RESTRICTEDWORLD TRADE
ORGANIZATIONWT/REG/GEN/1/Add.2
12 October 1999
(99-4283)
Committee on Regional Trade Agreements Original:  English
SYSTEM OF EUROPEAN CUMULATION OF ORIGIN
Questions and Replies
Addendum
1. In response to Question 2(c)1 the European Communities, Bulgaria, the Czech Republic,
Hungary, Iceland, Liechtenstein, Norway, Poland, Romania, the Slovak Republic, Slovenia, and
Switzerland stated that in some cases there was the need for a retrospective application of
changes to the preferential rules of origin due to the adoption procedure.
(a) Please provide a specific explanation of  each such case referred to in the
response.
(b) Please describe how such retrospe ctive application of the changes were
undertaken in a consistency with paragraph 3(e) of Annex II of the Agreement
on Rules of Origin.
(a) As stated in the answer to Question 2(c), those cases where there was the need for
retrospective application arose due to the adoption procedure.  The discussions on the EC internal
procedures for the adoption of legislation or the procedures laid down in the EC international
agreements are to be held in the appropriate forum.
Nevertheless, to clarify the situation from the EC side, a table setting out the relevant dates
follows:
EC/ Date of adoption Date of entry into forceDays between adoption and entry into
force
Bulgaria 6.5.97 1.1.97 -126 days
Slovak Republic 9.1.97 1.1.97 -8 days
(b) Paragraph 3(e) of Annex II to the Agreement on Rules of Origin provides for a
declaration by Members to ensure that when introducing changes to their preferential rules of origin,
they shall not apply such changes retrospectively as defined in, and without prejudice to, their laws orregulations.
The only two cases of retrospective application were of eight days in one case and the
other one of 126 days.
                                                     
1 All questions referred to are those as numbered and set forth in document WT/REG/GEN/1.WT/REG/G EN/1/Add.2
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2. The response to Question 6(a) appears to reflect a misunderstanding of the question, so
a re-wording of the question is provided to make more clear what is being asked:
Is it true that, under the "cumulation system," an input that originates in certain third
countries that are not a party to the individual bilateral preferential trade agreement  under
which the tariff preference is applied to a particular importation (e.g. inputs originatingin Poland used in an importation receiving a tariff preference under the
Norway/EC Agreement) will be treated differen tly than inputs that originate in other
third countries that are also not a party to the individual bilateral preferential trade
agreement  under which the tariff preference is applied to a particular importation
(e.g. inputs originating in the United States used in an importation receiving a tariff
preference under the Norway/EC Agreement) – based only on whether such third
countries participate in the "cumulation sy stem" rather than on whether such third
countries are part of a single agreement under GATT Article XXIV?  If this
understanding is not correct, please provide an explanation.
As has already been explained, the system created does not create any new preferences but
simply allows recognition of the existing bilateral and multilateral agreements signed by the different
countries concerned.
The results of that goods that have obtained preferential origin in a country of the zone will
also be considered as originating in the other countries of the zone and in trade will benefit from
preferential treatment.
3. In the answer to Question 7(b) and (c), it is stated that the 10 per cent ceiling (of the
"de minimis" rule) applies to all products that  cannot be considered as originating according to
the agreements between the countries involved in the System.  Does this mean that the 10 per
cent "de minimis" ceiling, used when determining eligibility of a particular importation under
an individual bilateral preferential trade agreement (e.g. Norway/EC Agreement), applies only
to materials that originate in certain third countries not a Party to that individual Agreement
(e.g. the United States) – but note to materials that originate in certain other third countries alsonot a Party to that individual bilateral Agreement (e.g. Poland) – and that this different
treatment is based on whether such countries participate in the "cumulation system" rather
than whether such countries are part of a single Agreement under GATT Article XXIV?
As has already been stated in the previous answer, the 10 per cent ceiling applies to all
products that cannot be considered as originating according to each of the bilateral or multilateral
agreements between the different countries.
