transformation.
In the case of thermo-printing, which consists of applying motifs using thermal
processes, printing should be accompanied by impregnation of the transfer
paper to be considered a substantial transformation.
Option A/3:  Dyeing or printing plus at least one other preparatory or
finishing operation
Dyeing or printing, accompanied by at least one preparatory or finishing
operation, is considered substantial transformation for finished fabrics.
Option A/5:  Permanent dyeing and printing with at least two preparatory
or finishing operations
Dyeing or printing alone do not result in a substantial transformation.  Goods
must be both dyed and printed, accompanied by at least two preparatory or
finishing operations.  Both operations are necessary to achieve a substantial
transformation and are normal processes in industry.IND, SGP
AUS, CHE, CHN,
EEC, EGY, KOR,
MOR, NOR, NZL,
PAK, PHL, SVN,
TUR, VEN
HKC, MYS
JPNG/RO/52
Page 60
ISSUE NOS. 12 & 13 (Ch. 50-63) Chs. 50-63
Option A/6:  Dyeing and printing plus two or more of the following
finishing operations:  bleaching, sh rinking, fulling, napping, decating,
permanent stiffening, weighting, permanent embossing or moireing
Neither dyeing nor printing alone nor dyeing and printing together result in a
substantial transformation.  A fabric of one country that is dyed and/or printedin another country should not be considered to originate in the latter country.USA
Members not considering it a substantial transformation:
Option B:  Deletion of the splitsARG, BRA, CAN,
COL, GTM, HND,
MEX, THA
CRO Chairman's recommendation:  Option A/2G/RO/52
Page 61
TEXTILES:  COATING OF FABRICS
ISSUE NO. 37 (Ch. 50-63) HS 5901, 5903,
5906, 5907
Description of production process:Input:  Fabrics
Output:  Coated fabrics with rubber or plastics
Considerations:
Members considering it a substantial transformation:
Option A:  CTHARG, AUS, BRA,
CAN (for HS 5901
and 5906), CHE,CHN, CHI, COL,
DOM, EEC, EGY,
HKG, HND, KOR,
IND (30% value
addition), JPN,MOR, NOR, PAK,
PHL, SEN, SGP,
SVN, THA, TUR,
VEN
Members not considering it a substantial transformation:
Option E:  CTH, except from headings of fabricsCAN (for HS 5903
and 5907), GTM,MEX, USA
Compromise proposal:  CTH, provided the weight of rubber or plastics of
this good is more than [50]% of  the weight of the productUSA
CRO Chairman's recommendation:  Option AG/RO/52
Page 62
EMBROIDERY:  IN THE PIECE WITH VISIBLE GROUND TEXTILE FABRIC
ISSUE NO. 35 (Ch. 50-63) HS 5810
Description of production process:
Input:  Fabric
Output:  Embroidery in the piece with visible ground
Considerations:
Members considering it a substantial transformation:
Option B:  Change to this headin g if the value of non-originating
materials does not exceed 50% of the ex-works price of the product
Option C/1:  Weight of embroidery exceeds 25% of the total weight of
ground fabric and there is no unembroidered area greater than 7 cm. x 7
cm.
Option C/3:  Distance between the edge of plain fabric and the
embroidery pattern, or between patterns is not more than 80 cm.ARG, AUS, BRA,
CHE, COL, EEC,EGY, GTM, HND,
IND (30% value-
added), LKA, MOR,
NOR, NZL, PHL
([x]%), SVN, TUR,VEN
MEX, THA
CAN, JPN, PAK,
USA (30 cm.)
CRO Chairman's recommendation:  Option BG/RO/52
Page 63
EMBROIDERY:  OF FLAT PRODUCTS
ISSUE NO. 47 (Ch. 50-63) ex Chapter 61(d),
ex Chapter 62(c)
Description of production process:Input:  Fabric
Output:  Embroidered flat products
Considerations:
Members considering it a substantial transformation:
Option B:  Change to goods of this split chapter from unembroideredfabric if the value of non-originating materials used does not exceed  50%
of the ex-work price of the product
Option C:  The country of origin of this split chapter shall be the country
of embroidery provided that there is no unembroidered surface greater
than 25 cm. x 25 cm.
