DECISION No 1/88 OF THE EEC-CYPRUS ASSOCIATION COUNCIL of 21 November 1988 amending, as a consequence of the introduction of the harmonized system, Protocol 2 concerning the definition of the concept of 'originating products' and methods of administrative cooperation

THE ASSOCIATION COUNCIL,

Having regard to the Agreement creating an Association between the European Economic Community and the Republic of Cyprus, signed on 19 December 1972,

Having regard to the Protocol concerning the definition of the concept of 'originating products' and methods of administrative cooperation, and in particular Article 25 thereof,

Whereas the origin rules contained in the said Protocol are based on the use of the Customs Cooperation Council Nomenclature; whereas the Customs Cooperation Council approved the International Convention on the Harmonized Commodity Description and Coding System (hereinafter referred to as the 'harmonized system') on 14 June 1983; whereas it is the intention that, as from 1 January 1988, the harmonized system will replace the current nomenclature for the purposes of international trade; whereas it is therefore necessary to adapt the rules of origin contained in the Protocol so that they are based on the use of the harmonized system;

Whereas, in the light of experience, the presentation of the origin rules could be improved by grouping all the exceptions to the basic change of heading rule into one List and by providing detailed guidance on how it should be interpreted,

HAS DECIDED AS FOLLOWS:

Article 1

In the last subparagraph of Article 1 of Protocol 2, 'in List C in Annex IV' is replaced by 'in Annex II'.

Article 2

Article 3 of the Protocol is replaced by the following:

'Article 3

1. The expressions ''chapters'' and ''headings'' used in this Protocol shall mean the chapters and the headings (four digit codes) used in the Nomenclature which makes up the ''Harmonized Commodity Description and Coding System'' (hereinafter referred to as the harmonized system or HS).

The expression ''classified'' shall refer to the classification of a product or material under a particular heading.

2. For the purposes of Article 1, non-originating materials are considered to be sufficiently worked or processed when the product obtained is classified in a heading which is different from those in which all the non-originating materials used in its manufacture are classified, subject to the provisions of paragraphs 3 and 4.

3. For a product mentioned in columns 1 and 2 of the List in Annex III, the conditions set out in column 3 for the product concerned must be fulfilled instead of the rule in paragraph 2.

4. For the purpose of implementing Article 1, the following shall always be considered as insufficient working or processing to confer the status of originating product, whether or not there is a change of heading:

(a) operations to ensure the preservation of merchandise in good condition during transport and storage (ventilation, spreading out, drying, chilling, placing in salt, sulphur dioxide or other aqueous solutions, removal of damaged parts, and like operations);

(b)simple operations consisting of removal of dust, sifting or screening, sorting, classifying, matching (including the making up of sets of articles), washing, painting, cutting up;

(c)i(i) changes of packaging and breaking up and assembly of consignments;

(ii)simple placing in bottles, flasks, bags, cases, boxes, fixing on cards or boards, etc., and all other simple packaging operations;

(d)affixing marks, labels or other like distinguish- ing signs on products or their packaging;

(e)simple mixing of products, whether or not of different kinds, where one or more components of the mixture do not meet the conditions laid down in this Protocol to enable them to be considered as originating;

(f)simple assembly of parts of articles to constitute a complete article;

(g)a combination of two or more operations specified in subparagraphs (a) to (f);

(h)slaughter of animals.'.

Article 3

Article 4 of the Protocol is replaced by the following:

'Article 4

1. The term ''value'' in the List in Annex III shall mean the customs value at the time of the import of the non-originating materials used or, if this is not known and cannot be ascertained, the first ascertainable price paid for the materials in the territory concerned.

Where the value of the originating materials used needs to be established, this paragraph shall be applied ''mutatis mutandis''.

2. The term ''ex works price'' in the List in Annex III shall mean the ex works price of the product obtained minus any internal taxes which are, or may be, repaid when the product obtained is exported.'.

Article 4

Article 6 of the Protocol is hereby amended as follows:

1. In paragraph 2, 'Article 3 (3)' is replaced by 'Article 3 (4)', and 'Brussels Nomenclature' by 'harmonized system'.

2.The following paragraph is added:

'4. Sets within the meaning of General Rule 3 of the harmonized system shall be regarded as originating when all component articles are originating products. Nevertheless, when a set is composed of originating and non-originating articles, the set as a whole shall be regarded as originating provided that the value of the non-originating articles does not exceed 15 % of the ex works price of the set.'.

Article 5

1. Annexes I, II and III to this Decision replace Annexes I, II, III and IV to Protocol 2.

2. Annexes V and VI are renumbered IV and V.

Article 6

1. Products which were exported before 1 January 1988, accompanied by a movement certificate EUR 1 or form EUR 2, shall be considered as originating under the rules in force on 1 January 1988.

