Comparative Guide Chile - U.S. FTA and DR - CAFTA - Chapter 4: Rules of Origin and Origin Procedures

A Comparative Guide to the Chile-United States Free Trade Agreement and the
Dominican Republic-Central America-United States Free Trade Agreement


Chapter Four: Rules of Origin and Origin Procedures


Table of Contents

The two Agreements have fairly similar structures in that rules of origin issues are addressed in a similar manner in various Chapters. In both Agreements, the general regime is dealt with in Chapter 4 (Rule of Origin and Origin Procedures). In this Chapter, both Agreements have an Annex on Specific Rules that includes the requirements that each product must fulfill in order to be considered originating (Annex 4.1). The annexes on specific rules are structurally different since DR-CAFTA uses the 2002 version of the Harmonized System (HS) whereas the Chile-U.S. FTA uses HS 96.

Both Agreements include origin matters related to textile and clothing products in Section G of Chapter 3 (National Treatment and Market Access). Likewise, certain origin-related customs procedures are taken up in a general way with other customs procedures in Chapter 5 (Customs Administration) of each Agreement.

Moreover Annex 3.25 of DR-CAFTA, “Short Supply List”, contains a list of non-originating textiles inputs that, in the event of supply problems among the Parties, can form part of goods that will not be deemed to be non-originating. This list is subject to change so that items may be added or removed. In the Chile-U.S. FTA this flexibility that only covers cotton fabrics and artificial textile fibers is included in the Articles of Section G and does not admit future modifications.

DR-CAFTA’s Appendix 4.1-B, under certain conditions, allows the accumulation of textile products of Chapter 62 from Mexico and Canada. The Chile-U.S. FTA does not have this facility. Likewise in DR-CAFTA, the detail included in Annex 4.6 on exceptions to the Article on de minimis (Article 4.6) is not in the Chile-U.S. FTA since the exceptions do not have a special annex but are included directly in the text of the Article defining “de minimis”.

Given the subsequent addition of the Dominican Republic, DR-CAFTA incorporated some annexes and appendices that apply exclusively to the Central American countries’ trade with the Dominican Republic. This allowed for the inclusion of what was negotiated by these countries in the Agreement that preceded DR-CAFTA. Appendix 3.3.6, “Special Rules of Origin”, comprises a set of rules of origin for each tariff heading that are different to those contained in Annex 4.1 on Specific Rules mentioned above.

Interrelation of the regimes and rules of origin of DR-CAFTA

The final version of the general regime in Chapter 4 of DR-CAFTA regulates trade among the seven countries; additionally the Central American origin regime may also be optionally applied to trade among the five members of the Central American Common Market (CACM). DR-CAFTA also provides for the use of three systems of rules of origin per product that may be applied in some cases according to the products being traded and the countries involved.

Regarding United States’ trade with the Central American countries and the Dominican Republic, the general regime and Annex 4.1 on specific rules are applied except in the case of sugar, coffee and products negotiated with quotas. In the cases mentioned, although the rule for each product is the same as that of Annex 4.1, the scope is exclusively bilateral since it applies between the United States and each one of the other members of DR-CAFTA. As a result, with respect to the products mentioned, the text does not provide for accumulation of inputs from a third country party to the Agreement. This regime also applies to intra-Central American trade and trade from these countries with the Dominican Republic.

However, in trade among the Central American countries there is additionally the option to apply the entire regime and specific rules of origin of DR-CAFTA. At the same time, when the preferences negotiated in the scope of the CACM are equal to or greater than those of DR-CAFTA, the importer/exporter may choose to apply the Central American origin regime.

Another option is Appendix 3.3.6 on Special Rules of Origin, Parts I and II applied exclusively to trade between a Central American country and the Dominican Republic6. Part IV, which establishes the requirements for assembly, also has the same scope. Part III contains bilateral rules of origin that would take precedence over the requirements established in Part II for some products from a Central American country in trade with the Dominican Republic.

With respect to trade between the United States and the Dominican Republic, Appendix 4.1-D provides for special rules of origin that differ from the rules in Annex 4.1 for a few products (for example, mineral fuels, plastics, iron and steel). These rules shall apply for a period of two years after the date of entry into force of the Agreement, after which time the rules of Annex 4.1 shall apply.