Members not considering it a substantial transformation:
Option D:  The country of origin of this split chapter shall be the country
of origin of the fabric, provided that the fabric was produced from yarn
or fibre[ARG], AUS, BRA,
CHE, COL, EEC,
EGY, HND, IND
(30% value
addition), KOR,
LKA, MAR, NZL,PAK, PHL, SVN,
TUR, VEN
THA
CAN, JPN, MEX,
USA
CRO Chairman's recommendation:  Option BG/RO/52
Page 64
EMBROIDERY:  OF TEXTILE ARTICLES OF CH. 63 OTHER THAN FROM FELT OR
NON-WOVEN FABRIC
ISSUE NO. 58 (Ch. 50-63) Chs. 6301-6307
Description of production process:
Input:  Fabric
Output:  Embroidered textile articles of Ch. 63 other than felt or non-wovenfabric
Considerations:
Members considering it a substantial transformation:
Option B:  Change to this split he ading from yarn of any other heading
(for knitted or crocheted textile articles);  or change to this split heading
from unembroidered fabrics, if the value of non-originating materials
does not exceed 40% of the ex-works price of the product (for woven
textile articles)
Members not considering it a substantial transformation:
Option C:  Deletion of the splitsEEC, IND (30%
value addition),
PHL ([x]%), TUR
ARG, AUS, BRA,
CAN, CHE, COL,
EGY, GTM, HND,
IDN, JPN, MEX,MAR, MYS, NOR,
PAK, THA, VEN,
USA
CRO Chairman's recommendation:  Option BG/RO/52
Page 65
TEXTILES:  ASSEMBLY OF APPAREL FROM PARTS KNITTED TO SHAPE
ISSUE NO. 45 (Ch. 50-63) ex Ch. 61(b)
Description of production process:
Input:  Parts knitted or crocheted to shape
Output:  Apparel
Process:  Parts knitted or crocheted to shape are processed through assemblinginto apparel
Considerations:
Members considering it a substantial transformation:
Option A/1:  Change to goods of this  split chapter provided that the goods
are assembled in a single country in accordance with Chapter Note
(option 1)
Option A/2:  Change to this split chapter in accordance with Chapter Note
(option 5)CHE, EEC, KOR,
MYS, NOR, PHL,
TUR
IND
Members not considering it a substantial transformation:
Option B/1:  The country of origin of the goods of this split chapter is the
country in which the parts of these goods have been knitted or crocheted
to shape
Option B/2:  CC provided that the parts of these goods are both knitted or
crocheted to shape and sewn or ot herwise assembled in the country
claiming origin in accordance  with Chapter Note (option 1)ARG, AUS, BRA,
CAN, CHN, EGY,
GTM, HND, JPN,
MEX, NZL,THA,
TPKM, URY, USA,
VEN
PAK (option 3)
CRO Chairman's recommendation:  Option A/1G/RO/52
Page 66
TEXTILES:  ASSEMBLY OF APPAREL FROM PARTS CUT TO SHAPE
ISSUE NO. 46 (Ch. 50-63) ex Ch. 61(c), ex Ch.
62(a)
Description of production process:Input:  Parts cut to shape
Output:  ApparelProcess:  Parts cut to shape are processed through assembling into apparel
Considerations:
Members considering it a substantial transformation:
Option A/1:  Change to goods of this  split chapter provided that the goods
are assembled in a single country in accordance with Chapter Note
(option 1)ARG, AUS, BRA,
CAN, CHE, CHN,EEC, EGY, GTM,
HND, IND, JPN,
KOR, MEX, MYS,
NOR, NZL, PHL,
THA, TPKM, TUR,URY, USA, VEN
Members not considering it a substantial transformation:
Option B:  CC provided that the parts of these goods are cut to shape and
sewn or otherwise assembled in the country claiming origin in accordance
with Chapter Note (option 1)EGY, PAK (option
3)
CRO Chairman's recommendation:  Option A/1G/RO/52
Page 67
TEXTILES:  ASSEMBLY OF CLOTHING ACCESSORIES FROM PARTS KNITTED TO
SHAPE
ISSUE NO. 49 (Ch. 50-63) ex Ch. 61(f)
Description of production process:
Input:  Parts knitted or crocheted to shape
Output:  Ties, gloves etc.Process:  Parts knitted or crocheted to shape are processed through assembling
into clothing accessories
Considerations:
Members considering it a substantial transformation:
Option A/1:  Change to goods of this  split chapter provided that the goods
are assembled in a single country in accordance with Chapter Note
(option 1)
Option A/2:  Change to this split chapter in accordance with Chapter Note
(option 5)EEC, MYS, NOR,
NZL, SVN, TUR
IND
Members not considering it a substantial transformation:
Option B1:  The country of origin of the goods of this split chapter is the
country in which the parts of these goods have been knitted or crochetedto shape
Option B1:  CC provided that the parts of these goods are both knitted or
crocheted to shape and sewn or ot herwise assembled in the country
claiming origin in accordance  with Chapter Note (option 1)ARG, AUS, BRA,
CAN, CHE, CHN,COL, EGY, GTM,
HND, JPN, KOR,
MEX, PHL, THA,
TPKM, URY, USA,
VEN
PAK (option 3)
CRO Chairman's recommendation:  Option B/1G/RO/52
Page 68
TEXTILES:  ASSEMBLY OF CLOTHING ACCESSORIES FROM PARTS CUT TO SHAPE
ISSUE NO. 50 (Ch. 50-63) ex Ch. 61(g), ex Ch.
