IN VIEW OF:  Art. 10 of the Treaty of Asuncion, Decisions No 1/93 and No 13/94 of the Common Market Council, and Resolution No 39/94 of the Common Market Group.

WHEREAS:

The existence of products exempt from the Mercosur Common External Tariff after I January 1995 necessitates the implementation of clear, predictable Rules of Origin to facilitate the flow of intra-zonal trade;

It is also extremely important to ensure that the aforementioned rules do not, of themselves, create unnecessary obstacles to said flow of trade;

So as not to extend the differential treatment to third countries, the Mercosur Party States must adopt definite, clear rules of origin that will make it Possible to determine certifiably the nationality of the products exchanged.

THE COMMON MARKET GROUP
 RESOLVES:

Article 1 - To approve the Regulations pertaining to the MERCOSUR Origin System, included as an Annex to this Decision.

Article 2 - Once the lists of exceptions have been approved by the Common Market Group, the Party States shall agree, at a joint meeting of the Nos. 1 and 10 Working Subgroups, on the origin requirements that must be met by products affected by this system, comprising the different annexes relating thereto.

Article 3 - To stipulate that the Trade Commission shall be the body responsible for the administration of this System.

ANNEX

RULES OF ORIGIN OF GOODS IN THE COMMON MARKET OF THE SOUTH

CHAPTER I

DEFINITION OF THE REGULATIONS

Article 1

These Regulations define the MERCOSUR rules of origin, the provisions, and the administrative decisions to be applied by the State Parties for purposes of:

1) Classification and determination of the native product;

2) Issuance of certificates of origin; and

3) Penalties for forging or falsification of certificates of origin, or non-compliance with the verification and control processes.

CHAPTER II

SCOPE OF APPLICATION

Article 2

The provisions of these Regulations shall be applied in the following cases:

- Products in the process of convergence to the Common External Tariff;

- Products subject to the Common External Tariff, but with input, parts, pieces, and components in the process of convergence, except in cases wherein the total value of the extra-zonal input does not exceed 40% of the total FOB value of the end product;

- Different trade policy measures applied by one or more Party States;

- In exceptional cases to be decided by the Mercosur Trade Commission.

CHAPTER III

GENERAL ORIGIN SYSTEM

Article 3

To be considered native are:

a) Products totally made in the territory of any of the State Parties when materials solely and exclusively native to the State Parties are used in making them;

b) Products from the animal, mineral, and plant kingdoms, including those obtained from hunting and fishing, extracted, harvested, or collected, born, and raised in their territory, or in their territorial or patrimonial waters and exclusive economic zones, and products of the sea extracted outside their territorial or patrimonial waters and exclusive economic zones by vessels with their flag, or chartered by companies established in their territory, and processed in their economic zones, even if they have been subjected to primary packing and conservation processes required for their marketing that do not entail any change in the classification grading.

c) Products in the preparation of which materials not native to the State Parties are used, when they result from a transformation process carried out in their territory, which lends them a new individuality, characterized by the fact that they are categorized in the MERCOSUR Common Classification in a position different from that of the aforementioned materials, except in cases wherein the criterion of a jump in tariff position plus 60% added value is deemed necessary.

Nevertheless, products resulting from operations or processes carried out in the territory of a State Parties whereby they acquire the final form in which they will be marketed shall not be considered native when, in those operations or processes, materials or inputs exclusively non-native to the State Parties are used, and they consist only of mountings, or assemblies, packing, division into lots or volumes, selection, classification, marking, composition of stocks of goods, or mere dilutions in water or another substance that does not alter the characteristics of the product as native, or other equivalent operations or processes;

d) In cases wherein the requirement stipulated in section c) cannot be met, because the transformation process carried out does not entail a change in position in the MERCOSUR Common Classification, it shall suffice if the CIF port of destination or CIF maritime port value of the input from third countries does not exceed 40% of the FOB value of the goods involved.

In weighing materials native to third countries for the State Parties without a seacoast, the storage facilities and free trade zones granted by the other Party States shall, be considered a port of destination when the materials arrive by an ocean route.

e) Products resulting from assembly or mounting operations conducted in the territory of a MERCOSUR country, using materials native to third countries, when the CIF port of destination value or CIF maritime port value of those materials does not exceed 40% of the FOB value.

f) Products that meet the specific requirements to be established according to the procedure stipulated in Art. 2 of Res. [number missing] /94 of the GMC. Capital goods shall have an origin requirement of 80% of the value added within MERCOSUR.

Article 4

The MERCOSUR Trade Commission may establish specitic origin requirements in the future, in an exceptional and justified manner, and they shall take precedence over the general criteria. It may also reconsider the established requirements.

