By: William Escobar
Preferential and non-preferential origin.
We are in a globalized world, where it is increasingly common for citizens of different States to enter trade relations for the exchange of goods, which in turn has an impact on each of their economies. In this context, import tariffs constitute artificial barriers to trade, protecting through taxation their domestic markets, or at least some of the national branches of production that they consider important.
Such is the magnitude of the importance of international trade relations that the World Trade Organization (WTO) is currently in charge of issuing the rules governing trade relations between countries, with the aim of ensuring that trade exchanges take place as smoothly, predictably and freely as possible.
One of the principles of this international trade system in the context of the WTO is the Most-Favored-Nation (MFN) principle, whereby countries may not discriminate among their various trading partners, so that if one country is granted a special advantage (e.g. a reduction in the tariff rate applicable to one of its products), the same must be done for all other WTO members. A clear example of the application of this principle is our Central American Import Tariff, which establishes general rates for any country importing into the Central American region.
However, in the field of International Trade, certain exceptions to the application of this principle are allowed, which can be both favorable and unfavorable:
- Free Trade Agreements (FTA).
- Economic integration processes.
- Benefits granted unilaterally.
- Antidumping measures.
- Countervailing Measures against Subsidies.
In this context, for the imposition of favorable or unfavorable treatment, the use of Rules of Origin, understood as methods to determine when a good has been produced in a certain country, is indispensable. Here we must distinguish between preferential origin and non-preferential origin. The former is applicable in a context of favorable trade relations (e.g. Free Trade Agreements), while the latter is applicable to non-preferential conditions (e.g. the imposition of Antidumping Duties).
Central American Free Trade
In other words, companies that export products originating in the Central American area will have the benefits of free trade, which represents a competitive advantage over competitors that do not import under a Free Trade Agreement. Exporters have the benefit of introducing their products free of tariff barriers; and importers no longer pay the corresponding Import Tariff Duties.
Importance of the Central American Rules of Origin.
Based on the benefits enjoyed by goods originating in the Central American Free Trade Zone, it is of great importance to establish whether the imported goods originate in Central America, for which there are special Rules of Origin applicable at the Central American regional regulatory level, as explained below:
– Origin Criteria
The Central American Regulation on Origin of Goods (RCAOM) in force since January 10, 2022, establishes the Origin Criteria, stating that a good is considered as originating in the Free Trade Zone when:
- It is obtained or produced entirely in the territory of one or more of the Party States.
- It is produced in the territory of one or more of the Party States, exclusively from materials that qualify as originating in one or more Party States, in accordance with the RCAOM.
- It is produced in the territory of one or more of the Party States using non-originating materials that meet a change in tariff classification; a regional value content; or a combination of both or other requirements, as specified in the Annex to the Specific Rules of Origin, and the good complies with the other applicable provisions of the RCAOM.
- It is produced in the territory of one or more of the Party States, even if one or more of the non-originating materials used in the production of the good does not comply with a change in tariff classification, as set out in the Annex to the Specific Rules of Origin, due to specific situations regulated in the RCAOM, provided that the regional value content of the good is not less than 30%; unless otherwise provided in the Annex to the Specific Rules of Origin.
In addition, it is clarified that the production of a good from non-originating materials that meet a change in tariff classification and other requirements, as specified in the Annex to the Specific Rules of Origin, must be made entirely in one or more of the Party States, and any regional value content of a good must be satisfied entirely in one or more of the Party States.
Specific Rules of Origin (ROE)
Accordingly, the Specific Rules of Origin (ROE) establish the specific requirements that goods made from non-originating materials must meet to be considered as originating goods of the free trade zone for the purposes of the RCAOM. This is in accordance with Origin Criteria C and D, mentioned above.
Why is it important to comply with ROE?
If the referred Specific Rules of Origin are not complied with, in an eventual verification of origin, the competent Authority of the Importing Country, may deny Free Trade to the exporter, and charge the importers the customs duties not cancelled at the time of importation.
That said, by means of Resolution issued by the Council of Ministers of Central American Economic Integration (COMIECO), No. 461-2022 (COMIECO-C), the Annex to the Central American Regulations on the Origin of Goods, which contains the Specific Rules of Origin, was modified by total substitution. This amendment became effective as of January 1, 2023.
The modification to the Annex containing the ROE is a consequence of resolutions No. 449-2021 (COMIECO-XCV); and 450-2021 (COMIECO-EX), by means of which the modification by total substitution of the Central American Regulation on the Origin of Goods, and the Central American Import Tariff, which incorporates the Seventh Amendment of the Central American Tariff System (SAC), was approved, reason why COMIECO considered necessary to adapt the Specific Rules of Origin contained in the referred Annex.
Notwithstanding the application of this new Annex, Panama shall continue to apply the Specific Rules of Origin not contained in the Central American Regulations on the Origin of Goods (RCAOM), as agreed in the Protocol of Incorporation of said Country to the Central American Economic Integration Subsystem, and which are contained in Annex 6 (a) of said Protocol. For the rest, the ROE that have been adopted by Panama, in accordance with article 6 of the Protocol of Incorporation, are an integral part of the Annex to the Central American Regulations on the Origin of Goods.
Therefore, it is important that Central American exporters and importers are aware of the incorporation of this Annex to the Central American Regulations on the Origin of Goods, in order to make proper use of the benefits contained in the General Treaty on Central American Economic Integration.
For further information, please contact Dr. Diego Martín (firstname.lastname@example.org) and/or Mr. William Escobar (email@example.com); or e-mail firstname.lastname@example.org.