62(e)
Description of production process:Input:  Parts cut to shape
Output:  Ties, headbands etc.Process:  Parts cut to shape are processed through assembling into clothing
accessories
Considerations:
Members considering it a substantial transformation:
Option A/1:  Change to goods of this  split chapter provided that the goods
are assembled in a single country in accordance with Chapter Note
(option 1)ARG, AUS, BRA,
CAN, CHE, CHN,
COL, EEC, GTM,
HND, IND, JPN,
KOR, MEX, MYS,
NOR, NZL, PHL,THA, TPKM, TUR,
URY, USA, VEN
Members not considering it a substantial transformation:
Option B:  CC provided that the parts of these goods are cut to shape and
sewn or otherwise assembled in the country claiming origin in accordancewith Chapter Note (option 1)EGY, PAK (option
3)
CRO Chairman's recommendation:  Option A/1G/RO/52
Page 69
TEXTILES:  FLAT PRODUCTS
ISSUE NOS. 48, 55, 59, 61, 62 and 69 (Ch. 50-63) Ch. ex61(e), exCh.
62(d), HS 6301-
6304, 6307
Description of production process:Input:  FabricsOutput:  Flat products
Considerations:
Members considering it a substantial transformation:
Option A:  CTHCOL, IND, MAR,
MYS, PHL, VEN
Option B: - provided both cut or knitted to shape and assembled in the
same country (otherwise, origin is the country of fabric)
- for goods of knitted or crocheted material;  CTHS, provided the
change is attained by complete making-up
Members not considering it a substantial transformation:
Option C:  - origin;  the country of fabric
- for goods of felt or nonwovens;  CTH, except from 5602 and 5603
- for goods of woven fabric;  change to this split heading from yarn or
fibres  of any other heading[HKC]
EEC, TUR
ARG, BRA, CAN,
COL, EGY, GTM,
HND, JPN, KOR,
MEX, THA, USA
EEC, TUREEC, TUR
CRO Chairman's recommendation:  Compromise proposal:  CTH,
provided the starting material is prebleached or unbleached fabricAUS, CHE, IND,
NOR, NZL, PAKG/RO/52
Page 70
TEXTILES:  THREE-DIMENSIONAL GOODS
ISSUE NOS. 63-67, 71 (Ch. 50-63) HS 6305, 6306,
6307.90
Description of production process:Input:  Fabrics
Output:  Three-dimensional goods
Considerations:
Members considering it a substantial transformation:
Option A:  CTHCHE, IDN, KOR,
MAR, MYS, PAK,
VEN
Option B: - provided both cut or knitted to shape and assembled in thesame country (otherwise, origin is the country of fabric)
- for goods of knitted or crocheted material;  CTHS, provided the
change is attained by complete making-up
-  CTH, except when resulting fr om either/both cutting to shape,
or/and being hemmed or with rolled edges or with knotted fringes at
any of the edges
Members not considering it a substantial transformation:
Option C:  - origin;  the country of fabric
- for goods of felt or nonwovens;  CTH, except from 5602 and 5603
- for goods of woven fabric;  change to this split heading from yarn or
fibres  of any other heading[HKC]
EEC, TURAUS, JPN, NZL
ARG, [BRA], CAN,
COL, EGY, GTM,
HND, MEX, [USA]
EEC, TUR
EEC, TUR
Compromise proposal:  CTH, provided the starting material is
prebleached or unbleached fabricIND
CRO Chairman's recommendation:  Option AG/RO/52
Page 71
TEXTILES RESIDUAL ASSEMBLY RULES
ISSUE NOS. 75 & 77 (Ch. 50-63) Chs. 50-63
Description of production process:
Considerations:
No. 75:  Need for chapter residual rules for assembly of apparel from
parts
Members supporting the residual Rule for Chapters 61 and 62 (No. 75):
Option A:
1.  Where the primary rule for a good assembled from parts requires
that the good be wholly assembled in a single country, the country of
origin of such a good that was not wholly assembled in a single country,
is the country in which the most significant assembly operations wereperformed in the making-up of the good, without regard to the addition
of buttons and other fasteners, belt and hanger loops, belts, patch
pockets, labels, foot straps, epaulettes, ornaments and other minor
components.
