EUROPEAN COMMISSIONDIRECTORATE-GENERAL TAXATION AND CUSTOMS UNIONSecurity & Safety, Trade Facilitation & International CoordinationRules of Origin

Brussels, 11.04.2012TAXUD/B3/FHcr\195

TAXUD/330379/12

Working document

CUSTOMS CODE COMMITTEEORIGIN SECTION

(Council Regulation (EEC) No 2913/92 of 12 October 1992)

20/12/2011, 10.00 hrs - 18.00 hrs – 21/12/2011, 10.00 hrs - 18.00 hrs

Summary report of the 195th meeting of the ORIGIN SECTION of the CUSTOMS CODE COMMITTEE, held in Brussels, on 20 and 21 December 2011

1. APPROVAL OF THE DRAFT AGENDA

The agenda was approved.

2. POSSIBLE COMMENTS ON THE DRAFT SUMMARY REPORT OF THE 194 CCC-ORI MEETING

As the draft summary report of the 194th CCC-ORI meeting was not provided on time, this point was removed from the agenda.

Before moving to preferential origin, the Chairman made the following announcement concerning non preferential origin: Delegations will remember that during the last Committee meeting on 8/9 November 2011 (194th meeting), under point 4.1. "Inclusion of list rules in the current legislation - Examination of the possibility to amend Regulation (EC) no 2454/93 - (reference document TAXUD/1194351/11)", Taxud B3 started collecting MS' preliminary views on the idea to propose an amendment to the current implementing provisions to the customs code, in order to include comprehensive and detailed non preferential rules of origin therein. In the meantime, this possibility has been further considered internally within DG Taxud and it has been decided to discard altogether such a step because it appears that the time is not ripe for such inclusion.

3. PREFERENTIAL ORIGIN

3.1 Revision of pan-Euro-Med rules of origin within the Regional Convention – State of play - Information point

COM informed that so far 12 Contracting Parties (out of 23) have signed the Convention. It will be ratified by Norway, Switzerland and Lichtenstein in November, as a result of which the Convention will enter into force on 1 January 2012 in relation to those Contracting Parties. Within the EU, the conclusion will depend on a Council Act, which requires the consent of the EP, where discussions are now ongoing.

One delegation questioned whether the ratification of the Convention would have an effect on the matrix? COM replied that those countries for which the Convention has entered into force will be able to replace the provisions in their mutual origins protocols with provisions containing a reference to the Appendices of the Convention. A draft for such provisions will be shared with the Committee, as ideally these provisions should be identical in all protocols.

COM recalled that in the current situation two matrices are maintained up-to-date and published in the OJ: one for the PEM cumulation zone and one for the SAP cumulation zone (i.e. EU and Turkey with Western Balkans). Apart from allowing to reform the PEM RoO in the future by amending a single legal act instead of a network of origin protocols, the Convention's second main purpose is to integrate Western Balkans (hereinafter WB) into the PEM cumulation zone. The phasing-in of the Convention should thus be reflected in the matrix(ces) in so far as it has an impact on the composition of the PEM cumulation zone. For that purpose COM is considering two options, consisting respectively of:

a) either continuing to update the existing two matrices without making any further distinction whether the applicable RoO are those from a PEM protocol or those from the Convention, i.e. introducing progressively into the 'SAP matrix' the countries having ratified the Convention (and amended their origin protocols with WB so that they make reference to the Convention); the second matrix would thus become a SAP+ matrix which would eventually replace the PEM matrix;

b) or merging immediately the existing two matrices, so as to create a (single) new matrix; such a single matrix would nevertheless have to distinguish (e.g. through footnotes) between the countries having already integrated WB into the PEM cumulation zone (i.e. having ratified the Convention and amended their origin protocols with WB so that they make reference to the Convention) and the countries having not yet done so;

Both options a) and b) would be based on the consideration that, when comparing the RoO contained in a PEM protocol and those contained in the Convention, differences other than concerning the integration of WB into PEM diagonal cumulation are so limited (e.g. sugar mixing in the list of minimal operation) that they need not be flagged in the matrix(ces).

Additionally and following the approach described under either a) or b), a third matrix might be created which would be specifically devoted to dealing with the legal basis aspects (i.e. PEM protocol Vs PEM Convention legal basis). Such a matrix would thus

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clarify the phasing-in process of the Convention (the operational information needed by economic operators remaining that appearing in the matrices or matrix described under either a) or b)) Of course the situation would have to be completely reconsidered as soon as appendix I to the Convention would be amended further to the revision of the rules.

3.2. EU-Korea FTADebriefing of state of play and of the Joint Customs Committee of 14 and 15 December 2011

On 14 and 15 December 2011, the 1st meeting of the Customs Committee (CC) of EU-Korea FTA took place in Seoul, Korea. The agenda is annexed to this report. It is clear from the agenda that the majority of the points was related to 'Rules of Origin' (RoO).

MS were debriefed orally on the discussions in the CC for each item of the agenda relating to origin. The official summary report of the CC with its 6 annexes covers the main points discussed during the CC and their outcome, and is annexed to this report. This summary report thus also reflects the main points on which MS were debriefed orally during the CCC-ORI.

COM highlighted however that during the CC, Korea and COM confirmed and/or agreed to 14 common interpretations of the RoO Protocol which could be important for MS in their application and implementation of the agreement with Korea. These 14 interpretations should not be new to MS as those were discussed with MS at previous CCC-ORI meetings and/or exchanged by written communications via circa in the last 6 months since the entry into force of the agreement with Korea on 1 July 2011. These 14 common interpretations are now properly listed together in annex VI to the summary report of the CC.

On a few items, MS were debriefed on issues not mentioned in the summary report of the CC. This concerns namely the following:

1) Verification requests:

Korea indicated that it has received approximately 35 verification requests from EU MS since 1 July 2011 up to the end of November 2011. 80% of these verification requests were based on 'at random' requests. Korea noted that it had not sent any verification request to any EU MS up to the date of the 1st CC. Moreover, Korea noted that most of the EU verification requests related to the customs authorization number of the Korean approved exporter.

Korea informed EU that it does not use verification requests on an 'at random' basis. Most verification requests that Korean authorities send to their FTA partners are based on 'risk analysis' and Korea categorizes this under 'reasonable doubt'. Korea was proud to mention it has 80% detection rate implying that 80% of their verification requests based on risk analysis result in lawfully denying preferential treatment based on the fact that preferential origin was 'wrongly' claimed. Several MS rose that this touches an important issue as verifications based on 'risk analysis' are categorized as 'at random' by EU MS and the consequences of a non-response are different. COM agreed and indicated that it will follow up this issue in future meetings with Korea.

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Moreover, Korea detected 50 origin declarations from EU exporters where the unique customs authorization number was not following the structure as indicated by EU MS. Korea had sent e-mails to EU MS with the request to check the unique customs authorization numbers and indicate if the exporter was nonetheless an approved EU exporter. Korea deplores that at least 10 EU MS did not answer the Korean e-mails related to these matters.

Several MS replied to these Korean allegations that it was not clear on which legal basis the Korean request/e-mails were based. Notably one delegation rose that verification requests based on Article 27 of the RoO Protocol in the FTA should not be sent by e-mail and that, in concreto, the Korean request not only concern the unique customs authorization number of the EU approved exporter but several other issues as well in respect of which the legal basis for seeking administrative cooperation is most uncertain. Upon this remark a discussion arose among MS if verification requests could be sent by electronic mail or not. It was concluded that until a decision with a general approach is taken, verification requests based on Article 27 of the RoO Protocol in the FTA should only be sent by hard copy/postal mail.

