Types of rules in Annex II

Annex II to this Circular sets out the conditions required for products to be considered as worked or processed within the meaning of Article 7. There are four different types of rules:

1. through working or processing a maximum content of non-originating materials is not exceeded;

2. through working or processing the two-digit HS Chapter, four-digit HS heading or six-digit HS subheading of the manufactured products becomes different from the two-digit HS Chapter, four-digit HS heading or six-digit HS subheading, respectively, of the materials used. However, in the case set out in the point b paragraph 4, Note 3 to this Annex, the four-digit HS heading or six-digit HS subheading of the manufactured products may be the same as the four-digit HS heading or six-digit HS subheading, respectively, of the materials used.

3. a specific working and processing operation is carried out; or

4. working and processing is carried out on certain wholly obtained materials.

Note 2. The Structure of the list of Required Working or Processing in Annex II

1. The List of Required Working or Processing in Annex II to this Circular consists of three columns. The first column (1) gives the Chapter number, heading number, or subheading number of the product obtained. The second column (2) gives the description of goods corresponding to HS Chapter, heading, subheading in the first column. The third column (3) gives the types of rules corresponding to the description of goods in the first two columns.

2. Where, in some cases, the entry in the first column is preceded by an “ex”, this signifies that the rules in column 3 apply only to the part of that heading as described in column 2.

3. Where several heading numbers are grouped together in column 1 or a Chapter number is given and the description of products in column 2 is therefore given in general terms, the adjacent rules in column 3 apply to all products which, under the HS, are classified in headings of the Chapter or in any of the headings grouped together in column 1.

4. Where there are different rules in the list applying to different products within a heading, each indent contains the description of that part of the heading covered by the adjacent rules in column 3.

5. Where two alternative rules are set out in column 3 that are separated by use of a different line and linked by an “or”, it shall be at the choice of the exporter which one to use.

Note 3. Examples of how to Apply the Rules

1. Article 7 concerning products having acquired originating status which are used in the manufacture of other products, applies, regardless of whether that status has been acquired inside the factory where those products are used or in another factory in a Party.

2. Pursuant to Article 10, the working or processing carried out must go beyond the list of operations mentioned in that Article.. If it does not, the goods shall not qualify for the granting of the preferential tariff treatment, even if the conditions set out in the Annex II are met.

3. Subject to the second paragraph of this Note, the rules in the Annex II represent the minimum amount of working or processing required. The carrying-out of more working or processing in Annex II also confers originating status, without prejudice to Article 10. Conversely, the carrying-out of less working or processing in Annex II shall not confer originating status.

4. Change in Tariff Heading:

a) Where a rule uses the expression “Manufacture from materials of any heading, except that of the product”, all non-originating materials classified in headings other than that of the product may be used.

b) Where a rule uses the expression “Manufacture from materials of any heading”, then meaterials of any heading(s) (even materials of the same description and heading as product) may be used.

5. Where a rule uses the expression “Manufacture in which the value of all the materials used does not exceed x % of the ex-works price of the product” then the value of all non-originating materials is to be considered. The percentage for the maximum value of non-originating materials may not be exceeded through the use of paragraph 1 of Article 8.

6. Rules for using specific non-originating materials

a) If a rule provides that a specific non-originating material may be used, the use of materials which are still in an earlier stage of the manufacturing process of that specific material is allowed, and the use of materials resulting from further processing of that specific non-originating material is not.

b) If a rule provides that a specific non-originating material may be used, the use of materials which are still in an earlier stage of the manufacturing process of that specific non-originating material is allowed, and the use of materials resulting from further processing of that specific non-originating material is not.

c) Example: when the rule for Chapter 19 requires that ” materials of headings 1101 to 1108 cannot exceed 20% of the weight”, the use of non-originating cereals of Chapter 10 (materials at an earlier stage in the manufacturing process of goods of 1101 to 1108) is not limited by the requirement concerning the 20% of the weight.

7. When a rule specifies that a product may be manufactured from more than one material, one or more materials may be used. It does not require that all materials have to be used.

8. Rules for using specific materials

a) Where a rule specifies that a product must be manufactured from a particular material, it does not prevent the use of other materials which, because of their inherent nature, cannot satisfy that requirement.

b) Example: Flat-rolled products of iron and non-alloy steel, of a width of 600 mm or more, which have been painted, varnished or coated with plastics are classified in the HS under 7210.70. The rule for 7210 is “Manufacture from ingots or other primary forms or semi-finished materials of heading 7206 and 7207”. This rule does not prevent the use of non-originating paint and varnish (heading 3208) or plastics (Chapter 39).