2.  The country of origin of other goods of this Chapter shall be the
country where the textile fabric or knit-to-shape components wasformed, or in the case of a good containing textile fabrics or knit-to-
shape component of more than one coun try, the origin of the good is the
country in which the textile fabric or knit-to-shape component that
predominates by weight was formed.
Alternative rule proposed:
When application of the primary rules of Chapters 61 and 62 (including
the product specific rules provided in the matrix) do not result in a
determination of a country of origin, the country of origin shall be
determined as follows :
Where the primary rule for a good assembled from parts requires that
the good be wholly assembled in a single country, the country of origin
of such a good that was not wholly assembled in a single country, is the
country in which the most sign ificant assembly operations were
performed in the making-up of the good, without regard to:
- attaching and/or making up of the following, for example: buttons
and other fasteners, patch pockets, foot straps, trimmings, ornaments,
cuffs, plackets, belt loops, epaulettes, labels, collars, lining, padding,
pockets other than patch pockets, waistbands, garment accessories,facings, self belts, pleats;
- making button holes, hemming, pressing, stone or acid washing.BRA, MEX,
[PHL
*], THA, USA
HKC, [PHL*], VEN
Members not supporting the residual Chapter Rule: CAN, CHE, EEC,
EGY, HND, IND,
JPN
                                                     
* Reservation and flexibility.G/RO/52
Page 72
ISSUE NOS. 75 & 77 (Ch. 50-63) Chs. 50-63
No. 77: Need for chapter residual rules for goods of HS Section XI
(textiles and textiles articles) and textile-related goods of other HS
Chapters
Members supporting the residual rule for Chapter 63:
Option A:
The country of origin of goods of this Chapter shall be the country
where the textile fabric was formed, or in the case of a good containing
textile fabrics of more than one coun try,  the origin of the good is the
country in which the textile fabric that predominates by weight was
formed.BRA, [PHL*], THA,
USA, VEN
Members not supporting the residual Chapter Rules:
Option B:  Deletion of the residual ruleCAN, CHE, EGY,
HND, IND, JPN
CRO Chairman's recommendation
                                                     
* Reservation and flexibility.G/RO/52
Page 73
FOOTWEAR:  PRODUCTION OF FOOTWEAR FROM FORMED UPPERS
ISSUE NO. 12 (Ch. 64-67) HS 6401-6405
Description of production process:
Input:  Uppers
Output:  FootwearRelated issues:  9,
11, 13 & 14
Considerations:
Members considering it a substantial transformation:
Option A:  CTH
Option C/2:  CTH, except from formed uppers of heading 6406Option C/3:  CTH, except from any upper classified in 6406.10 (for
footwear manufactured through a st ring lasting method);  and CTH,
except from formed uppers classified in 6406.10 (for other footwear)IND, JPN, MAR,
THA
ARG, EGY, GTM,
VEN
MEX
CRO Chairman's recommendation:  CTH, except from ex6406(a) (uppers
to which an inner sole is permanen tly attached which completely closes
the bottom)AUS, BRA, CAN,
CHE, EEC, HK,
KOR, NOR, NZL,
[PHL*], USA
                                                     
* Reservation and flexibility.G/RO/52
Page 74
FOOTWEAR:  PRODUCTION OF UPPERS AND PARTS THEREOF
ISSUE NO. 9 (Ch. 64-67) HS 6406.10
Description of production process:
Considerations:
Option A:
-  ex 6406.10(a) – formed uppers:  CTH
-  ex 6046.10(b) – uppers other than formed uppers:  CTH
-  ex 6406.10(c) – parts of uppers:  CTHEGY, GTM, IND,
JPN, MEX, MAR,
THA, VEN
CRO Chairman's recommendation:  -  ex 6406(a) (uppers to which aninner sole is permanently attached which completely closes the bottom):
CTHS-  ex 6406(b) (other):  CTHS
-  ex 6406(c) (parts of uppers):  CTHAUS, BRA, CAN,
CHE, EEC, HKC,
KOR, NOR, NZL,[PHL
*], USA
                                                     
* Reservation and flexibility.G/RO/52
