Rules of Origin and Full

Cumulation
Titik Anas, PhD
 What are Rules of Origin?
• The rules to determine the origin of goods/products
• The rule is used to determine whether imports shall receive preferential
tariff treatment
• Rules of Origin prevents non member countries to benefit from
preferential treatment
The Basic ROOs used in FTAs
• There are three basic approaches to define whether substantial
transformation has occured to merit originating status. Those are:
• Value-added criterion (VA): requires a (minimum) percentage of value added
created at the last place of the production process
• Tariff-heading criterion or change in tariff classification (CTC): requires that
processing in the exporting country results in a product classified under a
different heading in the customs tariff classification of the Harmonized
System of Tariff Nomenclatures than its intermediate inputs
• Specified process rule (SPR) or technical test: determines specific production
activities or specific processing operations that might confer originating status
• Profile of ROOs in the ASEAN and the ASEAN+1
FTAs

Based on Medalla (2011) :

• ASEAN (AFTA) : The general rule adopted is RVC(40) at the early stage and introducing of
CTC as a coequal rule.
• ATIGA : The general rule adopted is coequal rule of RVC(40) or CTH (substantially relaxing
its ROO regime).
• PSR more restrictive if it leads to the adoption of additional specific requirements (e. g.,
about a specific process or where inputs/materials come from).
• ACFTA uses RVC most extensively as it uses RVC(40) as the general rule (except for textile
and garments using PSR).
• AJCEP relies on CTC but uses a lot of exceptions either in terms of specifying where
change can (or cannot) come from and where certain sources of inputs should come
from.
• AANZFTA, which was concluded later, provided for even more HS lines with the more
liberal coequal rule of “RVC(40) or CTSH.

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 Wholly Obtained (WO)
• Advantage : A direct measure of
• Wholly obtained products are
• Problem :
listing under chapters 1-15 HS
Code.
• The WO as ROO is obviously very
restrictive if applied to mean 100
percent VA (regional or local) in
products at higher levels of
processing (stages of
production).
• Wholly Obtained for some FTAs
operationalized as :
1.ATIGA, AKFTA, and AANZFTA :
generally WO
2.AJEP : Change in Chapter (two-
digit classification)
3.ACFTA : RVC(40)
Source. Medalla,2011
Regional Value Content (RVC) Change in Tariff Classification (CTC)
• It is used as a rule of determining
substantial transformation. origin because of difficulties in
using RVC.
• Advantage : simplicity in
‒ Exchange rate and price fluctuation
which lead to uncertainties and adds application, verification, clarity, and
to compliance and administration predictability of the method.
costs.
• Disadvantage : It relies on the use
‒ Firms are hesitant to disclose price
data, cost data, and other required
of Harmonized System which is not
designed to reflect degree of
information.
substantial transformation.
‒ Required a substantial costs for large
firms (especially for those with − The same classification level of inputs
multiple products) and outputs leads to ineligibility of
products with enough originating
‒ For SMEs, it is hard to produce the
materials.
required documents for export and
origin determination because of lack − the HS code used could sometimes
of know-how in accounting and be interpreted differently across
countries.
finance (especially in least
development countries)
‒ RVC commonly used as ROO in ATIGA
and ASEAN+1 FTAs for electronic and
automotive products.
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RCEP
Underlying Principles and Objectives
• The central objective in negotiating the RCEP is “to achieve a modern,
comprehensive, high-quality and mutually beneficial economic
partnership agreement among the ASEAN Member States (AMS) and
ASEAN’s FTA Partners”.
• The guiding principles are the following:
• The RCEP will have broader and deeper engagement with significant
improvements over the existing ASEAN+1 FTAS, while recognizing the
individual and diverse circumstances of the participating countries
• The RCEP will include provisions to facilitate trade and investment and to
enhance transparency in trade and investment relations between the
participating countries as well as to facilitate the participating countries’
engagement in global and regional supply chains
RCEP
Underlying Principles and Objectives (continued)
• The more restrictive the ROOs, the greater the trade barrier will be.
Problems arise when overlapping exists, such as in ASEAN and the various
ASEAN+1 FTAs
• The RCEP is a big group of countries with intraregional trade comprising
more than half of its total trade. Therefore, ROOs in the RCEP should be
more concerned about trade facilitation, in line with its objectives.
• The issue of determining origin was not given much consideration under
the GATT/WTO in the early stages as well as for ROOs in preferential trade
agreements. However, along with the rise in international production
sharing and technological innovation in transportation and
telecommunications, origin determination becomes challenging. So, it is a
key concern in FTA negotiations.
FULL CUMMULATION
in RCEP
FULL CUMMULATION: Definition

Full cumulation means that all operations (transformation of goods) carried out in the
participating countries are taken into account in determine origin of product.