The following section examines the conceptual differences between the two Agreements in their treatment of rules of origin and origin procedures. It should be noted that the concepts are included in different Articles of the Agreements and under different titles, hence the need in some cases, to divide some Articles for the purposes of comparison and analysis. Likewise, the differences included herein are exclusively those that entail distinct conceptual perspectives unlike other Chapters in this study, and do not focus on differences in wording as those differences are way too many. This analysis covers Chapter 4 in both Agreements (origin regime) and part of Chapter 3 (on origin related to textiles). The analysis regarding issues related to customs cooperation and customs procedures in origin, regardless of where they may be included in the Agreements, may be found under Chapter 5 on Customs Administration.

Section A: Rules of origin

Both Agreements establish the manner in which goods are to be classified from the perspective of origin.

Originating goods: these goods are defined in Article 4.1 in both Agreements.

a) Goods wholly obtained or produced entirely in the territory of one or both of the Parties. This concept is the same in both Agreements, except that they differ slightly in specifying the scope in the corresponding Articles on definitions. In essence, the definitions are ordered and worded differently. Moreover, as regards fish, shellfish and other marine life, DR-CAFTA allows them to be caught “outside the territory of one or more of the Parties”.

b) Goods produced exclusively from materials originating from the territory of the Parties. There are no differences.

c) Goods produced from originating and non-originating materials. Although the wording is similar in both Agreements, the norms set out in the respective annexes on specific rules of origin differ in ways that are beyond the scope of this document.

Additionally in this Article, the Chile-U.S. FTA includes the concept of operations that do not confer origin. It establishes that dilution with water or another substance that does not materially alter the characteristics of the original good, or simple combining or packaging operations, do not confer origin. DR-CAFTA makes no provision in this regard and therefore does not identify this type of operation.

Regional value content: both Agreements (Art. 4.2) use the build-down and build-up methods. Additionally, DR-CAFTA adds another option for calculation by including the net cost method for a set of tariff lines and sub-lines of Chapters 84 and 87, related to the automotive industry. Furthermore, DR-CAFTA stipulates that all costs considered for the calculation of regional value content shall be recorded and maintained in conformity with Generally Accepted Accounting Principles.

Value of materials: (Art. 4.3 in both Agreements) for a material acquired in the territory where the good is produced, the Chile-U.S. FTA states that its value is the price that the producer actually paid, while DR-CAFTA sets the value in accordance with Articles 1 through 8, Article 15 and the corresponding interpretative notes of the WTO Agreement on Customs Valuation.

The Chile-U.S. FTA, moreover, establishes criteria for determining the value of a material provided to the producer without charge; this criterior is not included in DR-CAFTA. The two Agreements coincide on the matters to be considered in calculating the value of a self-produced good, but DR-CAFTA confines the amount to profits by making it equivalent to the gains added in the normal course of trade.

Adjustments to the value of materials: (Chile-U.S. FTA Art. 4.3.2 and DR-CAFTA Art. 4.4) there are practically no differences since both are similar on the means of adjusting the value of originating and non-originating materials. The Chile-U.S. FTA further states that this Article shall apply for the purposes of the de minimis rule, an aspect that is not included in DR-CAFTA.

Accessories, spare parts, and tools: (Chile-U.S. FTA Art. 4.4 and DR-CAFTA Art. 4.8) the Chile-U.S. FTA states that these products will be regarded as a material used in the production of the good provided certain conditions are met; DR-CAFTA stipulates that, in the same circumstances, accessories, spare parts or tools shall be considered as originating if the good is originating, and shall be disregarded if they are non-originating in determining the origin of the good to which they correspond when the rule is based on a change in tariff classification. DR-CAFTA further states that if a good is subject to a regional value content requirement, the value of accessories, spare parts, or tools shall be taken into account as originating or non-originating materials, as the case may be, in calculating the regional value content of the good.

Fungible goods and materials: (Chile-U.S. FTA Art. 4.5 and DR-CAFTA Art. 4.7) there are no differences; both Agreements regard these products as originating and they coincide on the inventory management methods that can be applied to them.