Page 75
FOOTWEAR:  DEFINITION OF FORMED UPPERS
ISSUE NO. 11 (Ch. 64-67) Ch. 64
Description of production process:
Considerations:
Option A:
Uppers of heading 64.06 having closed bottoms, which have been shaped
by lasting, moulding or otherwise, but not by simple closing at the bottom
Option C:  Definition is not neededMEX, VEN
AUS, BRA, CAN,
CHE, EEC, EGY,
HKC, HND, IND,
JPN, NOR, PHL,
USA
CRO Chairman's recommendation:  DeletionG/RO/52
Page 76
FOOTWEAR:  DEFINITION OF UNFORMED UPPERS
ISSUE NO. 13 (Ch. 64-67) HS 6401-6405
Description of production process:
Input:  Unformed uppers
Output:  Footwear
Considerations:
Members considering it a substantial transformation:
Option A:
-  CTH
-  CTH, except from formed uppers of heading 6406-  CTH, except from formed uppers classified in 6406.10 (for footwear not
manufactured through a string method)
Option C:
-  CTH, except from any upper classified in subheading 6406.10IND, JPN, MAR,
THA
ARG, EGY, GTM,
VEN
MEX
MEX
CRO Chairman's recommendation:  -  ex 6406(a) (uppers to which an
inner sole is permanently attached which completely closes the bottom):
CTHS
-  ex 6406(b) (other):  CTHS
-  ex 6406(c) (parts of uppers):  CTHAUS, BRA, CAN,
CHE, EEC, HKC,
KOR, NOR, NZL,
[PHL*], USA
                                                     
* Reservation and flexibility.G/RO/52
Page 77
FOOTWEAR:  PRODUCTION OF FOOTWEAR FROM OTHER THAN UPPERS OF CH. 64
ISSUE NO. 14 (Ch. 64-67) HS 6401-6405
Description of production process:
Input:  Other than uppers
Output:  Footwear
Considerations:
Members considering it a substantial transformation:
Option A:
-  CTH
-  CTH, except from formed uppers of heading 6406
-  CTH, except from formed uppers classified in 6406.10 (for footwear not
manufactured through a string lasting method);  and CTH, except from
formed uppers classified in 6406.10 (for other footwear)IND, JPN, MAR,
THA
EGY
MEX
CRO Chairman's recommendation:  -  ex 6406(a) (uppers to which an
inner sole is permanently attached which completely closes the bottom):
CTHS-  ex 6406(b) (other):  CTHS
-  ex 6406(c) (parts of uppers):  CTHAUS, BRA, CAN,
CHE, EEC, KOR,
NOR, NZL, [PHL
*],
USA
                                                     
* Reservation and flexibility.G/RO/52
Page 78
COATING OF STEEL PRODUCTS
ISSUE NOS. 3(a), 3(c) and 5 HS ex72.10(b),
ex72.10(d),
ex72.12(b),ex72.16(d),
ex72.17(b),
ex72.25(d),
ex72.26(d),
ex72.28(e),
ex72.29(b),
ex73.03(a),ex73.05(a),
ex73.06(a),
ex73.06(b)
Description of production process:Input:  Steel products
Output:  Coated steel products with tin, zinc, etc.Related issue:
Chapter Note
Considerations:
Members considering it a substantial transformation:
Option A:  CTHS/CTH/CTH, or if the Note of this Chapter Note is met
The coating of hot-rolled products or galvanized steel is more than a process
involving a simple process of uncoiling the hot coil, sprinkling the spray,
painting and then recoiling.  It requires a multi-stage process which consisted
of pre-treatment, coating, baking and post-treatment.  The surface of the colour
steel has three layers – zinc coating, chromate coating and oil coating – whichcovered the base metal.  The coloured steel is considered a new product,
creating almost 100% of added value and is used for interior and exterior
decorations of buildings due to its high corrosion resistance and weatherproof
qualities, and also for electric home appliances such as refrigerators, air
conditioners, etc., for its attractive appearance.AUS, BRA, CAN,
CHE, DOM, EEC,
[EGY], IND, JPN,
KOR, NZL, PHL,SGP, VEN, USAG/RO/52
Page 79
Members not considering it a substantial transformation
Option B:  CTH, except from HS 7208, 7209/CTH (for HS ex7225(d),
ex7226(d), 7303-7306)
Coating or plating of steel, usually with zinc or other base metal, involves
dipping the finished product in the molten material or processing by
electrolytic means. The amount of material deposited is measured in microns.