2. Movement certificates EUR 1 or forms EUR 2 issued or made out before 1 January 1988 under the rules in force before that date shall be accepted up to and including 31 May 1988 according to the rules in force when they were issued.

3. Articles 19 and 20 of the Protocol shall apply in the case of goods exported before 1 January 1988 and retrospective or duplicate movement certificates may be issued under the rules in force before that date.

Article 7

Decision No 1/79 is replaced by this Decision.

Article 8

This Decision shall apply from 1 January 1989.

Done at Brussels, 21 November 1988.

For the Association Council

The President

Th. PANGALOS

Joint Declaration concerning the review of the changes to the origin rules as a result of the introduction of the harmonized system

Where, following the amendments made to the Nomenclature, the new rules introduced by Decision No 1/88 alter the substance of any rule existing prior to Decision No 1/88 and it appears that such alteration results in a situation prejudicial to the interest of the sectors concerned, then, if one of the contracting parties so requests in the period up to and including 31 December 1990, an examination shall be made as a matter of urgency by the Association Council, of the need to restore the rule concerned as it was before Decision No 1/88.

In any case, the Association Council shall decide to restore, or not to restore, the substance of the rule concerned within a period of three months of the request being made to it by either of the parties to the Agreement.

If the substance of the rule concerned is restored, then the parties to the Agreement shall also provide the legal framework necessary to guarantee that any customs duties improperly levied on the products concerned imported after 1 January 1989 can be reimbursed.

ANNEX I

EXPLANATORY NOTES

Note 1: Articles 1 and 2

The terms 'the Community' and 'Cyprus' shall also cover the territorial waters of the Member States of the Community and of Cyprus respectively.

Vessels operating on the high seas, including factory ships, on which fish caught are worked or processed, shall be considered as part of the territory of the State to which they belong provided that they satisfy the conditions set out in Explanatory Note 4.

Note 2 - Article 1

The conditions set out in Article 1 relative to the acquisition of originating status must be fulfilled without interruption in the Community or Cyprus.

If originating products exported from the Community or Cyprus to another country are returned, they must be considered as non-originating unless it can be demonstrated to the satisfaction of the customs authorities that:

- the goods returned are the same goods as those exported,

and

-they have not undergone any operations beyond that necessary to preserve them in good condition while in that country.

Note 3 - Article 1

In order to determine whether goods originate in the Community or in Cyprus it shall not be necessary to establish whether the power and fuel, plant and equipment, and machines and tools used to obtain such goods originate in third countries or not.

Note 4 - Article 2 (f)

The term 'their vessels' shall apply only to vessels:

- which are registered or recorded in a Member State or in Cyprus,

- which sail under the flag of a Member State or of Cyprus,

- at least 50 % of which are owned by nationals of the Member States and Cyprus or by a company which has its head office in a Member State or in Cyprus, of which the manager, managers, chairman of the board, and the majority of the members of such board are nationals of the Member States or Cyprus and of which, in addition, in the case of partnerships or limited companies, at least halt the capital belongs to the Member States or to Cyprus or to public bodies or nationals of the Member States or of Cyprus,-of which the captain and officers are all nationals of the Member States or of Cyprus,

- of which at least 75 % of the crew are nationals of the Member States or of Cyprus.

Note 5 - Articles 2 and 3

1. The unit of qualification for the application of the origin rules shall be the particular product which is considered as the basic unit when determining classification using the nomenclature of the harmonized system. In the case of sets of products which are classified by virtue of General Rule 3, the unit of qualification shall be determined in respect of each item in the set; this also applies to the sets of heading Nos 6308, 8206 and 9605.

Accordingly, it follows that:

- when a product composed of a group or assembly of articles is classified under the terms of the harmonized system in a single heading, the whole constitutes the unit of qualification,

-when a consignment consists of a number of identical products classified under the same heading of the harmonized system, each products must be taken individually when applying the origin rules.

2.Where, under General Rule 5 of the harmonized system, packing is included with the product for classification purposes, it shall be included for purposes of determining origin.

Note 6 - Article 3 (1) The Introductory Notes to Annex III shall also apply where appropriate to all products manufactured using non-originating materials even if they are not subject to a specific condition contained in the List in Annex III but are subject instead to the change of heading rule set out in Article 3 (1).

Note 7 - Article 4

'Ex works price' shall mean the price paid to the manufacturer in whose undertaking the last working or processing is carried out, provided the price includes the value of all the products used in manufacture.

'Customs value' shall be understood as meaning the customs value laid down in the Convention concerning the valuation of goods for customs purposes signed in Brussels on 15 December 1950.