Accumulation: (Chile-U.S. FTA Art. 4.6 and DR-CAFTA Art. 4.5) there are no differences between each Agreement’s Chapter 4 on the origin regime. Appendix 4.1-B of DR-CAFTA, nonetheless, allows accumulation from Mexico and Canada for certain textile products in Chapter 62. This is not included in the Chile-U.S. FTA. The Annex establishes the conditions that must be satisfied in order to be able to accumulate; the Dominican Republic is also granted this flexibility.

Additionally, given the plurilateral nature of DR-CAFTA, in the case of sensitive products or products with quotas already mentioned, the application of the principle of accumulation is a bilateral issue, that is, an issue exclusively between the exporting country and the importing country.

De minimis: (Chile-U.S. FTA Art. 4.7 and DR-CAFTA Art. 4.6 and its Annex) the value of the exception (10%) and its means of application are the same in the two Agreements, but they differ in some of their exceptions. DR-CAFTA’s exceptions to the de minimis rule for headings 09.01, 11.02, 11.03, 19 04.90 and 21.01 are not included in the Chile-U.S. FTA. DR-CAFTA’s exceptions for their application in all the products of Chapter 15 are confined in the Chile-U.S. FTA to headings 1501 to 1508, 1512, 1514 and 1515. The Chile-U.S. FTA excepts the application of de minimis to non-originating materials of heading 1805 when they are used in the production of goods provided for in heading 1806.10, and the material provided for in headings 2203 through 2208 used in the production of a good provided for in heading 2207 or 2208.

The Chapter on textiles includes the levels and means of applying the de minimis criterion to such products, which is different from what was previously mentioned.

Indirect materials used in production: (Chile-U.S. FTA Art. 4.8 and DR-CAFTA Art. 4.11) both Agreements regard indirect materials as originating regardless of their origin.

Packaging Materials and Containers for Retail Sale: (Art. 4.9 in both Agreements) both Agreements make the same provisions for the treatment of containers and packaging material for retail sale. These containers shall be disregarded in determining the origin of a good if they undergo the applicable change in tariff classification, and they will be taken into account in establishing the origin of a good when the good is subject to a regional value content requirement.

Packing Materials and Containers for Shipment: (Art. 4.10 in both Agreements) containers and packaging materials for shipment are considered originating in both Agreements, regardless of their origin.

Transit and transshipment: (Chile-U.S. FTA Art. 4.11 and DR-CAFTA Art. 4.12) in both Agreements, a good does not cease to be originating if, outside the territories of the Parties, it undergoes unloading, loading or any other process necessary to preserve it in good condition or to transport it to the territory of a Party. A condition of this in DR-CAFTA is that the good does not remain under customs authority control in the territory of a non-member of the Agreement.

Articles in this section included in only one of the Agreements

DR-CAFTA includes an Article on the treatment of goods classified as a set (Art. 4.13); the Chile-U.S. FTA does not. DR-CAFTA also has an Article, absent from the Chile-U.S. FTA, on consultation and modifications (Art. 4.14) for the Agreement’s uniform application and interpretation, and on changes to the specific rules of origin.

Section B: Origin Procedures

A general feature of this section is that while the titles are similar in both Agreements, the concepts are distributed differently. Hence the need in some cases to combine different titles and Articles.

Claims of origin: (Chile-U.S. FTA Art. 4.12, “Claims of Origin”, and DR-CAFTA Art. 4.15, “Obligations Relating to Importations”, paragraphs 1, 2, 3, and 5) under various Articles with different titles, both Agreements contain similar paragraphs on obligations of importers related to declaration of origin, availability of the certificate, corrections to incorrect declarations and request for refund of duties paid on previously imported goods.

Both Agreements state that each Party may require the importer making a claim for preferential tariff treatment to present a declaration stating that the good is originating. Likewise, where required by the customs authority of the importing Party, the importer shall present a written certification. Customs authorities may require the importer to demonstrate that the good that is qualified as originating satisfies the established requirements to meet such a condition.

Both Agreements establish the requirements that the importers will have to satisfy in order to be able to request the refund of tariffs paid on the importation of negotiated goods; the deadline for this request is fixed at no later than one year after the date of importation of the goods.