However, COM indicated to MS that it got the impression at the 1st CC that Korea is using the explanatory note 9 (d) as a basis to refuse preferential treatment without verification. The explanatory note 9 (d) refers to 'fail to submit a proof of origin to the customs authorities of the importing Party within a period specified in legislation of the importing Party'. This period in Korean legislation would be 30 days. If Korea would indeed base itself on this explanatory note 9 (d) and if EU MS would not respond to e-mails from Korea requesting to check the customs authorization number of an EU approved exporter (as the structure of the number on the origin declaration does not correspond to what is communicated to Korea) within 30 days, Korea would deny preferential treatment. Upon this information, some MS reacted with disapproval. To conclude the discussion, COM indicated that it would request Korea to indicate on which legal basis the e-mails are sent, what their purpose is and what the legal consequences are of not responding. COM would inform MS about the Korean response. However, COM indicated that, if it is confirmed later that Korea uses such a procedure, EU would have to take a standpoint on this by considering if we share the same interpretation as Korea of explanatory note 9(d) (as this note 9 (d) was surely not drafted and agreed with this intention). Explanatory note 9(d) does not stipulate 'fail to submit a [valid] proof of origin' but only 'fail to submit a proof of origin' which is thus open to interpretation. Indeed, one could consider that no such failure is taking place as soon as an origin declaration made out on a commercial document is presented, even if there seems to be an anomaly in the structure of the customs authorization number, since the importing party may avail itself in such circumstances of the provisions of Article 27 of the EU-KOR RoO Protocol which allows to launch a verification request procedure in case of doubt. As mentioned, this is up for later consideration/interpretation as first Korea would have to indicate on which legal basis their requests by e-mail are made.

2) Customs authorization number of Korean approved exporters

Korea indicated that 3943 companies are approved exporters in Korea. To recall: the customs authorization number of Korean approved exporters is structured as follows: Three-digit identification number of the customs office - year of authorisation (last two digits) - six-digit serial authorisation number (Example: 030-10-123456).

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To respond to specific requests from MS on the structure of this numbering, Korea provided the following information. There are 2 types of customs authorization number of Korean approved exporters. One type of numbering is related to being an approved exporter only for specific product(s) (HS code). A certain company can thus have several of these numbers if it is an approved exporter for several products. If an exporter was approved only for a specific product, the last six-digit serial number begins with a 2 (example: 000-00-200000). The other type of numbering is related to being an approved exporter for all products of the company and is thus related to the company itself. In such a case, a certain company would thus only have one such number. If an exporter was approved for all products of his company, the last six-digit serial number begins with a 1 (example: 000-00-100000).

3) Annex II(a) of the RoO protocol and the quota related to HS heading 5408

This issue was not discussed with Korea but this is of importance to MS in case application of the quota for HS heading 5408 is requested for Korean textile products.

The quota in Annex II(a) of the RoO protocol for Korean products exported to the EU falling under HS heading 5408, can be taken up if one of the 2 alternative rules is fulfilled, namely either the product was 'manufacture(d) from man-made filament yarns' or was 'dye(ed) accompanied by at least 2 preparatory or finishing operations …'.

Moreover, provision 5 of Annex II(a) indicates that as 'far as a proof of origin is made out for dyed woven fabrics (5408 22 and 5408 32) the proof of origin shall be accompanied by documentary evidence that the undyed fabric used does not exceed 50 percent of the ex-works price of the product.'

It is of course not possible to submit such proof of origin if the dyed woven fabrics were obtained in Korea by using the first of the two alternative operations namely by 'manufacturing from man-made filament yarns'.

However, how would a custom official from EU MS know, in case the application of the quota is asked for Korean textile products, when he has to ask for the documentary evidence or not as the proof of origin is not required to mention which was the transformation conferring origin which was carried out in Korea?

In order to avoid that the request for documentary evidence becomes superfluous, the Taxud colleagues responsible for Taric made a separate code in the FCFS-system which importers would have to mention on the SAD and for which they could thus be held responsible if afterwards a mistake would be detected. For example for dyed woven fabrics falling under 5408 22 10 which would be 'manufactured from man-made filament yarns', the Taric code would be 5408 22 10 10 80 and for those which were only dyed in Korea, the Taric code for 'other' would apply which is 5408 22 10 90 80.

MS were invited to have a close look at this quota as it concerns a very sensitive issue for EU textile industry. Moreover, COM informed MS that most (if not all) of the quota for products falling under HS heading 5408 which were taken up in 2011, were based on the rule of 'manufacturing from man-made filament yarns' for which thus no documentary evidence needs to be submitted. It is up to MS to evaluate if this gives

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rise to 'doubts' about the Korean origin but COM invited MS to be vigilant on the application of this quota and not to hesitate to ask for verification in case of doubts.

3.3. EU-India FTAState of play

A teleconference has taken place at the end of November 2011 with India but this resulted only in taking stock of outstanding RoO issues and to decide which side is requested to prepare what for a next meeting. It is scheduled that a next inter-sessional meeting (ISM) with India will take place in January before the EU-India Summit on 10 February 2012. COM repeated briefly for MS the outstanding issues but since no meetings on RoO have taken place since the summer break, MS were advised to look at report of CCC-ORI meeting held in September 2011 (where a full debrief was given) and to documents sent as preparation to that meeting, to have a full overview of where the EU stands with RoO negotiations with India. One delegation asked where the EU stands on the issue of prohibition of duty drawback. COM answered that this issue is still outstanding and that it will not be solved at expert level.

3.4. EU-Mercosur Interregional Association AgreementDebriefing of the negotiation round held in Montevideo from 7 to 10 November 2011 - Information point (TAXUD/1443625/11)

During the round in Montevideo the Parties discussed the outstanding issues of the protocol of origin including definitions, fisheries, accounting segregation, the prohibition of duty drawback, self-certification and the clause regarding Ceuta & Melilla as well as Declarations on Andorra and San Marino. Parties also discussed the product specific rules for agricultural products, PAPs and industrial products.

In relation to duty drawback EU presented to Mercosur some detailed information on their use of DDB in relation to exports to Mercosur. No conclusion at technical level at this stage was reached and both sides maintain their positions. The EU impact study is not finished.

As regards vessels conditions and rules for wholly obtained fish, the discussion was theoretical but allowed to better understand the situation. The vessels conditions discussed were: register, flag or chartering, fishing licence and nationality of the company. The discussions resulted in Mercosur redrafting their proposal for vessels conditions. Mercosur indicated unofficially that if the EU proposed to have the vessels conditions applicable horizontally to all the fishing without making difference between the territorial waters, the EEZ and high seas, it could consider this positively.

Mercosur promised a definitive feedback as regards self-certification, Ceuta & Melilla and declarations on San Marino and Andorra for the next round which will take place in March.

Mercosur also announced that it will officially ask for differential treatment for RoO applicable for Paraguay for the following chapters: 39 (plastics), 40 (rubber), 48 (paper), 70 (glass and glassware), 72 (steel), 73 (products of steel), 84 (machinery and mechanical appliances) and 85 (electrical machinery and equipment). The rules of origin applicable toward Paraguay in this case would be those of the GSP.

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One delegation requested more clarification on the status of Paraguay in relation to GSP. Another delegation expressed its preference for applying the GSP rules in the agreement with the entire Mercosur and to allow duty drawback. A further delegation highlighted that it is necessary to consider the results of the impact study in relation to duty drawback. Two delegations were in favour of the prohibition of duty drawback.

3.5. EPA negotiationsState of play

COM recalled that the latest state of play of EPAs was presented earlier this year in March. Since then and further to the COM proposal to remove from the Market Access Regulation the ACP countries which have not taken steps to ratify and apply the interim EPAs, the negotiations to reach comprehensive EPAs have been intensified with most regions. Further to MS requests, COM proposed to have the next update of the state of play in April 2012.