The purpose of the operation is to provide a measure of corrosion resistance
to the steel, although in time the co ating may wear away. The process does
not change the steel in any other manner. It does not meaningfully affect its
malleability, tensile strength, or other characteristics or its dimensions.Therefore, no substantial transformation takes place as a result of the
process.
It is noted that cladding is considered origin-conferring. It is a process
involving the integration of 2 or more metals that results in a product with
significantly different strength and other metalurgical characteristics fromthe constituent input materials. It is also noted that the enamelling of
steel sinks and basins is not considered origin conferring.ARG, [EGY], MEX,
USA
CRO Chairman's recommendation:G/RO/52
Page 80
ASSEMBLY IN THE MACHINERY SECTOR
ISSUE NO. 1 (Ch. 84-90) Chs. 84-90
Description of production process:
Input:  Materials classified outside Chs. 84-90;  and parts of Chs. 84-90
Output:  Goods of Chs. 84-90;  and parts of Chs. 84-90Related issues: 14-
19, 21-32, 34, 35,
40-44, 46-50, 53-55,
57, 63, 64, 66, 67,70, 71 – 74A, 78,
79, 80-85
Considerations:
Option A:  assembly approach:
Proponents of  an assembly approach were of the view that the value-added
approach would be complicated, non-transparent and burdensome to
administer.  It would entail substantial cost of administration as well as
compliance.  Fluctuation of currency values would result in different originoutcomes for the same good produced by the same producer.  Differences in
costs of production likewise would lead to inconsistent origin outcomes even
applying the same rules to the same processes.AUS, CAN, CHE,
CHN, COL, HKC,
IND, JPN, MEX,
MAR, NZL, PHL,
SGP, THA, USA
Option B:  value-added approach:
Proponents of a value-added approach were of the view that value-added rules
were simple and trade facilitative, and widely used in the preferential trade
regime.  These proponents considered that alternative "assembly approach"
rules would be complicated and subject to technological changes.BRA, EEC, EGY
(for 85.28), TUR
(for Ch. 85)
CRO Chairman's recommendation: The proposed rules are outlined asfollows:
1. For parts produced from articles of other headings – CTH
2. For parts obtained from parts of the same heading - 5 part rule or 40%
value-added
3. For machines obtained from part s - CTH or CTSH, as appropriate
4. For machines ("goods") finished  from machines of the same
heading/subheading - 40% value-added
In addition, it was contemplated that  legal notes would be necessary in
order to give effect to the intention of the proposal.
The notes would address the following matters:A. Some limitations would be provided for CTH/CTSH rules where the
change of classification occurred as a result of simple encasement,
mounting to a base, etc.
B. "Minor" parts (to be defined), e.g. parts of general use, would not be
counted in the 5 parts rule.C. The value added rule would require manufacturing or processing to
take place for the rule to be applied.
D. Assembly of a machine from an unassembled collection of parts of the
same heading would be origin conferring.
E. Exceptions to the general sc heme would be considered when
circumstances required.
The following may serve as a draft guide to the rules:For machines - CTH, (or CTSH from pa rts), or change within the heading
or subheading provided 40% value-added is satisfied.CHEG/RO/52
Page 81
ISSUE NO. 1 (Ch. 84-90) Chs. 84-90
For parts – CTH or change within the heading or subheading provided
the 5 part rule or 40% value-added rule are satisfied.G/RO/52
Page 82
ELECTRONICS:  ASSEMBLY OF MEMORY MODULES
ISSUE NO. 33 (Ch. 84-90) HS 8473.30(b)
Description of production process:
Input:  Electronic integrated circuits or micro-assemblies
Output:  Memory modules
Considerations:
Members considering it a substantial transformation:
Option A:  CTH
Option C:  Value-added ruleAUS, CAN, CHE,
CHN, COL, HKC,IND, JPN, KOR,
MEX, MOR, SGP,
VEN
BRA, EEC
Members not considering it a substantial transformation
Option D:  CTH, except from 8542 USA
CRO Chairman's recommendation:  De letion of option D and postponing
the final decision until Issue No. 1 (of Chs. 84-90) is resolvedG/RO/52
Page 83
ELECTRONICS:  ASSEMBLY OF TELEVISION RECEIVERS, ETC.