Certification of origin: (Chile-U.S. FTA Art. 4.13 and DR-CAFTA Art. 4.16 and Art. 4.17, “Exceptions”) the Chile-U.S. FTA establishes that the exporter or importer may issue a certificate of origin based on a certificate of the producer of the good or with the knowledge that the good qualifies as originating. DR-CAFTA establishes that the exporter will issue a certification based on the knowledge of the origin of the good, or based on reasonable reliance on the certification issued by the producer. As a result, the difference between the two is that in the case of the exporter issuing the certificate based on the certificate of the producer, DR-CAFTA requires that in addition to having the certificate, the exporter is to have reasonable reliance on the information. With respect to the importer issuing the certificate, DR-CAFTA does not establish anything specific and only refers to requests for preferential treatment. This request can be made by the importer based on the knowledge that the good is originating and/or reasonable reliance on the information regarding the good satisfying the established requirements.

Another difference in DR-CAFTA is that no Party may require an exporter or producer to provide a written or electronic certification to another person.

Obligations relating to importations: (Chile-U.S. FTA Art. 4.14, and DR-CAFTA Arts. 4.15 and 4.19, “Record Keeping Requirement”) DR-CAFTA establishes that on making a declaration of origin, the importer is to have a certificate of origin in his possession and provide a copy of it to the importing Party’s customs authority. In cases involving a certificate issued by the exporter or producer, on request of the importing Party’s customs authority, the importer must make arrangements for the producer or exporter to provide all the information used in making the certification. The Chile-U.S. FTA establishes that the importer is responsible for presenting the certificate of origin or other information demonstrating that the good qualifies as originating and for the truthfulness of the data and information provided. This Agreement is different from DR-CAFTA in that it extends the responsibility of the importer to include cases where the importer would have issued the certificate of origin based on data provided by the exporter or producer.

The Chile-U.S. FTA requires importers to maintain, for five years, a certificate of origin and all documentation demonstrating that the good qualifies as originating as well as documents related to the importation of the good. Among this information, the importer must maintain records associated with the purchase, cost, value and payment for the goods and where appropriate, the purchase, cost, value and payment for materials, including information on recovered goods, indirect materials and production processes.

DR-CAFTA establishes a minimum period of five years for maintaining all records and documentation.

Obligations relating to exportations: (Chile-U.S. FTA Art. 4.15 and DR-CAFTA Arts. 4.18 and 4.19. “Record Keeping Requirement”) both Agreements state that the exporter must provide a copy of the certificates to the Party’s customs authority upon request (Chile-U.S. FTA Art. 4.15.1 and DR-CAFTA Art. 4.18.1(a)). According to both, moreover, an exporter or producer who has issued a certificate of origin shall maintain, for a period of at least five years, all records needed to demonstrate the good’s eligibility, including those related to the cost, value of, and payment for the good exported, information on the inputs used and, when necessary, on the production process (Chile-U.S. FTA paragraph 2 and DR-CAFTA Art. 4.19.1).

Both also state that the exporter must notify every person to whom the certificate has been issued of any change that could affect the accuracy or validity of the certificate. Neither Party may impose penalties on an exporter or producer for issuing an incorrect certificate if such notification is voluntarily provided (Chile-U.S. FTA paragraph 3 and DR-CAFTA Arts. 4.18.1(c) and 4.18.2).

According to DR-CAFTA, the Parties will provide that a false certification by an exporter will have the same legal consequences, with appropriate modifications, as would apply to an importer making false statements or representations (Art. 4.18.1(c)).

Both Agreements provide that the Parties will not impose penalties on producers or exporters who provide an incorrect certificate of origin once written notification about the error is voluntarily provided. This notification would have to be sent to all the people to whom the certificate would have been given.

Procedures for verification of origin: (Chile-U.S. FTA Art. 4.16 and DR-CAFTA Art. 4.15 “Obligations relating to Importations” and Art. 4.20 “Verification”) the Chile-U.S. FTA stipulates that the importing Party may, through its customs authority, verify the origin in accordance with its customs laws and regulations (paragraph 2). DR-CAFTA states that the importing Party may conduct a verification of origin in accordance with a series of procedures that the importing Party may follow to this end (written requests and questionnaires, visits or inspections). It also makes provision for the two Parties to agree on other verification procedures (Art. 4.20.1).