3.5.1. West AfricaDebriefing of the negotiation round held in Brussels from 3 to 6 October 2011 (TAXUD/1443753/11)

The round was fruitful in various outcomes: a discussion over the EU revised cumulation proposal took place and further progress was made in the normative part of the text of the origin protocol. The provisions regarding administrative cooperation and the Protocol on Mutual Assistance in Customs Matters were finalised.

As regards cumulation the EU provided many information and clarifications on its revised proposal. These included amongst others: the coverage of materials, the geographical coverage, the lists of exclusions and the underlying condition of administrative cooperation between all countries involved in cumulation. West Africa raised similar issues to those already highlighted by other EPA regions. West Africa is still in the process of analysing the EU proposal and will revert back.

One delegation suggested updating of the provisions on wholly obtained products according to the GSP rules. Another delegation requested further information on the proposed quota for the automatic derogation. While the first delegation having taken the floor was favourable to the exclusion of South Africa from the cumulation zone, a third delegation insisted on reducing the exclusion lists to minimum.

3.5.2. SADCDebriefing of the negotiation round held in Johannesburg from 14 to 16 November 2011 (TAXUD/1443851/11)

As a result of the round the parties consolidated a new joint working text on cumulation incorporating comments from both sides. All items of the agenda were subject to negotiation including the point on administrative cooperation, which SADC ultimately agreed to implement, despite its initial suggestion to discuss this topic in the format of a workshop only.

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EU accepted the SADC comment on a clear differentiation between bilateral, diagonal and full cumulation. To this end, EU suggested deleting paragraphs 3, 4 and 5 of art. 1, and proposed simplification of this provision. This would mean keeping the standard clause on bilateral cumulation which might be found in other agreements. This would also help solving interpretation difficulties concerning the origin allocation clause in the bilateral context.

SADC agreed to the principle of the need to put in place the appropriate level of administrative cooperation.

SADC suggested to make a reference to the concept of long term supplier's declaration. SADC explained that the inclusion of a long term supplier's declaration is intended to facilitate trade. SADC would be ready to apply some conditions to the management of operators allowed to issue such long term declarations.

Two delegations drew attention to the articulation between the provisions on bilateral and diagonal cumulation. It is necessary to check whether there is no overlap and to ensure consistency between the two provisions.

3.5.3. ESADebriefing of the negotiation round held in Mauritius from 28 to 30 November 2011 (TAXUD/1443875/11)

The outcomes of the round are disappointing compared with the progress made previously. The parties discussed all the outstanding provisions in the protocol and EU took note of the ESA proposals. The rules related to fishing were not discussed during this round. EU took note of the papers submitted by ESA regarding the increase of the quantity for the automatic tuna derogation and discussions were postponed to the next round. ESA also requested a change of tariff heading rule for heading 0304 and chapter 16, which would be an equivalent of global sourcing. Moreover, ESA introduced a change in the article on wholly obtained products to apply the vessels criteria outside the EEZ only. ESA did not clarify the treatment for catches in the EEZ but the proposal seems to imply that the catches from the EEZ would be automatically considered as originating, similarly to the catches from the territorial waters.

ESA took note on the clarifications given by the EU as regards the requirement of administrative cooperation.

Other requests introduced by ESA to the Protocol are: to maintain the definition of ACP States; to increase the threshold of the value of consignment (from 6.000 Euros to 10.000 Euros) for non-authorised exporters entitled to issue an invoice declaration; to introduce the concept of long term supplier's declaration and to reduce the period of preservation of proofs of origin and supporting documents from 3 to 2 years.

3.5.4EACDebriefing of the negotiation round held in Brussels from 12 to 14 December 2011 (TAXUD/1443899/11)

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Following the meetings in Tanzania in September 2011 and in Uganda in November 2011, the parties met in Brussels to negotiate the outstanding issues from the normative part of the origin protocol. The round was fruitful and resulted in an agreement on a large number of articles of the origin protocol. The issues which need to be further discussed include: the definitions, Article 2 on general requirements and all the provisions related to fishery products. Parties will also come back to the provisions on cumulation and to the related issue of the implementation of the requirement of administrative cooperation.

EAC requests in relation to fisheries products include: global sourcing, an increase of the automatic derogation for tuna products and a redrafting of the article on wholly obtained products affecting the treatment of fish caught in the EEZ and the conditions of chartered vessels.

COM took note of the concerns raised by two delegations regarding the issue of automatic derogations. COM also clarified that it might be envisaged to update the provision on direct transport in order to align it with the non-manipulation clause.

3.6 Horizontal

3.6.1. Monitoring of the management and administration of rules of origin for preferential arrangements - Information point

COM presented the new list of beneficiary countries to be monitored. No many changes had been introduced compared to the previous one. Most of the countries already present on the old list were kept. It was decided to add two new countries and another country, that was present on the previous list, was removed since it was decided not to take any further action. In the new list there are 13 countries in total.

COM announced that Member States would be asked to appoint a reference person in every administration for the monitoring/verification field. The goal was to speed up the exchange of information and to have a target group of people to whom COM could send all the information and emails. A letter requesting MS to communicate the names of the selected people would be sent out by COM in the following weeks.

As last point, COM mentioned a problem, submitted by one delegation, about one third country. The delegation in question pointed out that several problems had been encountered when asking this third country to verify proofs of origin, since in several cases no answer was received. In order to establish if it was the case to take any action, COM asked all the other MS to inform COM about similar problems encountered. COM was still receiving the replies to this inquiry. Depending on the number of cases recorded, COM would decide how to proceed.

3.6.2. Administrative cooperation - Information Point

Approval of revised Working Document TAXUD/3302/04-EN-REV.3 dealing with compliance with printing technical requirements of movement certificates EUR.1, EUR-MED and A.TR issued by the customs authorities of EU Member States. Treatment of certificates of origin which do not comply with the technical requirements laid down by Community law.

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Approval of Draft EU guidelines on the application of the provisions concerning compliance with printing technical requirements of movement certificates EUR.1, EUR-MED, A.TR and certificates of origin FORM A.

COM asked delegations to approve the revised working document TAXUD/3302/04-EN-REV.3 and recalled that before proceeding with translation of EU guidelines on the provisions concerning compliance with printing technical requirements of movement certificates EUR.1, EUR-MED, A.TR and certificates of origin FORM A, MS are asked to approve the draft EU guidelines as regards the new approach.

The revised Working Document TAXUD/3302/04-EN-REV.3 and the EU guidelines were approved by all delegations.

3.7. GSP

3.7.1. Evidence of direct transport. Non-manipulation and splitting of consignments in the country(ies) of transit - Follow up of the discussions that took place at the 194th CCC-ORI meeting

COM informed that working document TAXUD/1228724/11 – EN – Rev.1 suggests a possible solution to the problem of the non-manipulation clause (Article 74 CCIP as amended by Regulation 1063/2010) and provides for some comments in relation to working document TAXUD/69906/10 - EN – Final (Evidence of direct transport). This document was prepared on the basis of the Member States' observations that were presented to the Commission services in this regard. Concerning the non-manipulation clause, the majority of the MS who commented were in favour of amending paragraph 2 of Article 97l. Nevertheless, although favourable opinions were presented with regard to the fact that the amendment should cover both situations – where an initial proof does and does not exist – MS did not present a uniform opinion as to whether all cases of retrospective issue of certificates of origin Form A should be considered as regular, and not exceptional, practices. For this reason, and in order to arrive at a final position, two versions of Option 2 of the amendment of Article 97l that was proposed in the initial version of working document TAXUD 1228724/11 were included. COM pointed out that the main principle establishes that certificates of origin Form A are issued at the time of exportation. Thus, from this point of view, maintaining of the word "exceptionally" may appear justified.