ISSUE NO. 56 (Ch. 84-90) HS 8528
Description of production process:
Input:  Cathode ray tube
Output:  TV set, video monitors etc.
Considerations:
Members considering it a substantial transformation:
Option A:  Assembly resulting in a new good having new characteristics
Option B/1:  CTH
Option D:  Value-added ruleMAR
CAN, CHE, CHN,
IND, JPN, KOR,
MEX, MYS, PHL,
SGP
BRA, EEC, EGY
(40%), TUR
Members not considering it a substantial transformation
Option E:  CTSH, except from 8540.11 or 8540.12NZL, USA (origin:
the country of origin
of cathode-ray tube)
CRO Chairman's recommendation:  Deletion of options A and E, andpostponing the final decision until Issue No. 1 (of Chs. 84-90) is resolvedAUSG/RO/52
Page 84
ELECTRONICS:  MOUNTING OF SEMICONDUCTORS, ETC.
ISSUE NO. 59 (Ch. 84-90) HS ex85.41(b),
ex85.42(c)
Description of production process:Input:  Unmounted semiconductors, etc. (HS ex8541(a)/ex8542(a) and (b))
Output:  Mounted semiconductors, etc.
Considerations:
Members considering it a substantial transformation:
Option B:  CTHS
Option C:  CTH;  or value-added ruleCAN, CHE, CHL,
IND, JPN, KOR,
MAL, MAR, MYS,
PHL, SGP
BRA, EEC
Members not considering it a substantial transformation
Option D1(a): CTH, or change from ex 85.41(g)/ex 85.42(f);  (origin:  the
country of diffusion for HS ex8541(b), 8542.13-8542.40;  the country of
origin of the chips or dice therein for HS 8542.12)
Option D1(b):  CTH, or change from ex 85.41(g)/ex 85.42(f);  5 parts rule
Option D1(c):  CTH, or change from ex 85.41(g)/ex 85.42(f);  general
residual rule
Option D3:  For electronic integrat ed circuits of ex 85.42(c) only: The
operation of diffusion (where integrated circuits are formed on asemi-conductor substrate by the selective introduction of an appropriate
dopant)USA
AUS
HKC
EEC
CRO Chairman's recommendation:  Option BG/RO/52
Page 85
ELECTRONICS:  MOUNTING OF GOODS CONSISTING OF MORE THAN TWO ITEMS
OF DIODES AND SEMICONDUCTORS ETC.
ISSUE NO. 60 (Ch. 84-90) HS ex85.41(d)
Description of production process:
Input:  Unmounted semiconductors, etc.
Output:  Mounted goods consisting of more than two items of heading 85.41
Considerations:
Members considering it a substantial transformation:
Option A2:  Assembly re sulting in a new good having new characteristics
Option B:  CTHS
Option C:  CTH;  or value-added ruleMAR
CAN, CHE, IND,
JPN, KOR, MEX,
[PHL*], SGP,
[VEN]
BRA, EEC
Members not considering it a substantial transformation:
Option D1:  CTSHOption D2: CTH;  5 parts ruleCHL, MYS
AUS, USA
CRO Chairman's recommendation:  Option B
                                                     
* Flexible.G/RO/52
Page 86
ASSEMBLY OF VEHICLES
ISSUE NO. 69 (Ch. 84-90) HS 8701-8705
Description of production process:
Input:  Materials outside Ch. 87 or parts of Ch. 87
Output:  VehicleRelated issue:
Considerations:
Option B:   CTH AUS, CAN, CHE,
CHN, EGY, JPN,
KOR (for 8705
only), MEX, MYS(for 8701 only),
PHL, NZL, SEN,
SGP, THA, TPKM,
USA
Option C:  Manufacture where the in crease in value acquired as a result
of working and processing, and if applicable, the incorporation of partsoriginating in the country of manufacture represents at least [45-60%] of
the ex-works price of the product
Option D1(a):  CTH, except from HS 8706
Option D1(b):  CTH, except from HS 8704Option D2:  CTH, except from assembled chassis of heading HS 8706
A chassis fitted with an engine has the essential characteristics of motor
vehicles because it can move by itself without additional equipment.  The
process of fitting an engine onto a chassis is a complicated one including the
assembly of transmission, electric power steering system and electrically
controlled suspension system;  on the other hand, putting the body onto the
chassis fitted with its engine and installing other interior equipment arerelatively simple ones that do not bring about substantial changes.  But special
purpose motor vehicles (HS 8705), such as crane lorries, fire-fighting vehicles,
etc., have special functions and purposes and need additional specific
equipment and systems.  For example, to generate strong water pressure, fire-