Full cumulation allows the parties to an agreement to carry out working or processing on
non-originating products in the area formed by them and later claim for concession.

1. https://ec.europa.eu/taxation_customs/business/calculation-customs-duties/rules-origin/general-aspects-
preferential-origin/common-provisions_en#full_cumulation
Full Cummulation: Definition
Full cummulation simply demands that the origin requirements are
fullfilled within the preferential trade zone as a whole (i.e. the area of all
participating countries is considered as one area for origin determination)
Full cummulation makes it possible that a product originating in a third
country and having undergoing successive working and processing which is
insufficient in several countries of the same preferential zone to acquire
the status of an “originating product" provided all this working together
constitutes a sufficient transformation
Under full cumulation, all stages of processing or transformation of a
product within the PTA can be counted as qualifying content regardless of
whether the processing is sufficient to confer originating status to the
materials themselves. It is easy to show that full cumulation allows for
greater fragmentation of the production process than the more commonly
used bilateral and diagonal cumulation, and hence is less restrictive
Illustration : Export of Bicycle
Country D
Country A Country B Country C

Chasis for bicycle Painted and Assembled with local

prepared tire and saddle
With other parts
Value added =
Input compositions= 50% local ( C )
50% local 25% non-originating (A)
50% from A 25% originating (B)

B, C, D members of FTA
A is NOT!
FTA requires local/regional content of minimum 60%
B can not claim FTA preference as local content is less than 60%
However, C when export bicycle to D  C can claim FTA preference when it is full cummulation as
Lcocal components of B is counted as originating FTA. So, regional content of bicycle from C is more than 60%
Source:http://www.wcoomd.org/en/Topics/Origin/Instrument%20and%20Tools/Comparative%20Study%20on%20Preferential%20Rules
%20of%20Origin/Specific%20Topics/Study%20Annex/CUM%20DFF
Implementation of Full Cumulation in Trade
Agreement
• EU agreements with the EFTA countries
• EU agreements with Algeria, Morocco, and Tunisia
• Cotonou Agreement, with the ACP countries.
• GSP schemes of Japan and the United States
• among all developing-country beneficiaries in the schemes of Australia, Canada,
and New Zealand, as well as the ANZCERTA and SPARTECA regional agreements
• The NAFTA family of rules of origin legislation generally provides for full
cumulation whenever a value-added requirement is used.
• MERCOSUR provides for bilateral and full cumulation among its member States
• Both ACFTA and AKFTA adopt the general 40 percent local/regional value added
(RVA) rule, with full cumulation
Source: Brenton, 2011.
Notes: products that are granted originating status due to full cumulation rules are excluded from the PanEuroMed
system of cumulation (Abreu, 2013)
Implication
Pros
• Full cumulation provides for deeper
integration and allows for more advanced
countries to outsource labor-intensive
production stages to low-wage partners.
• Full cumulation allows low-income countries
the greatest flexibility in sourcing inputs.
• Full cumulation will make it easier for
regionally-based firms to exploit the
economies of scale (Brenton (2003) in
Medalla, Erlinda M. (2008))
Source: Brenton, 2011.
Cons
• The documentary requirements of full cumulation
may be more onerous than those required under
diagonal cumulation.
• Detailed information from suppliers of inputs may
be required under full cumulation, whereas the
certificates of origin that accompany imported
materials may suffice to show conformity under
diagonal cumulation.
Full cummulation ROO and Production
Network
• Full commulation allows RCEP to establish regional production
network
Appendix – a few example of goods that will
benefit from full cummulation

Product Description HS 4 Digit

Parts and accessories of the motor vehicles of headings 87.01 to

8708
87.05.
Electronic integrated circuits. 8542
Polymers of ethylene, in primary forms. 3901
Flat-rolled products of iron or non-alloy steel, of a width of 600 mm or
7208
more, hot-rolled, not clad, plated or coated.
Parts suitable for use solely or principally with the engines of heading
8409
84.07 or 84.08.