One delegation was in favour of keeping the term "exceptionally" with regard to the two situations that are currently listed in Article 97l (2) of Regulation 2454/93 and having specific conditions for splitting of consignments. It wondered whether deletion of the term "exceptionally" would affect the frequency of the retrospective issue of certificates of origin Form A. Another delegation pointed out that certificates of origin should be issued retrospectively as frequently as particular circumstances occur in this regard.

Another delegation supported maintaining the word "exceptionally" in paragraph 2 of Article 97l for the sake of consistency between GSP rules of origin and rules of origin of other preferential arrangements.

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One delegation objected to using the term "exceptionally" due to the fact that every case that is listed in Article 97l is an exception to the principal rule. Two other delegations supported the previous one. One of them said that the use of the word "exceptionally" does not add any value from the linguistic point of view.

With regard to the problem of splitting of consignments on high seas (working document No TAXUD/69906/10 - EN - Final (GSP – evidence of direct transport ('old' Article 78 IPCC – before the amendment by Regulation 1063/2010)), COM informed delegates that according to the vast majority of the comments the amendment of Article 97l, as proposed in the Option 2, cannot be considered as a solution to the problem. This is due to the wording of new sub-paragraphs (c) and (d) of paragraph 2 that refer both to Article 74 CCIP and "the country(ies) of transit" of goods. None of these conditions is met when splitting of consignment on high seas.

COM invoked the need to have a solid justification for amending the legal text with regard to a particular problem, such as the one of splitting of consignments on high seas. It is important to assess the scale of the problem. If it is decided that specific legal text should be envisaged for splitting of consignments on high seas, it needs to be decided whether Article 74 could be amended or a separate paragraph could be created in Article 97p CCIP1, to this end.

COM also asked delegates to reflect on whether the amendment of Article 97l could still be envisaged in order to tackle the problem of splitting consignments on high seas. To this end a new paragraph could be introduced in this provision for the purpose of covering splitting of consignments on high seas and containing no reference to Article 74. In this case no requirement of customs supervision would exist for splitting of consignments on high seas. Consequently, replacement certificates could be issued regardless of whether or not the splitting is carried out under customs supervision. With regard to splitting of consignments in the territorial waters of the EU, COM informed delegates that the issue is to be consulted with DG TAXUD Unit responsible for customs procedures.

One delegation noted that Article 74 should be maintained in Regulation. With regard to splitting of consignments in territorial waters, the same delegation noted that the situation does fall under customs supervision of the customs authorities of MS. On one hand, the problem of splitting of consignments on high seas needs to be solved but, on the other hand, making specific conditions and creating an exception to the condition of customs supervision just for oil products may be arguable. This delegation suggested that a discussion takes place with industry operators, who carry out these operations, in order to further clarify the issue.

Another delegation, with regard to splitting of consignments in territorial waters and in relation to the discussion on working document No TAXUD/69906/10 - EN - Final that took place at 194th CCC-ORI meeting, noted that the document needs to be adjusted by introducing a reference to Article 38 of Council Regulation (EEC) No 2913/92 establishing the Community Customs Code (CCC) and a possible solution should be assessed from the practical point of view of its implementation. It is always the responsibility of the customs authorities of the country of storage to check the fulfilment of conditions of non-manipulation clause or direct transport conditions. It supported the first delegation having taken the floor with regard to the need for

1 As amended by Regulation (EU) No 1063/2010

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examination whether there is a real economic need to create a specific solution for goods split on high seas. It also noted that creating a specific solution for splitting of consignments of oil may result in similar claims in relation to other products from economic operators.

A third delegation underlined that "customs supervision" has a broad meaning as defined in CCIP. It wondered what legislation applies with regard to goods that are on high seas and suggested considering legal validity of a captain's logbook, which is envisaged by Maritime Law.

Another delegation noted that splitting of oil products became regular cases and a real need to find a solution to the problem does exist.

COM concluded as follows:

o The frequency of splitting of oil products on high seas should be clarified. Often not just splitting takes place, but also mixing or adding of oil. The economic impact of the problem thus needs to be examined. COM asked MS to be provided with information on their experience in this regard;

o Unit B3 will consult Unit A3, which is responsible for application of provisions on customs procedures, on the concept of customs supervision performed in the territorial waters and on high seas. This is, in particular, in order to clarify whether a vessel can be considered as an approved place. COM may adjust working document No TAXUD/69906/10 - EN - Final (GSP – evidence of direct transport ('old' Article 78 CCIP – before the amendment by Regulation 1063/2010)) accordingly after receiving an opinion from Unit A3;

o COM will amend working document TAXUD/1228724/11 – EN – Rev.1 and will propose adding a new sub-paragraph in Article 97l (2) in order to cater for the splitting of consignments of oil products on high seas. In addition, it asked MS to reflect whether such an approach could be an appropriate solution also once the registered exporter system is implemented.

o Further comments may be submitted to DG TAXUD by the end of January 2012.

3.7.2. Request from Cape Verde for a prolongation of the derogation from the European Union's (EU) Generalised System of Preferences (GSP) rules of origin that was granted to CV by the EU under Commission Regulation (EC) No 815/2008 (TAXUD/1442880/11)

By letter from November 21st 2011, Cape Verde (CV) has submitted a request for a prolongation of the current derogation from the EU GSP rules of origin for a period of three more years (2012 – 2014).

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COM presented the request and informed the delegations that additional questions were addressed to CV in order to obtain sufficient information on the basis of which a decision could be taken concerning the granting of the prolongation.

One delegation expressed its support for the request. COM indicated delegations would be informed once additional information is received from CV. No delegation objected neither commented in relation to the granting of the prolongation.

3.8. Impact of the amendments to the HS 2007 and HS 2012 on the preferential rules of origin of Annex 15 of the CCIP - (TAXUD/1228735/11 Rev.1)

COM only presented the changes inserted into the previous version of the document which was treated during the 194th meeting.

COM is still awaiting feedback from the pharmaceutical industry on the proposal relating to HS 3002 (comment 4a of the document). The textile industry proposed to apply the Chapter 96 rule of origin (RoO) to HS 9619, this has been included in this Rev1 of the document (comment 26).

For reasons of consistency with the PEM Convention TAXUD suggested to delete in the RoO for products of HS 1901 and 2106 the restriction of the use of products of Chapter 4. However products classified in Ch 4 are sensitive products for AGRI. Therefore TAXUD withdraws comment 27 and the RoO for 1901 and 2106 remains unchanged (the part reads: 'in which the value of each of Chapters 4 and 17 used does not exceed 30% of the ex-works price of the product').

Comments 28 and 29 were presented without any comments from the Committee.

One delegation welcomed this document because it is necessary to update the applicable RoO for the different HS codes in order to enable customs authorities to apply the correct RoO and asked to make the document available. COM indeed intends to publish this update of Annex 15 of Regulation 2454/93. However, Annex 15 CCIP having a limited geographical scope and relating to unilateral preferences, this update cannot be considered as a priority, all the more given that the position of the beneficiary partners concerned regarding the implementation of the 2012 version of the HS still needs to be clarified.

Another delegation commented that since a new heading HS 3826 was created for biodiesel in the HS 2012 there is a change in the RoO in Annex 15 for that product. COM replied that in the current HS 2007 version biodiesel is classified in HS 3824. As the changes to the HS system should not result in changes to the applicable RoO, the suggested RoO for HS 3826 (2012) was copied from HS 3824 (2007), therefore maintaining the same RoO currently applicable.

3.9. Sugar - Rules of origin and accounting segregationCurrent situation and problems faced by the EU operators - Discussion point (TAXUD/1022374/11)

COM introduced the point by providing an overview of discussions so far and by noting that the solution presented in the report of the 193rd meeting of CCC-ORI would allow extension of accounting segregation to others than the actual producers, as well

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as to products other than sugar. Following discussions at the 194 th meeting a number of restrictions were introduced as follows:

- the accounting segregation concerned should in principle be limited to sugar and could be considered for other products upon request on a case by case basis, but not automatically;

- sugar exported or delivered without any further working or processing cannot benefit from accounting segregation2.