According to the Chile-U.S. FTA, when a Party denies a claim for preferential tariff treatment it shall issue a written determination containing findings of fact and the legal basis for its determination (paragraph 3). DR-CAFTA establishes that when a Party denies a request for preferential treatment or conducts a verification of origin, it shall provide a written determination of whether the good is an originating good, which shall include factual findings and the legal basis for its determination (Art. 4.15.1 and Art. 4.20.3).

In DR-CAFTA, moreover, a Party may deny preferential tariff treatment to an imported good when the exporter, producer, or importer fails to respond to written requests for information or questionnaires within a reasonable period as established by the importing Party's domestic law, or when the exporter or producer does not provide written consent for a verification visit (paragraphs 2a and 2b). In DR-CAFTA, a Party may deny preferential tariff treatment to an imported good when it finds a pattern of conduct indicating that an importer, exporter, or producer has provided false or unfounded declarations about a good imported into its territory (Art. 4.20.2(c)).

In the Chile-U.S. FTA, when a Party determines through verification that an importer has certified more than once, falsely or without substantiation, that a good qualifies as originating, the Party may suspend preferential tariff treatment to identical goods imported by that person until the latter proves to have complied with the Party’s laws and regulations (paragraph 5). DR-CAFTA states that when the importing Party determines through verification that an importer, exporter, or producer has engaged in a pattern of conduct in providing false or unsupported statements or declarations, the importing Party may suspend preferential tariff treatment with respect to identical goods covered by subsequent declarations or certifications until the Party determines that the importer, exporter, or producer is complying with the requirements of this Chapter (paragraph 5 in both Agreements).

In the Chile-U.S. FTA, a Party conducting a verification of origin shall use generally accepted accounting principles and apply them in the manner as they are applied in the exporting Party (paragraph 6).

In DR-CAFTA, if the importing Party determines that a good is not originating, the Party shall not apply that determination to an importation made before the date of the determination, provided that the customs authority of the exporting Party has issued an advance ruling, prior to the determination of origin, on which a person is entitled to rely (paragraph 4).

Common guidelines: (Chile-U.S. FTA Art. 4.17 and DR-CAFTA Art. 4.21) in both Agreements the Parties agree to publish common guidelines for the interpretation, application, and administration of this Chapter and the relevant provisions of others; in the Chile-U.S. FTA these activities will be undertaken before the Agreement enters into force, whereas in DR-CAFTA the Parties will endeavor to do so on the date the Agreement enters into force. Both Agreements stipulate that the Parties may modify the common guidelines. DR-CAFTA states that the Parties will endeavor to develop a framework for conducting verifications pursuant to Article 4.20.1(c).

Definitions: (Chile-U.S. FTA Art. 4.18 and DR-CAFTA Art. 4.22) the concepts listed and the definition of concepts in both Agreements sometimes differ.

Provisions in Chapter 3 on Rules of Origin and Related Matters for Textiles and Apparel:

Scope of application and coverage: (Chile-U.S. FTA Arts. 3.20.1 and Arts. 3.20.2 and DR-CAFTA Art. 3.19) the definition of products in this section differs. In the Chile-U.S. FTA a textile and apparel good means a product listed in the Annex to the Agreement on Textiles and Clothing. In DR-CAFTA a textile and apparel good means a product listed in the Annex to the WTO Agreement on Textiles and Clothing except for goods included in Annex 3.29.

The Chile-U.S. FTA states that except as provided for in this section, Chapter Four (Rules of Origin and Origin Procedures) applies to textile and apparel goods, and that this Agreement’s rules of origin shall not apply in determining the country of origin of a textile or apparel good for non-preferential purposes.

Consultation: (Chile-U.S. FTA Arts. 3.20.3 - 3.20.5 and DR-CAFTA Arts. 3.25.1 -3.25.3) the two Agreements provide for similar systems of consultation and review of their rules for textile products, such that the Parties may determine if there is significant or substantial production in their territory and make the necessary changes in line with the procedures established in the Agreements on modifications. The schedules for the various phases of this process differ in the two Agreements. Additionally, DR-CAFTA establishes steps and deadlines that the United States must follow in order to add a fabric, fiber, or yarn in an unrestricted or restricted quantity to the list in Annex 3.25.