ANNEX II

List of products referred to in Article 1 which are temporarily excluded from the scope of this Protocol

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ANNEX III

List of working or processing required to be carried out on non-originating materials in order that the product manufactured can obtain originating status

INTRODUCTORY NOTES

General

Note 1:

1.1. The first two columns in the list describe the product obtained. The first column gives the heading number, or the chapter number, used in the harmonized system and the second column gives the description of goods used in that system for that heading or chapter. For each entry in the first two columns a rule is specified in column 3. Where, in some cases, the entry in the first column is preceded by an 'ex', this signifies that the rule in column 3 applies only to the part of that heading or chapter as described in column 2.

1.2.Where several heading numbers are grouped together in column 1 or a chapter number is given and the description of product in column 2 is therefore given in general terms, the adjacent rule in column 3 applies to all products which, under the harmonized system, are classified in headings of the chapter or in any of the headings grouped together in column 1.

1.3.Where there are different rules in the list applying to different products within a heading, each indent contains the description of that part of the heading covered by the adjacent rule in column 3.

Note 2:

2.1.The term 'manufacture' covers any kind of working or processing including 'assembly' or specific operations. However, see Note 3.5 below.

2.2.The term 'material' covers any 'ingredient', 'raw material', 'component' or 'part', etc., used in the manufacture of the product.

2.3.The term 'product' refers to the product being manufactured, even if it is intended for later use in another manufacturing operation.

Note 3:

3.1.In the case of any heading not in the list or any part of a heading that is not in the list, the 'change of heading' rule set out in Article 3 (1) applies. If a 'change of heading' condition applies to any entry in the list, then it is contained in the rule in column 3.

3.2.The working or processing required by a rule in column 3 has to be carried out only in relation to the non-originating materials used.The restrictions contained in a rule in column 3 likewise apply only to the non-originating materials used.

3.3.Where a rule states that 'materials of any heading' may be used, materials of the same heading as the product may also be used, subject, however, to any specific limitations which may also be contained in the rule. However, the expression 'manufacture from materials of any heading including other materials of heading No . . .' means that only materials classified in the same heading as the product of a different description than that of the product as given in column 2 of the list may be used.

3.4.If a product, made from non-originating materials which has acquired originating status during manufacture by virtue of the change of heading rule or its own list rule, is used as a material in the process of manufacture of another product, then the rule applicable to the product in which it is incorporated does not apply to it.

- For example, an engine of heading No 8407, for which the rule states that the value of the non-originating materials which may be incorporated may not exceed 40 % of the ex works price, is made from 'other alloy steel roughly shaped by forging' of heading No 7224.

If this forging has been forged in the country concerned from a non-originating ingot then the forging has already acquired origin by virtue of the rule for heading No ex 7224 in the List. It can then count as originating in the value calculation for the engine regardless of whether it was produced in the same factory or another. The value of the non-originating ingot is thus not taken into account when adding up the value of the non-originating materials used.

3.5.Even if the change of heading rule or the rule contained in the list is satisfied, a product does not have origin if the processing carried out, taken as a whole, is insufficient within the meaning of Article 3 (4).

Note 4:

4.1. The rule in the list represents the minimum amount of working or processing required and the carrying out of more working or processing also confers originating status; conversely, the carrying out of less working or processing cannot confer origin. Thus if a rule says that non-originating material at a certain level of manufacture may be used, the use of such material at an earlier stage of manufacture is allowed and the use of such material at a later stage is not.

4.2.When a rule in the list specifies that a product may be manufactured from more than one material, this means that any one or more of the materials may be used. It does not require that all be used.

- For example, the rule for fabrics says that natural fibres may be used and that chemical materials, among other materials, may also be used. This does not mean that both have to be used, one can use one or the other or both.

If, however, a restriction applies to one material and other restrictions apply to other materials in the same rule, then the restrictions only apply to the materials actually used.

-For example, the rule for sewing machines specifies that the thread tension mechanism used has to originate and that the zigzag mechanism used also has to originate; these two restrictions only apply if the mechanisms concerned are actually incorporated into the sewing machine.

4.3.When a rule in the list specifies that a product must be manufactured from a particular material, the condition obviously does not prevent the use of other materials which, because of their inherent nature, cannot satisfy the rule.

- For example, the rule for heading No 1904 which specifically excludes the use of cereals or their derivatives does not prevent the use of mineral salts, chemicals and other additives which are not produced from cereals.

- For example, in the case of an article made from non-woven materials, if the use of only non-originating yarn is allowed for this class of article, it is not possible to start from non-woven cloth - even if non-wovens cannot normally be made from yarn. In such cases, the starting material would normally be at the stage before yarn - that is the fibre stage.

See also Note 7.3 in relation to textiles.

4.4.If in a rule in the list two or more percentages are given for the maximum value of non-originating materials that can be used, then these percentages may not be added together. The maximum value of all the non-originating materials used may never exceed the highest of the percentages given. Furthermore, the individual percentages must not be exceeded in relation to the particular materials they apply to.