As was noted during that meeting, a centralisation of accounting segregation at the level of sugar manufacturers/suppliers could also reduce the administrative burden for customs authorities in connection with the granting of authorisations and the monitoring of the proper application of accounting segregation.

One delegation noted that the proposed limitation to sugar is due to the specific supply situation for this product as compared to other products where EU production is to a large extent sufficient, as well as related to the specific storage conditions. Moreover, a large part of the imported sugar ends up in products which are exported and which should be able to benefit from preferential treatment.

Another delegation questioned which control measures can be applied to assure whether the finished product contains originating sugar in case use is made of accounting segregation. The delegation having previously taken the floor noted that the issue is not about accounting segregation for the finished products. The other delegation wondered whether in the case of mixed storage (of both originating and non-originating materials) the supplier's declaration should indicate the percentages used of both types of materials.

A third delegation noted that not allowing accounting segregation, which in practice leads to an effective and high level of control, would be damaging to EU companies. This concerns large firms, with advanced systems of control, applying accounting segregation following an approval by customs.

A fourth delegation agreed with the possibility of using accounting segregation but noted that guidelines should be developed setting out how inspection and monitoring should take place. It stressed the need that authorisations should clearly provide the appropriate limitations. Extension of accounting segregation to products other than sugar should be agreed upon on a case by case basis. A number of practical issues related to the application of the rules on accounting segregation were raised by various delegations.

COM noted that a discussion on the application of accounting segregation should as much as possible be separated from the discussion on the extension of these rules to others than the manufacturers of the final product. The basic issue here is the transfer of the possibility to allow accounting segregation from the manufacturer of the final products to the sugar supplier, the latter usually having larger storage facilities and high levels of accountability. It concluded that it would include a statement in the report, which would be slightly revised from the statement drafted in the report of the 193 rd

2 This would replace a requirement that the suppliers themselves undertake certain processing operation themselves (in preparation of the processing of the final products).

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meeting in line with the further suggestions made by the first delegation having taken the floor.

COM, however, also recognised that discussions showed that many MS, would have difficulties in applying the concepts (including the type of accounting segregation normally provided for), and will consider this for its future steps.

COM concluded that the statement on accounting segregation contained in the summary report of the 193rd meeting of the CCC-ORI should be reviewed as follows:

Member States authorities granting authorisations to allow the management of stocks of originating and non-originating fungible materials through accounting segregation may consider granting such authorisations also to the suppliers of the sugar materials used in the production of the originating final products by other processors. in particular when such suppliers undertake processing operations in respect of the materials in preparation to the processing of these final products. Of course all other conditions connected to the use of accounting segregation will have to be fulfilled. Sugar exported or delivered without any further working or processing, cannot benefit from accounting segregation.

4. A.O.B.

4.1. Request for post-verification of movement certificates sent to the authorities of a partner country (requests from two delegations)

Two delegations had informed COM about problems they encountered with a partner country to get movement certificates verified. The partner country in question had asked two delegations to cut the number of verification requests sent because they had been considered too many and the authorities declared not to have enough staff to carry them out. According to the internal database consulted by one of them, the number of verification requests, sent on the basis of risk analysis to the partner country in question, was not so high. Furthermore, the other delegation stressed that almost all the stamps on the certificates were illegible. Although they tried to limit the number of certificates asked to be verified, sometimes it was necessary due to the fact that the stamps could not be compared with the ones in the SMS database.

The partner country in question has answered that after having evaluated the situation with the two delegations once again and having checked its internal database, it changed its position and asked the two MS in question to ignore its request of reducing the number of certificates sent for subsequent verification.

4.2. GSP - Updating of data on certificates of origin Form A issued in Bangladesh - Information Point

As a follow up to the discussion that took place at the 190th and 192nd CCC-ORI meetings, COM informed delegates about the situation with regard to the data sent to the Commission services by the competent Bangladeshi authorities (Export Promotion Bureau - EPB) by using the SIGL system.

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Two delegationspointed out that the aim of this system seemed unclear due to the fact that the REX system would be operational in the future. COM emphasised that one of the aims of development of the online application system is to improve verification activities in the context of fight against fraud.

4.3. Scope of Decision No. 1/2009 of the Joint Committee established under the agreement between ECSC and Turkey (ECSC products list) (request from one delegation)

In November 2009, one delegation had drawn COM's attention to the fact that as a result of the implementation of HS 2007, the classification of many coal and steel products had changed. The absence of update to HS 2007 of the list rules annexed to the origin protocol attached to Decision No 1/2009 is therefore leading to uncertainty in the definition of goods which (not being ECSC products) fall within the scope of the EU-Turkey Customs Union. This is consequently raising doubts as to whether an A.TR. movement certificate or an EUR.1/EUR-MED movement certificate (or an invoice declaration, or EUR-MED invoice declaration) should cover certain movements of goods within the EU-Turkey Customs Union.

Despite the fact that the MFN duty rate applicable to the vast majority of former ECSC products is 'free', the question of the type of movement certificate to be used is not of an 'academic' nature. Indeed the question of the relevant movement certificate becomes important as soon as the goods are further processed within the PEM zone as they may be incorporated into products which are subject to duty rates other than 'free'. In 2006, COM had provided MS with a list of former ECSC products including detailed information regarding their Combined Nomenclature (CN) codes (document TAXUD/1205/06-Add.5 of 24 November 2006). It was clear from this list which products were excluded from the scope of the EU-Turkey Customs Union. The above mentioned delegation had therefore requested that this list be updated and brought into line with the HS 2007.

On 19 April 2010, by working document TAXUD/1205/06 - Add.6, COM circulated an updated list of coal and steel products, to which Turkish authorities reacted in October 2010 by putting forward 19 remarks.

COM reacted in December 2010 to the Turkish remarks by distinguishing three cases, namely where COM:

- could agree with Turkey and thus accept to adapt the list as suggested by Turkey (eight remarks);

- could not accept the Turkish proposal, due to the fact that the tariff classification does not allow linking certain descriptions with 'perforated' products (four remarks and part of a fifth one);

- could agree with Turkey on the principle but considered that in practice the necessary creation of TARIC codes would have a negative impact on other partners' trade and, notably, on exporting countries concerned by quantitative limits, e.g. Ukraine and Russia (six remarks and part of a seventh one).

Invited to take the floor, the Turkish delegation provided the following information: It firstly thanked COM concerning its agreement relating to the issue mentioned in the

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above first indent and then indicated that it could accept COM's assessment of the issue described in the above second indent.

Concerning the issue evoked in the third (and last) above indent the Turkish delegation stressed that it could neither agree with, nor find understandable, COM's reasoning and this all the more that there is in principle agreement on both sides that the list must be adapted from a technical point of view so as to reflect all changes resulting from the HS 2007. Turkey concluded stating that commercial concerns should not affect the reflection of purely technical adaptations to the list and thus maintained its position concerning the above mentioned remarks.

COM thanked Turkey and indicated that it needed to further reflect on the last pending issues and would prepare a REV 1 version of working document TAXUD/1205/06 - Add.6 as soon as the necessary reflection and exchanges with other services are completed.

4.4. Turkish authorities enquiries with individual Member States relating to their handling of the approved exporter system (in the perspective of the Turkey-Korea FTA) (request from two delegations)

Several MS had received enquiries from Turkish embassies in their respective capitals relating to the handling of their approved exporter (AE) systems, notably in the perspective of a Turkey-Korea FTA where origin declaration would be the only type of proof of origin available. These Members States wished to know whether COM wanted that their answers be channelled through COM.