De minimis: for the goods in Chapters 50 to 63 of the Harmonized System, the two Agreements make provision for flexibility according to the weight of the fibers. The Chile-U.S. FTA sets a ceiling of 7% and DR-CAFTA a ceiling of 10% for the weight of the non-originating fibers or yarns that do not comply with the tariff classification but that may be included in a good which will still be regarded as originating. In the case of elastomeric yarns, both Agreements limit the application of the concept of “de minimis”.

The general de minimis regime is in Chapter 4.

Treatment of sets: in both Agreements, sets comprising originating goods and those in which the value of the non-originating goods in the set does not exceed 10% of the value shall be regarded as originating. The Agreements calculate this on differing bases: the customs value of the set in the Chile-U.S. FTA, and the adjusted value of the set in DR-CAFTA. DR-CAFTA’s general regime on sets is in Chapter 4.

Special flexibility for meeting the origin requirements of textiles products: (Chile-U.S. FTA Arts. 3.20.8 -3.20.11 and DR-CAFTA  Arts. 3.25.4 - 3.25.7) the Chile-U.S. FTA stipulates that the following goods will be regarded as originating: cotton or man-made fiber fabric goods provided for in Chapters 52, 54, 55, 58, and 60 of the Harmonized System that are wholly formed in the territory of a Party from yarn produced or obtained outside the territory of a Party; and cotton or man-made fiber fabric goods provided for in the annex on specific rules of origin that are wholly formed in the territory of a Party from yarn spun in the territory of a Party from non-originating fiber. This flexibility to use non-originating inputs is limited to a total annual quantity of 1 million SME. The same criterion is applied to cotton or man-made fiber apparel goods provided for in Chapters 61 and 62 of the Harmonized System that are cut or knit to shape and otherwise assembled in the territory of a Party from non-originating fibers. This ceiling on this flexibility is 2 million SME in the first ten years and 1 million from the eleventh year onwards.

The Parties, through their competent authorities, may require that an importer claiming preferential tariff treatment for such textile or apparel goods present a certification of eligibility, including information demonstrating that the good meets the requirements for preferential tariff treatment.

According to DR-CAFTA, notwithstanding the provisions on specific rules of origin, textile and apparel goods will be regarded as originating even if they are produced using non-originating fabric, yarns or fibers included in Annex 3.25. The United States may unilaterally include or exclude the textiles products mentioned in the annex and fix or change the volumes. The criterion for inclusion is that the goods include fabrics, yarns or fibers that are not available in commercial quantities and to whose inclusion there is no objection. The Agreement defines the criteria for determining the availability or otherwise of the fabrics and yarns. DR-CAFTA makes provision for some flexibility for nylon filament yarn.

Provisions in Chapter 3 Annex 3.3.6 and Appendix 3.3.6 - Trade between the Dominican Republic and Central America:

Annex 3.3.6 of DR-CAFTA establishes the conditions that will be applied to trade among the Central American countries and the Dominican Republic, both with reference to tariff elimination and origin. With respect to the latter, the Agreement states that the regime to be applied will be set out in Chapter 4 of the Agreement. The rules of origin governing each product contained in Appendix 3.3.6 "Special Rules of Origin”, differ from those in Annex 4.1.

Additionally Annex 3.3.6 grants duty-free treatment to trade among these countries except for a series of products, edible oils, derivatives from petroleum and the lists in Appendix For all duty-free products, the importer/exporter has the option to carry out the operation under the rules of origin established in Annex 4.1,"Specific Rules of Origin” or in accordance with the rules in Appendix 3.3.6, "Special Rules of Origin”. Nevertheless, for the excepted products, Appendix 3.3.6 "Special Rules of Origin” is exclusively applied.

6According to the footnote in Annex 3.3.6, with respect to trade in duty-free products among countries, the regime in Annex 4.1 may also optionally be applied. As regards excepted products or products in the process of being liberalised, this option does not exist since the rules of origin of Appendix 3.3.6 will be exclusively applied

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