4. In the answer to Question 8(c) it is stated that the understandings are correct.
(a) Please confirm that, until the commencement of the "cumulation system,"
drawback was available for refunds of the duties paid on inputs originating in
the United States when used in a product originating under the individual
EC Agreements with Iceland, Switzerland, Bulgaria, the Czech Republic,
Hungary, Poland, Romania, the Slovak Republic and Slovenia.WT/REG/G EN/1/Add.2
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(b) Please provide, for the twelve months  preceding the implementation of the
"cumulation system," the value of imports of U.S. origin into the EC, Iceland,
Switzerland, Bulgaria, the Czech Republic, Hungary, Poland, Romania, the
Slovak Republic and Slovenia, for which duties were refunded under drawback.
In the answer previously given to Question 8(c)  it was stated that the understanding of the no
drawback rule was not correct.  The “no-drawback” rule has always been in force in the EC-Norway
Agreement.
(a) Until the date of entry into force of each of the new Protocols, the no-drawback rule
applied to the EC Agreements with Norway, I celand and Switzerland.  However, the no-drawback
rule did not apply to the EC Agreements with Bulgaria, the Czech and Slovak Republics, Poland,
Hungary, Romania and Slovenia.
(b) The important point is to determine if the importations of USA, or any other third
country, have diminished due to the introduction of the news rules and this does not seem to be the
case.
The communication of this information is impossible to undertake without a manual survey of
all operations concerned, which is impractical.  For that reason no information can be provided.
5. With regard to the answers to Question 10 (a) through (d), please confirm that the
treatment of products under an individual preferential trade agreement (e.g. Norway/EC
Agreement), will differ whether the operations on a particular imported product took place in
certain third countries not a Party to that individua l Agreement (e.g. the United States), or if the
same operations on a particular imported product had taken place in certain other third
countries also not a Party to that individual bilateral Agreement (e.g. Poland) – based onwhether or not such a country participates in  the "cumulation system" rather than whether
such countries are part of a single Agreement under GATT Article XXIV.
Case 1
If an engine is considered originating in Norway under the rules of the EC-Norway
Agreement, it is also originating under the rules of the EFTA-Poland Agreement, since the rules oforigin in both Agreements are exactly the same. S o, if this Norwegian originating engine is exported
to Poland preferences can be granted on the basis of the EFTA-Poland Agreement. The following
situations will be carried on as indicated in the answer to Question 2.
Case 2
If the same engine is exported to the Ukraine, a country with which neither the EC nor
Norway have any preferential agreement, the exception to the “principle of territoriality” must be
applied. In that case if the value added in the Ukraine is superior to 10 per cent the Norwegianpreferential status is lost.WT/REG/G EN/1/Add.2
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6. In the answer to Question 11(a), it is stat ed that, under the Hypothetical Fact Scenario
Number IV, the automobile engine in question , exported to Norway from Poland would not
receive preferential treatment under the Norway/EC Agreement.  Please explain the legal basis
for the conclusion that the ex ceptions set forth within the Protocol with regard to "direct
transport" and "principle of territoriality" would not be applicable.  Providing examples,please explain why "a geographical continuity" would make the rule "unnecessary," as is stated
in the answer to Question 11(a).
If an engine originating in the EC is exported to Romania, via the territory of the Ukraine:
• Such a situation will have been foreseen from the start of the transportation and in that
case the single transport document, as well as  the proof of origin issued at the time of
exportation, will already have Romania indicated as the country of final destination.
• If the situation has not been foreseen at the time of exportation but following its
arrival in the Ukraine the engine has been placed under customs control, Article 13.2
provides for the use of a non-manipulation certificate issued by the customsauthorities of the Ukraine, or any other substantiating document, to be used to prove
that the engine is the exact same one that left the EC.
If the same engine is exported from the EC to the Slovak Republic through the territory of
Poland the situations outlined in the first and second indents above are exactly the same.