COM recalled that, due to the EU-Turkey Customs Union, Turkey has to align its commercial policy (both the autonomous regimes and preferential agreements) on that of the EU, which implies certain specific needs for information and exchanges of views. As a result, COM indicated that it sees no reason for intervening into bilateral cooperation that might take place between Turkish authorities and MS' authorities.

However, having observer status in the CCC-ORI, Turkey is attending relevant discussions and has access to information posted on the CCC-ORI CIRCA website. COM indicated that Turkish authorities therefore appear to be in a position to use the CCC-ORI as a privileged channel for gathering information on e.g. issues arising on the occasion of the implementation by MS of origin protocols annexed to EU's FTAs.

COM then explained that it is in the process of launching a survey with MS concerning their implementation of the AE system, with a view to examining what kind of streamlining of procedures and/or conditions for granting AE status could be envisaged, for instance through approximation programmes (such as benchmarking, establishment of guidelines or identification of best working practices).

The results of this survey should be posted on the CCC-ORI CIRCA website in the coming months, which should comprehensively provide Turkey with the information it sought about EU MS' management of the AE status.

4.5. Malaysia (request from one delegation)

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One delegation asked COM for the state of play of list rules currently negotiated with MY. COM replied as it did at previous CCC-ORI in November to the same question from another delegation.

4.6. Korea FTA (request from one delegation)

One delegation wanted to discuss the state of play of the certificates codes N862/N864.

COM first reminded what the subject was about: Following the introduction of the EU-Korea FTA, only origin declarations can be used for claiming preferential treatment. It was at a certain point put into question by some colleagues if this could fall under certificate code N864 as this code has a very complex description. This issue gave rise to question if not all certificate codes related to origin should be checked. The colleagues in TAXUD dealing with TARIC are in the process of finalising a working document related to this to be discussed in the CCC-TARIC.

The same delegation has however serious concerns about this as it understood from its colleagues in the CCC-TARIC that COM proposed to have N862 used for preferential origin declarations while a simple modification of the description of N864 would clearly indicate that it covers preferential origin declarations.

COM (DG TAXUD/A5) reacted that COM had no preference for a certain code and that if MS would be in favour of N864 for preferential origin (origin declarations), COM could agree. However, COM raised that discussions in the CCC-TARIC on this issue showed that other MS were opposed to the use of N864 for preferential origin.

A discussion took place in which many MS reacted that they also preferred to keep N864. Only one delegation indicated this would involve a change for them. COM indicated that this delegation was not alone.

Three delegations indicated that a decision on this issue would entail consequences for long standing practices in preferential origin and should therefore not be taken by CCC-TARIC but the CCC-ORI should be consulted before a final decision would be taken on this issue.

COM indicated that it would reconsider the issue taking into account the wish of the majority of the MS and reassured the CCC-ORI that it would be consulted before a final standpoint would be taken.

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ANNEX

SUMMARY REPORT

FOR THE 1st MEETING OF THE CUSTOMS COMMITTEE OF THE KOREA-EU FTA

14~15 December 2011, Seoul, Korea

The first meeting of the Customs Committee under the Korea-EU FTA(the Agreement) was held in Seoul from 14 -15 December 2011. The committee was co-Chaired by the Director General for Customs and Tariff, Ministry of Strategy and Finance, Korea, and the Director for Security & Safety, Trade Facilitation & international Coordination, TAXUD, EU Commission.

(The participants are listed to Annex II.)

1. Adoption of the agenda

The Customs Committee adopted the Agenda as it appears in Annex I of this report.

2. Operation of the Customs Committee

Both parties welcomed that the Customs Committee acts also as the Joint Customs Cooperation Committee in accordance with Article 15.2 and 15.4 of the Agreement, and confirmed that the customs authorities of both parties are to continue working closely through the Customs Committee in the future.

As per the Rules of Procedure of Customs Committee, the parties had the understanding that it is required to adopt them in accordance with the Article 6.16(3). However, as they have not been adopted yet, the parties agreed that this meeting uses the Rules of Procedure of the Trade Committee mutatis mutandis and that drafts of the Rules of Procedure for this Committee will be exchanged early in 2012

As per the Customs Contact Point of Korea, the EU agreed that an official of the Korea Customs Service can have a direct contact with the contact point of the EU in consideration of the fact that customs authorities in Korea are divided into the Ministry of Strategy and Finance, and the Korea Customs Service.

3. Exchange of Data and Information in relation to utilization of the FTA

The Committee shared the view that the EU and Korea exchange the statistics on import to obtain insights on the ratio of the utilization of the preferential treatment for their exports, so that both parties may analyze the effect of the Agreement. The statistics from July to December of 2011 will be exchanged in February, 2012, and the two parties will exchange the data every six month thereafter, subject to the review on the necessity of the exchange two

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years later.

4. Rules of Origin

4.1. Direct Transport

The EU highlighted that this is an important issue. In EU’s view, the current direct transport rule does not facilitate trade. The EU explained why in certain sectors, EU economic operators use frequently ‘commercial hubs’ in a third country in Asia for trade with Korea, and therefore there are many cases where they are unable to enjoy the preferential treatment. The EU requested that Korea will reflect on allowing for more flexibility suggesting to amend the existing rule with a new proposal which includes ‘splitting of consignments’ in a third country, as explained in the note in annex V.

Korea took note of the EU's suggestion, but also pointed out concerns that there are limitations and constraints on origin verification in commercial hub and that there may be some conflict on the concept of an exporter.

While both parties maintained their positions, the committee considered the experts on both sides would work to find solutions to this problem, taking into account any risks that splitting of consignments may entail for origin purposes.

The committee considered that such work should be launched and completed as soon as possible. The EU noted this should be done before any amendment to the Rules of Origin Protocol.

The committee understood the conditions laid down in Article 13.2(a), (b), (c) are alternative.

4.2. Language of origin declaration

The EU provided Korea with the list of the "EU" and "EC" in the 22 official languages as annex IV to this report. Korea mentioned that in principle they are acceptable; even though there may be technical problem relating to the use of ‘EC’ origin in some languages.

4.3. Origin declaration for products falling under Annex II(a)

The committee confirmed that the expression "Derogation - Annex II(a) of the Protocol..." of Paragraph 2 of Annex II(a) means "Derogation – Annex II(a) of the Protocol concerning the definition of originating products and methods of administrative cooperation".

As per the Article 5 of Annex II(a), the committee concluded that if the dyed fabric 5408 22 and 5408 32 is made on the basis of man-made filament yarn in Korea (and thus double transformation has taken place), documentary evidence on the non-originating undyed fabric used does not have to be submitted.

In addition, given that the yarn and fabric stipulated in Annex II(a) does not include any reference to tolerance, the committee concluded that the tolerance rule is not applied to such products.

Such changes may require an amendment of the Rules of Origin Protocol.

4.4. Tolerance for Textile Fabric and Apparel Goods

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In case of application of tolerance rule of 20% or 30% for products incorporating polyurethane yarn or for products incorporating metalized yarn in accordance with Note 5.3 and 5.4 of Annex I to the Rules of Origin, the committee understood that the tolerances are applied to the polyurethane or the metalized yarn only. In addition, the committee understood that the general tolerance of 10% for other yarns used in the product in accordance with Note 5.1 of Annex I remains applicable.

In addition, the Committee took note that the a reference to tolerance rule needs to be included in ‘Manufacture from unembroidered fabric ...' of the origin rule for 'embroidered' products of heading 6301-6304.

Such changes may require an amendment of the Rules of Origin Protocol.

4.5. Territorial Application of Tariff Treatment of Goods

The EU explained that products originating in Korea, when imported into the Republic of San Marino or the Principality of Andorra, enjoy the same tariff treatment as if they were imported to the EU.