Textiles

Note 5:

5.1.The term 'natural fibres' is used in the list to refer to fibres other than artificial or synthetic fibres and is restricted to the stages before spinning takes place, including waste and unless otherwise specified, the term 'natural fibres' includes fibres that have been carded, combed or otherwise processed but not spun.

5.2.The term 'natural fibres' includes horsehair of heading No 0503, silk of heading Nos 5002 and 5003 as well as the wool fibres, fine or coarse animal hair of heading Nos 5101 to 5105, the cotton fibres of heading Nos 5201 to 5203 and the other vegetable fibres of heading Nos 5301 to 5305.

5.3.The terms 'textile pulp', 'chemical materials' and 'paper making materials' are used in the list to describe the materials not classified in chapters 50 to 63, which can be used to manufacture artificial, synthetic or paper fibres or yarns.

5.4.The term 'man-made staple fibres' is used in the list to refer to synthetic or artificial filament tow, staple fibres or waste, of heading Nos 5501 to 5507.

Note 6:

6.1.In the case of the products classified in those headings in the list to which a reference is made in this Introductory Note, the conditions set out in column 3 of the list shall not be applied to any basic textile materials used in their manufacture which, taken together, represent 10 % or less of the total weight of all the basic textile materials used (but see also Notes 6.3 and 6.4 below).

6.2.However, this tolerance may only be applied to mixed products which have been made from two or more basic textile materials, irrespective of their share of the product.

The following are the basic textile materials:

- silk,

- wool,

- coarse animal hair,

- fine animal hair,

- horsehair,

- cotton,

- paper making materials and paper,

- flax,

- true hemp,

- jute and other textile bast fibres,

- sisal and other textile fibres of the genus Agave,

- coconut, abaca, ramie and other vegetable textile fibres,

- synthetic man-made filaments,

- artificial man-made filaments,

- synthetic man-made staple fibres,

- artificial man-made staple fibres.

- For example, a yarn of heading No 5205 made from cotton fibres and synthetic staple fibres is a mixed yarn. Therefore, non-originating materials that do not satisfy the origin rules may be used up to a weight of 10 % of the yarn.

- For example, a woollen fabric of heading No 5112 made from woollen yarn and synthetic yarn of staple fibres is a mixed fabric. Therefore, either non-originating synthetic yarn or woollen yarn or a combination thereof that does not satisfy the origin rules may be used up to a weight of 10 % of the fabric.

- For example, tufted textile fabric of heading No 5802 made from cotton yarn and cotton fabric is only a mixed product if the cotton fabric is itself a mixed fabric being made from two or more different basic textile materials or if the cotton yarns used are themselves mixtures.

- For example, if the tufted textile fabric concerned had been made from cotton yarn and synthetic fabric, then, obviously, two separate basic textile materials would have been used.

- For example, a carpet with tufts made both from artificial yarns and tufts made from cotton yarns and with a jute backing is a mixed product because three basic textile materials are used. Thus, any non-originating materials that are used at a later stage of manufacture than the rule allows, may be used, provided their total weight taken together does not exceed 10 % of the weight of the textile materials in the carpet. Thus, the jute backing, the artificial yarns and/or the cotton yarns could be imported at that stage of manufacture, provided the weight conditions are met.

6.3.In the case of fabrics incorporating 'yarn made of polyurethane segmented with flexible segments of polyether whether or not gimped' this tolerance is 20 % in respect of this yarn.

6.4.In the case of fabrics incorporating strip consisting of a core of aluminium foil or of a core of plastic film whether or not coated with aluminium powder, of a width not exceeding 5 mm, sandwiched by means of an adhesive between two films of plastic film, this tolerance is 30 % in respect of this strip.

Note 7:

7.1.In the case of those textile products, which are marked in the list by a footnote referring to this Introductory Note, textile trimmings and accessories which do not satisfy the rule set out in the list in column 3 for the made up product concerned may be used provided that their weight does not exceed 10 % of the total weight of all the textile materials incorporated.Textile trimmings and accessories are those classified in Chapters 50 to 63. Linings and interlinings are not to be regarded as trimmings or accessories.

7.2.Any non-textile trimmings and accessories or other materials used which contain textiles do not have to satisfy the conditions set out in column 3 even though they fall outside the scope of Note 4.3.

7.3.In accordance with Note 4.3, any non-originating non-textile trimmings and accessories or other product, which do not contain any textiles, may, anyway, be used freely where they cannot be made from the materials listed in column 3.

- For example, if a rule in the list says that for a particular textile item, such as a blouse, yarn must be used this does not prevent the use of metal items, such as buttons, because they cannot be made from textile materials.

7.4.Where a percentage rule applies, the value of trimmings and accessories must be taken into account when calculating the value of the non-originating materials incorporated.

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