7. It is our understanding that, in a hypoth etical example where there are two FTAs (one
between Latvia and EC and the other between EC and Poland) although no FTA was concluded
between Poland and Latvia:
• Before the introduction of the new cu mulation system, canned fish must be
wholly obtained to be granted originating status, with a 10 per cent tolerancerule.  The EC produces canned fish that contain 89 per cent of EC origin fish and
11 per cent of Latvian origin fish.  When this canned fish is exported from theEC to Poland, it is not granted preferential treatment because the relevant rule
of origin in the EC-Poland FTA stipulates  that more than 90 per cent of the fish
must originate from EC or Poland.  In the EC-Latvia FTA, however, the same
canned fish does of course enjoy preferential treatment as no third parties are
involved.  Meanwhile, the EC also produc es canned fish with 89 per cent of EC
origin fish and 11 per cent of Korean origin  fish.  Because of the rules of origin
applicable by the EC-Poland FTA - the 90 per cent requirement - this second
sort of canned fish is not granted pref erential access either when exported to
Poland.  The same holds true for the EC-Latvia FTA, as the same rule of origin
apply for canned fish.  In sum, both ca nned fish - in other words, Korean fish
and Latvian fish - are treated equally by Poland in this pre-cumulation system.
• The basic context remains the same, s ave for the introduction of the new
cumulation system.  Now, EC's canned fi sh with 89 per cent of EC origin fish
and 11 per cent of Latvian origin fish is granted preferential treatment when
exported from the EC to Poland, accord ing to diagonal cumulation of the new
cumulation system of which both Poland, EC and Latvia are part of - not Korea.This is so because the diagonal cumula tion implies that the 11 per cent of the
Latvian origin fish is considered as of EC origin, meaning that  the canned fish is
now 100 per cent EC origin and thus fully complies with the 90 per cent
requirement.  But for the canned fish containing 89 per cent of EC origin fish
and 11 per cent of Korean origin fish, no thing has changed when it is exportedWT/REG/G EN/1/Add.2
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from the EC to Poland.  Because Korea is not part of the cumulation system and
the portion of fish obtained in members of the cumulation system is below 90 per
cent.  The EC's canned fish including Korean origin fish cannot benefit from
preferential access to the Polish market.
(a) Is this hypothetical example and understanding accurate?If the above example reflects a situation that could possibly happen under the new
cumulation system, we must exp ress our concern.  Indeed, it is unclear whether there exists in
the WTO agreements any provision that warrants granting preferential treatment by a RTA
member to goods that do not originate from another member of the RTA.  According to the
EC-Poland FTA, 90 per cent of fish content must origin in either Poland or EC for the EC's
canned fish to be granted preferential access.  But in the above scenario, the EC's canned fish
with 11 per cent of Latvian origin fish was gran ted preferential access even though it failed to
comply with the relevant rule of origin in  the EC-Poland FTA.  It seems that diagonal
cumulation makes this possible, as it entails in this case that the 90 per cent requirement will be
met if the combination of both EC origin fish and Latvian origin fish is equal to or above 90 per
cent of total content, given that the Latvian origin fish is considered as of EC origin fish is
exported to Poland.  However, EC's canned fish  cannot get EC origin when it is exported to
Poland according to EC-Poland FTA.
(b) Is it true that GATT Article XXIV permits an exemption to MFN among the
parties to a RTA.  But the exemption should not be allowed here as there is no
FTA between Latvia and Poland.  In the absence of a FTA between Latvia and
Poland, Latvian origin fish should be considered as  third country material, andentirely  subject to the rules of origin provided for in the EC-Poland FTA.  In
other words, the rules of origin in effect in the EC-Poland FTA should be only
rules referred to when determining the origin of a good exported from EC to
Poland or from Poland to EC.
Korea made a similar comment at the last meeting on 1 December 1998.  The delegation
of Norway responded.  Having reviewed the minutes  of that meeting, it is not clear whether the
4th and 5th line of paragraph 27 of document WT/REG/GEN/M/2 ("presumably there would be
no possibility for cumulation and the 10 per cent tolerance rule would be replied") is related to
direct trade between Poland and Lithuania or not.
Two pieces of information might clarify the questions raised:
• The Baltic States have not yet all become members of the WTO; and
• Latvia and Poland have very recently signed a free trade agreement.
For this reason the hypothetical example on which the reasoning above was originally based
is no longer valid.
All the countries do agree that in order to enable the System to operate completely all
countries must be linked between themselves by a bilateral or multilateral agreement.  This is one of
the reasons why the CRTA finds itself called to examine so many agreements between different
participants in the cumulation System.
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