4.6. Grounds for denying preferences

The EU underlined that EU economic operators complain about denial of preferences by KCS in cases of errors of forms in the proof of origin without prior request to EU Member States Customs for verification of proof of origin.

The Committee confirmed that only for the specific reasons stipulated in Point 9 of the Explanatory Notes, the preferential treatment may be refused without verification of the proof of origin as the proof can be considered as inapplicable. In order to understand any divergences on point 9(d) of the Explanatory Notes to the Rules of Origin Protocol, it is agreed to exchange respective rules and practices.

4.7. Origin marking

The EU highlighted that this is an important issue for the EU. If substantial transformation as laid down in the Rules of Origin of the FTA has taken place in the EU for preferential purposes, the EU does not understand why additional and burdensome requirements are imposed to the EU products for labelling purposes. The EU requested Korea to reflect on possible solutions.

Korea pointed out that it is important to identify the EU Member States on the origin marking for consumer information. In addition, Korea stressed that quality, image, reliability and attractiveness of EU products are considered different in Korea depending on the 27 Member States in EU.

The parties agreed to discuss this issue inter-sessionally.

4.8. Confirmation of exchanged 'interpretations'

In order to apply uniform and consistent interpretation and implementation of the Rules of Origin, both parties agreed that the common interpretations exchanged through customs

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contact points or at the Customs Committee are to be listed in annex to the report of this Meeting. (The Common understanding is attached as Annex VI)

4.9. Efficiency of Origin Verification

The committee took note that both sides need to provide updated addresses of the customs authorities responsible for verifying proofs of origin at the earliest, if there are any changes of the address.

In order to enhance the ability of origin verification of both parties, Korea suggested several ways such as exchanging information on origin verification cases, holding a workshop on risk analysis and origin verification under the Agreement, and establishing a common guideline for origin verification.

The committee concluded to come back to this question in the light of practical experiences with implementation.

Authorized officials of a party may be present in cases of customs irregularities in the other party’s territory as defined in the Protocol of Mutual Administrative Assistance.

4.10. Transposition of Product Specific Rules of Origin from HS 2007 to 2012

The committee understood that the adaptation of Annex II to Rules of Origin Protocol (PSRs) to the HS 2012 is possible. Both parties shared the view that it is desirable to implement the amendment of the PSRs at the earliest in order to reduce the burden of the traders in determining the rules of origin.

The committee agreed to take stock of this preparation by April, 2012.

4.11. Interpretation of 'primary ingredient' in paragraph 5 of Annex II(a)

The committee took note that there is a footnote to the paragraph 5 of Annex II (a) to the Rules of Origin Protocol, which stipulates: "In case of a need the concept of primary ingredient shall be interpreted by the Customs Committee in accordance with Article 28 of this protocol."

Consequently, the EU made a proposal to the Committee on the interpretation of 'primary ingredient' as follows: "Primary ingredient means 92% of Alaska Pollack in the Surimi base."

Korea stressed that 'primary' cannot be interpreted to certain number, thus, primary ingredient should be 'ingredient that predominates over any other single ingredient of Surimi base.'

Korea indicated that it will review the EU’s proposal and provide its response as soon as possible after internal consultation with interested parties.

4.12. Amendments to the Rules of Origin Protocol

The committee agreed that any amendments to the Rules of Origin Protocol will, in principle, be brought together in a single proposal to the Trade Committee as soon as possible.

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5. Korea's Proposal for the MRA of AEOs

Korea proposed to EU side starting a negotiation on the Mutual Recognition Arrangement (MRA) for Authorized Economic Operator (AEO) in order to provide economic operators more benefit and establish more secured supply chain of both parties. Korea also stressed that the MRA for AEOs will enhance the effect of the Korea-EU FTA, further deepen the trade relationship between both parties and allow customs to focus on trade flows with high risk. (The proposal is attached as Annex III.)

The EU side welcomed the proposal and confirmed that it would be appropriate to define the way forward following legal confirmation.

6. Date and venue of the next meeting

The Meeting noted that the 2nd Meeting of the Customs Committee of the Korea-EU FTA can be held in October 2012 in Brussels.

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Annex I

THE DRAFT AGENDA FOR THE 1st MEETING OFTHE CUSTOMS COMMITTEE OF THE KOREA-EU FTA

14~15 December 2011, Seoul, Korea

1. Opening remarks and adoption of the Agenda

2. Operation of the Customs Committee

3. Exchange of Data and Information in Relation to Utilization of FTA

3.1. Exchange of Data on Preferential Tariff Utilization under Korea-EU FTA3.2. Exchange of Information on Application of Approved Exporter System

4. Rules of Origin

4.1. Implementation of the Agreement

4.1.1. Application of Direct Transport Article4.1.2. Language of the Origin Declaration 4.1.3. Origin Declaration for Products Falling under Annex II(a) 4.1.4. Interpretation of 'primary ingredient' in Paragraph 5 of Annex II(a) 4.1.5. Origin Rules of Yarn and Fabric under Annex II(a) 4.1.6. Application of Tolerance Rule for Textile Fabric and Apparel Goods4.1.7. Territorial Application of Tariff Treatment of Goods4.1.8. Tariff Treatment for Entry of Goods Processed in Free Zone4.1.9. Grounds for Denying Preferences4.1.10. Confirmation of Exchanged 'interpretations'4.1.11. Origin Marking

4.2. Efficiency of Origin Verification

4.2.1. Update of Address for Origin Verification4.2.2. Exchange of Information on Origin Verification Cases4.2.3. Workshop on Risk Analysis and Origin Verification under FTAs4.2.4. Establish of Common Guideline for Origin Verification4.2.5 Joint Enquiries

4.3. Transposition of List Rules of Origin from HS 2007 to 2012

5. Respective International Affairs on Customs Policy Matters

6. Mutual Administrative Assistance

7. Other Matters

8. Date and Venue of the Next Meeting

9. Consideration and Adoption of the Report

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Annex IIKOREA DELEGATION

S.No. Name Designation

1 Director General for Customs and Tariff Bureau, Ministry of Strategy and Finance

2 Director of FTA Customs Implementation Division, Ministry of Strategy and Finance

3 Director, FTA Negotiation Coordination Division, Ministry of Foreign Affairs and Trade

4 Director of Origin Verification Division, Korea Customs Service

5 Deputy Director, Korea Customs Service

6 Deputy Director, FTA Customs Implementation Division, Ministry of Strategy and Finance

7 Deputy Director, FTA Customs Implementation Division, Ministry of Strategy and Finance

8 Deputy Director, FTA Customs Implementation Division, Ministry of Strategy and Finance

9 Deputy Director, FTA Negotiation Coordination Division, Ministry of Foreign Affairs and Trade

10 Deputy Director, FTA Rules Division, Ministry of Foreign Affairs and Trade

10 Deputy Director, FTA Rules Division, Ministry of Foreign Affairs and Trade

11 Deputy Director, Korea Customs Service

12 Deputy Director, Korea Customs Service

13 Assistant Director, Ministry of Knowledge Economy

EU DELEGATION

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S.No. Name Designation

1 EU - Commission

2 EU - Commission

3 EU - Commission

4 EU - Council

5 EU - Presidency

6 EU - France

7 EU - Italy (14th only)

8 EU - Italy (15th only)

9 EU - Italy

10 EU - Netherlands

11 EU -Sweden

12 EU - Czech Republic

13 EU - Poland

14 EU - Delegation

15 EU - Delegation

16 EU - Delegation

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Annex III

PROPOSAL FOR THE MUTUAL RECOGNITION ARRANGEMENT OF AEOs

Korea would like to propose starting a negotiation on the Mutual Recognition Arrangement (MRA) of Authorized Economic Operator(AEO).