Article 5

In determining the specific origin requirements cited in Article 4, and in reconsidering those already established, the MERCOSUR Trade Commission shall take the following items as a basis, individually or jointly:

I. Materials and other inputs used in production:

a) Raw materials:

i) Preponderant raw material or that lending the product its essential characteristics, and;

ii) Principal raw materials.

b) Parts or pieces:

i) Part or piece lending the product its final characteristic;

ii) Principal parts or pieces, and

iii) Percentage of the parts or pieces in relation to the total value.

c) Other input.

II. Transformation or manufacturing process used.

III. Maximum proportion of the value of the materials imported from third countries in relation to the total value of the product, resulting from the valuation procedure agreed upon in each case.

In exceptional cases, when the specific requirements cannot be met because of the occurrence of circumstantial problems of supply, availability, technical specifications, or delivery time and price, materials not native to the State Parties may be used.

In the situation specified in the preceding paragraph, the qualified entities of the exporting State Parties shall issue the corresponding certificate, which must be accompanied by a declaration of necessity, issued by the competent government authority, informing the importing State Parties and the Trade Commission of the background and circumstances justifying the issuance of the aforementioned document.

If there is a constant, repetition of these cases, the exporting State Parties or the importing State Parties shall report this situation to the Trade Commission for purposes of a revision of the specific requirement.

The criterion of maximum use of materials and other inputs native to the Party States may not be considered for setting requirements that entail an imposition of materials or other input from the aforementioned Party States when, in their judgment, these materials or inputs do not meet the appropriate requirements of supply, quality, and price, or are not adapted to the industrial processes or applied technologies.

Article 6

At the request of any State Parties, the Trade Commission may authorize the revision of the specific origin requirements stipulated in Articles 3 to 5. The requesting State Parties must provide and give grounds for the requirements applicable to the product or products involved.

Article 7

To fulfill the origin requirements, materials native to the territory of any of the MERCOSUR countries incorporated into a particular product shall be considered native to the territory of the latter.

Article 8

For purposes of this system, the expression "materials" shall be interpreted as covering the raw materials, inputs, intermediate products, and parts and pieces used in making the product.

Article 9

For purposes of this system, the expression "territory" covers the territory of the MERCOSUR State Parties, including their territorial and patrimonial waters located within their geographical boundaries.

Article 10

For native goods to benefit from preferential treatment, they must have been shipped directly from the exporting State Parties to the importing State Parties. For this purpose, direct shipment is interpreted as:

a) Goods transported without passing through the territory of any country not a participant in MERCOSUR;

b) Goods transported in transit through one or more non-participating countries, with or without transshipment or temporary storage, under the surveillance of a competent customs authority in such countries, provided that:

i) the transit is justified for geographical reasons or considerations relating to transport requirements;

ii) they were not destined for commerce, use, or employment in the country of transit;

iii) during the transport or storage, they do not undergo any operation other than those of loading and unloading, or handling, to keep them in good condition or to ensure their conservation.

c) The intervention of operators from another country may be allowed, provided that, adhering to the provisions in a) and b), there is a commercial invoice issued by the intervening entity and a Certificate of Origin issued by the authorities of the exporting State Parties.

CHAPTER IV

CERTIFYING ENTITIES

Article 11

The issuance of the certificates of origin shall be the responsibility of official departments, to be named by the State Parties, which may delegate the issuance of certificates of origin to other public agencies or entities on a higher level of class, operating in a national, state, or provincial jurisdiction. An official department in each Party State shall be responsible for controlling the issuance of certificates of origin.

Each Party State shall notify the Trade Commission of the pertinent official department.

Article 12

In delegating the authority to issue certificates of origin, the government departments shall take into account the representative status, technical capacity, and suitability of the entities of higher rank for providing such service.

Article 13

The State Parties shall notify the Trade Commission of the names of the official departments and entities of higher rank qualified to issue certificates of origin, with the registration and facsimile of the signatures of the officials accredited for that purpose.

CHAPTER V

DECLARATION, CERTIFICATION, AND VERIFICATION OF ORIGIN

Article 14

The certificate of origin is the document permitting verification of the origin of the goods, and must accompany them in all cases subject to the application of origin rules, according to Article 2 of this System, except in the cases specified in Article 4. This certificate must meet the following requirements:

- Be issued by qualified certifying entities;

- Identify the goods to which it relates;

- Indicate unequivocally that the goods to which it relates are native to the State Party concerned, based on the terms and provisions of these Regulations.

Article 15

The application for a Certificate of Origin must be preceded by a sworn declaration, or other legal instrument with equivalent effect, signed by the final producer, which shall indicate the characteristics and components of the product, and the processes for its manufacture, containing the following required information as a minimum:

a) Company or firm name

b) Legal domicile and that of the industrial plant

c) Designation of the material to be exported, and NCM/SH position

d) FOB value

e) Description of the productive process

f) Evidence demonstrating the components of the product, indicating:

i) National materials, components, and/or parts and pieces;

ii) Materials, components, and/or parts and pieces native to other State Parties, indicating origin:

- NCM/SH codes - CIF value in American dollars - Percentages of participation in the end product

iii) Materials, components, and/or parts and pieces native to third countries:

- NCM/SH codes - CIF value in American dollars - Percentage of participation in the end product

The description of the product included in the declaration accrediting the fulfillment of the origin requirements stipulated in these regulations must coincide with that corresponding to the code of the Common Market Nermenclature (NCM/SH) with which it is registered on the commercial invoice, as well as in the Certificate of Origin accompanying the documents submitted for its customs clearance. In addition, the common description of the product may be included.