fighting vehicles need special equipment and technology by which the powergenerator is interlinked with the engine.  Therefore it requires more expertise,
time and effort, and is much more complicated and labour-intensive than
general purpose motor vehicles.BRA, EEC, IND,
TUR (only for8701-8704)
MYS (for 8702 to
8794)
MYS (for 8705
only)
KOR (for 8701 to
8704)
CRO Chairman's recommendation:  De letion of option D and postponing
the final decision until Issue No. 1 (of Chs. 84-90) is resolvedAUSG/RO/52
Page 87
PRODUCTION OF OPTICAL FIBRES, BUNDLES AND CABLES
ISSUE NOS. 75-77 (Ch. 84-90)
No. 75:  Production of optical fibres from preforms classified outside
heading 90.01 (ex 9001.10(a))
Members considering it a substantial transformation:
Option A:  CTH
Option B:  Value-added ruleARG, CAN, CHE,
EGY, IND, JPN,
KOR, MEX, MYS,
NZL, PHL, VEN
BRA, EEC, TUR
Members not considering it a substantial transformation:
Option C:  CTH except from preforms USA
No. 76:  Production of optical fibre bundles from optical fibres
(ex 9001.10(b))
Members considering it a substantial transformation:
Option A:  CTSHS
Option B:  CTH;  or value-added rule
Members not considering it a substantial transformation:
Option C:  CTHMYS
BRA, EEC, EGY,
TUR
ARG, CAN, CHE,
IND, JPN, KOR,MEX, USA, VEN
No. 77:  Production of optical fibre cables other than those of 8544.70from optical fibres and optical fibre bundles (ex 9001.10(c))
Members considering it a substantial transformation:
Option A:  CTSHS
Option B:  CTH;  or value-added rule
Members not considering it a substantial transformation:
Option C:  CTHCAN, CHE, EGY,
IND, JPN, KOR,
MEX, MYS, PHL,USA
BRA, EECCHL, VEN
CRO Chairman's recommendation:  Deletion of option C (for Issue Nos.
75 and 77)/option A (for Issue No. 76) and postponing the final decision
until Issue No. 1 (of Chs. 84-90) is resolvedG/RO/52
Page 88
ASSEMBLY OF WATCHES FROM MOVEMENTS
ISSUE NO. 1 (Ch. 91) HS 9101-9107
Description of production process:
Input:  Movements
Output:  Watches or clocks
Process:  Movements are processed through assembling into watches or clocksRelated issue:
Considerations:
Members not considering it a substantial transformation
Option A:  CTH, except HS 91.08 or 91.09
The essence of a watch, or clock, is a device which indicates the time or
measures the intervals of time (see explanatory notes under heading 91.02 (and
91.03)).  A movement is defined in the HS chapter notes as a device capable of
determining intervals of time (see Note 3 to Chapter 91).  There is nodifference in the essential character between a watch and a movement and it is
the movement which imparts the essential character of a watch.  In the
manufacture of a watch or clock, the assembly of the movement is considered
the last substantial transformation because at the stage of completion of the
movement, the essential character of the watch - time-telling - is already fixed.
The final assembly from movement to watch does not substantially change the
essential character of time-telling and cannot amount to substantialtransformation.  Because the essential character and quality of a watch or a
clock is determined by the movement, the origin of the movement is most
important from a commercial point of view.CAN, HKC, USA,
VEN
Members considering it a substantial transformation:
Option B:  CTH
The structure of the HS reflects that movements and watches are essentially
different commercial goods.  Various finished goods can be obtained from the
same movement by final assembly.  While the movement is important,
timekeeping is a minimum characteristic.  The movement does not representtime and is invisible after assembly.  It is the change from components to a
watch which is the last substantial transformation in watch manufacture.  The
accuracy, durability and life span of a watch are determined and guaranteed by
the final assembly.  Testing and adjustment, which constitute an essential part
of assembly, are also of particular importance because they determine theabove-mentioned quality of a watch.CHE, CHN, EEC,
IND, JPN, MEX,
NZL
CRO Chairman's recommendation:  Option B
__________