Since the year 2000, it is regarded that the two axes of FTAs and AEOs have been leading the global customs environment. While FTAs aim at opening the market and enhancing trade expansion mainly by eliminating tariff barriers, AEOs have the purpose of ensuring the supply chain security and facilitating trade by eliminating non-tariff barriers.

Both the EU and Korea respectively have introduced AEOs to reflect the trend of the international community. And, the EU and Korea are eager to provide economic operators more benefit and establish more secured supply chain. Especially considering that the FTA between both parties entered into force as of the 1st of last July, I believe that it is the right time to make an agreement on the MRA of the AEOs between the EU and Korea.

In addition, given the importance of trade relationship between the EU and Korea, the Mutual Recognition Arrangement of AEOs will further deepen trade relationship between both parties and allow customs to focus on trade flows with high risk.

Korea sincerely hopes that the EU side will convince all EU Member states of the importance and necessity of the Mutual Recognition Arrangement of AEOs. Korea proposes that the working level talks for the MRA should begin as early as possible in 2012.

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Annex IV

LANGUAGE

EU European Union (EU)

EC European Community (EC)

BG EC Европейски съюз (ЕС)

ЕО Европейската общност

CS EU Evropská unie ES Evropské společenstvíDA EU Den Europæiske

UnionEF Det Europæiske Fællesskab

DE EU Europäische Union EG Europäischen Gemeinschaft EL EE Ευρωπαϊκή Ένωση EK Ευρωπαϊκή ΚοινότηταEN EU European Union EC European CommunityES UE Unión Europea CE Comunidad EuropeaET EL Euroopa Liit EÜ Euroopa ÜhendusFI EU Euroopan unioni EY Euroopan yhteisöFR UE Union européenne CE Communauté européenneHU EU Európai Unió EK Európai KözösségIT UE Unione europea CE Comunità EuropeaLT ES Europos Sąjunga EB Europos BendrijaLV ES Eiropas Savienība EK Eiropas KopienaMT UE Unjoni Ewropea KE Komunità EwropeaNL EU Europese Unie EG Europese Gemeenschap PL UE Unia Europejska WE Wspólnota EuropejskaPT UE União Europeia CE Comunidade Europeia RO UE Uniunea Europeană CE Comunitatea EuropeanăSK EÚ Európska únia ES Európske spoločenstvoSL EU Evropska unija ES Evropska skupnostSV EU Europeiska unionen EG Europeiska gemenskapen

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Annex V

EUROPEAN COMMISSIONDIRECTORATE-GENERAL TAXATION AND CUSTOMS UNIONRules of Origin

Brussels, 28.11.2011TAXUD/B3/MPV/ taxud.b.3(2011)1392474

EU-KOREA FTARULES OF ORIGIN -NOTE TO FILE

Subject: Proposal to adapt Article 13 on 'Direct Transport' of the 'Protocol concerning the definition of originating products and methods of administrative co-operation' (RoO protocol) into a 'non-alteration' rule

The first Joint Customs Committee (JCC) after the enter into force of the EU-Korea FTA will take place in Seoul on 14 and 15 December.

On the agenda is taken up point "4.1.1. Application of Direct Transport Article".

The EU has requested to put this item on the agenda as a significant number of EU economic operators in certain sectors use Singapore, Hong Kong and/or other third countries as a commercial 'hub' for their supply chain in Asia for trade towards Korea. The EU believes that the 'Direct Transport' provision as currently stipulated in Article 13 does not facilitate preferential trade.

Consequently, the EU would like to discuss the possibility to adapt the 'Direct Transport' provision in the RoO protocol of the EU-Korea FTA into a 'non-alteration' rule. This 'non-alteration' rule has become the EU standard provision in all ongoing EU FTA negotiations.

EU proposes therefore to adapt Article 13 as follows:

Article 13

Transport requirements

"1. The products declared for home use in a Party shall be the same products as exported from the Party in which they are considered to originate. They shall not have been altered, transformed in any way or subjected to operations other than operations to preserve them in good condition, or other than adding or affixing marks, labels, seals or any other documentation to ensure compliance with specific domestic requirements of the importing Party, prior to being declared for home use. Storage of products or consignments and splitting of consignments may take place where carried out under the responsibility of the

29

exporter or of a subsequent holder of the goods and, where applicable, the products remain under customs supervision in the country(ies) of storage or transit.

2. Compliance with Paragraph 1 shall be considered as satisfied unless the customs authorities have reason to believe the contrary; in such cases, the customs authorities may request the declarant to provide evidence of compliance, which may be given by any means, including contractual transport documents such as bills of lading or factual or concrete evidence based on marking or numbering of packages or any evidence related to the good themselves."

The EU will present this proposal in detail at the first JCC and EU will be prepared to answer any question Korea might have on this issue. However, the EU invites Korea already to reflect on this proposal to adapt Article 13 into a 'non-alteration' rule.

* * *

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Annex VI

Common understanding of the Customs Committeeon issues related to the 'Protocol concerning the definition of originating products

and methods of administrative co-operation'

In relation to the 'Protocol concerning the definition of originating products and methods of administrative co-operation' (hereafter 'RoO Protocol') in the EU-Korea FTA, the Customs Committee understood that:

1) the conditions laid down in Article 13.2(a), (b), (c) are alternative.

2) the expression "Derogation - Annex II(a) of the Protocol..." of Paragraph 2 of Annex II(a) means "Derogation – Annex II(a) of the Protocol concerning the definition of originating products and methods of administrative co-operation". It is advised that the RoO Protocol should be amended accordingly at the next best occasion.

3) if dyed fabric 5408 22 and 5408 32 is made on the basis of man-made filament yarn in Korea following the derogation in Annex II(a), documentary evidence does not have to be submitted.

4) if an origin declaration is made out in one of the 22 official languages of the EU, the indication of 'EU' or 'EC' origin will be accepted in the corresponding official language following the list EU submitted to Korea and taken up in annex IV to this report.

5) there is no difference on substance between the footnotes which stipulate 'For special conditions relating to products made of a mixture of textile materials, see Introductory Note 5' and the footnote which stipulates 'See Introductory Note 5'. It is advised that the RoO Protocol should be amended accordingly at the next best occasion.

6) in the list rules, headings 6301 to 6304 refer twice to footnotes. Both footnotes refer to the tolerances taken up in the 'Introductory note 6'. The second footnote is thus superfluous. It is advised that the RoO Protocol should be amended accordingly at the next best occasion.

7) for the embroidered products under headings 6301 to 6304, footnote 6 should not only refer to the operation 'Manufacture from unbleached single yarn' but also to the operation 'Manufactured from unembroidered fabric (other than knitted or crocheted), provided that the value of the unembroidered fabric used does not exceed 40% of the ex-works price of the product'. It is advised that the RoO Protocol should be amended accordingly at the next best occasion.

8) in the derogations stipulated in Annex II(a) on textiles, no footnotes are taken up with a reference to tolerance. Consequently, the committee concluded that no tolerances apply to textile products falling under Annex II(a).

9) the only proof of origin allowed by the FTA is an origin declaration by an exporter of one of the Parties.

10) there is no need to be an 'approved' exporter for consignments below 6000 euro.

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11) at importation, no documentation can be required from the exporter to substantiate the 'origin' of the products to benefit from preferential treatment.

12) at importation, no documentation can be required from the exporter to substantiate his 'authorization' of being an 'approved exporter'.

13) an origin declaration, made out by an approved exporter, shall be accepted for preferential tariff treatment in the importing Party, even if the exporter obtains the approved exporter's status after exporting products, provided that the exporter fulfils all other requirements as stipulated in the Protocol at the time of making out an origin declaration.

14) invoices made out in the territory of a non-Party to the agreement (third party invoicing) are not prohibited by the RoO protocol and are thus considered to be allowed.

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