The aforementioned declarations must be submitted sufficiently in advance for each application for certification. In the case of products or goods regularly exported, provided that the process and the component materials have not been changed, the declaration may have a validity of 180 days, counted from the date of its issuance.

Article 16

The Certificates of Origin issued by the qualified entities must maintain a correlative order number, and remain filed by the certifying entity for a period of 2 (two) years after the date of issue. These files also must include all the relevant background information on the certificate issued, as well as that relating to the declaration required according to the stipulations in the preceding article.

The qualified entities shall keep a permanent record of all the certificates of origin issued, which must contain, as a minimum, the certificate number, its requester, and the date of its issuance.

Certificates of origin shall have a validity period of 180 (one hundred eighty) days, and must be issued exclusively on the annexed form. They shall lack validity if they are not filled out in all their spaces.

Article 17

The Certificates of Origin must be issued, at the latest, 10 (ten) business days after the final shipment of the goods covered by them.

CHAPTER VI

AUTHENTICITY OF CERTIFICATES

Article 18

Despite the submission of the certificate of origin based on the conditions stipulated in these Regulations and their complementary rules, the competent authorities may, in the event of doubts, with grounds, regarding the authenticity or veracity of the certificate, require of the official department responsible for verifying and controlling certificates of origin additional information in order to dispel the doubt.

The importing State Parties shall not detain the procedures to import the goods involved. Meanwhile, it may, in addition to requesting the pertinent additional evidence, adopt measures that it deems necessary to guarantee its fiscal interest.

Article 19

The official department responsible for verifying and controlling Certificates of Origin must provide the information requested through application of the provisions of Article 18 within a period not exceeding 15 (fifteen) business days, counted from the date of receipt of the respective request. The information shall be confidential in nature and shall be used exclusively to clarify such cases.

Article 20

In cases wherein the information requested is not provided or is unsatisfactory, the authorities of the country importing such goods may order preventive suspension of the entry of new transactions relating to products of that company, or of transactions linked with the certifying entities involved, including those that are undergoing or involved in customs procedures. The authorities of the importing country must immediately submit to the Mercosur Trade Commission the background information on the case, and the latter must arbitrate the final decision within a period of 20 (twenty) consecutive days.

Article 21

For purposes of verifying whether a good is native to one of the State Parties, the importing State Parties, through the competent authority of the exporting State Parties, may:

a) send written questionnaires to exporters or producers in the territory of another State Parties;

b) request, in duly justified cases, that this authority take the pertinent action making it possible to pay verification visits to the facilities of an exporter, to examine the production processes and facilities used in the production of the good in question, as well as other action that will help to verify the origin;

c) engage in other procedures agreed upon by the State Parties.

For this purpose, the State Parties promise to facilitate the execution of reciprocal External Audits.

CHAPTER VII

PENALTIES

Article 22

When it is found that the certificates issued by a qualified entity do not conform to the provisions contained in these Regulations, or to their complementary rules, or when falsification or forging of certificates of origin is verified, the country receiving the goods covered by said certificates may adopt the penalties that it deems fitting to protect its fiscal or economic interests.

The entities issuing certificates of origin shall be jointly liable with the applicant regarding the authenticity of the data contained in the Certificate of Origin and in the declaration mentioned in Article 16, within the authority delegated to them.

This liability may be excused when an issuing entity claims it issued the certificate of origin on the basis of false information supplied by the applicant, which is beyond its usual control practices for which it is responsible.

Article 23

When falsity is found in the declaration provided for the issuance of a certificate of origin, without precluding the pertinent criminal penalties based on the legislation of its country, the exporter shall be suspended for a period of 18 (eighteen) months from engaging in operations within the scope of MERCOSUR. Entities qualified to issue certificates that have done so under the conditions established in this Article may be suspended from issuing new certificates for a period of 12 (twelve) months.

In the event of recidivism, the final producer and/or exporter shall be permanently disqualified from operating in MERCOSUR, and the entity permanently discredited from issuing certificates of origin within the area of the same market.

Article 24

When forging or falsification of certificates is confirmed in any of their parts, the compe­tent authorities of the issuing country shall disqualify the final producer and/or exporter from operating within the scope of MERCOSUR. This penalty may be extended to the one or more certifying entities when the country's competent authorities so decide.

Article 25

Final Provisions

The Party States agree that the rules contained in these Regulations and their Annexes, concerning both the General System and the requirements in Annexes I and II, shall be the minimum ones for the tariff universe included in commercial and preferential negotiations with third countries.