The EAC Origin Determination

Stephen Otieno

The EAC Origin Determination

Direct Consignment Rule:

This is the requirement that goods should be consigned directly from one Partner State to a consignee in another Partner State. It implies that goods should be transported directly to consignee in another Partner State. This is contained in Rule 16 of the EAC Rules of Origin, 2015. However, goods consigned from and to land locked Partner States may for purposes of transportation, transit through other countries.

Criteria

The EAC Rules of origin provides under Rule 4 the criteria to enable the Authorities in Partner States to determine which goods qualify as originating in the EAC. The criteria referred to relate to how the goods have actually been produced. They are two and only one of them must be complied with for any goods to qualify for EAC preferential tariff treatment. The criteria are: –

Rule 4 (1) Good shall be accepted as originating in a partner state where the good are;

Rule 4(1) (a) wholly produced in a Partner State as provided for in Rule 5; or
Rule 4(1) (b) produced in the partner state incorporating materials which have not been wholly obtained there (in the Partner State), provided that such materials have undergone sufficient working or processing in the Partner State as provided for under Rule 6

The exporter may base his/ her claim to EAC Preferential Community Tariff treatment on the criteria described in Rule 4, as read together with Rules 5 and 6 (for purposes of Rule 6 the criteria will be in Part 1 of the first schedule), according to which he/she has complied with in the production process.
However, if all that was done in “production” the goods was one or more of the simple processes/ insufficient workings listed under Rule 7 of the EAC Rules of Origin and nothing else, the goods will not be eligible for EAC preferential tariff treatment since such process are, by themselves, or combined, are insufficient to enable the goods to be considered as having been produced in the Partner States.

NOTE: in the application of the EAC Rules of Origin, Partner States are considered to be one Territory.

Wholly Produced Goods- Rule 4 (1)(A)

Goods under this category are regarded as those which have been obtained or produced exclusively from material/components that qualify in their own right as originating in EAC Partner States (contain no materials imported from outside the EAC region) as defined in Rule 5 of the Rules.
For ease of reference Rule 5 of the EAC Rules of Origin provides a list of products that are considered as “wholly produced” in the Partner States and the list includes:
- mineral products extracted from the ground or sea bed of the Partner States;
- vegetable products including plant and plant products harvested, gathered or picked within the Partner States;
live animals born and raised within the Partner States;
products obtained from live animals within the Partner States,
used articles fit only for the recovery of materials, provided that such articles have been collected from users within the Partner States, and
scrap and waste resulting from manufacturing operations within the Partner State,
goods produced within the Partner State exclusively or mainly from the following—
(i) products referred to in this paragraph; and
(ii) materials which do not contain elements imported from outside the Partner State etc.

Goods produced from Materials not Wholly Obtained from Partner State

Rule 4 (1) (b) provided that goods shall be considered as originating in a Partner State if they are produced in the Partner State incorporating materials which have not been wholly obtained in the Partner State, provided that such materials have undergone sufficient working or processing in the Partner State as provided for under Rule 6.
Rule 6 (1) in turn provides that a product is considered sufficiently worked or processed when the product listed in the second column of Part 1 of the First Schedule fulfils the corresponding criteria in the third column.
Part 1 of the of the first Schedule outlines four criteria used to determine sufficient working or processing. The criteria for sufficient working in the schedule will fall into the one of the following categories:
1. Working or processing of certain wholly produced materials,
2. Workings of processing where the value of the all the non-originating materials used in manufacture does not exceed a certain maximum threshold,
3. working or processing where the 4-digit Harmonized System heading or 6-digit Harmonized System sub-heading of the manufactured products becomes different from the 4-digit Harmonized System heading or 6-digit sub-heading, respectively of the materials used
4. a specific working or processing operation is carried out

Computation of Ex-Works Price

In the computation of the Ex-Works price of a product, and to address the problem of fluctuating material costs and exchange rates, Rule 6 ((4)- (9)) provides for the use of averages based on the sum of the value of all the non-originating materials used in the manufacture of the products and the sum of the ex-works prices charged for all sales of the products carried out during the preceding financial year.
If figures for a complete financial year are not available, the averages may be based on a shorter period, but not less than three months.

Example:

Manufacturer M based in Tanzania incurs the following costs to make chairs for transfer to other Partner States:

Raw wood imported from Malaysia – 140
Metal screws (imported from China) – 30
Plastic parts (imported from South Africa) – 60
Local materials – 80
Labour – 45
Overheads – 25
It is determined that the Profit per chair is 60

The criteria for furniture of heading 9401 in Part 1 of the First Schedule reads: “Manufacture in which the value of all the materials used does not exceed 70 % of the ex-works price of the product”.

Material Cost
Local Material 80
Imported Material (140+30+60) 230
Labour 45
Overheads 25
Ex Works Cost 380
Profit 60
Ex-Works Price 440

The imported value is = imported materials *100% Ex- Works Price

= 230 X 100 % = 52%

440

This can also be computed from the point of view of the local material content and value added.

The Absorption Principle- Rule 6 (3)

This principle provides flexibility by allowing the use of more non-originating materials than the amounts of non-originating materials under the limitations provided for in product specific rules contained in the First Schedule.
It allows intermediate products produced in a given Partner State to maintain their originating status when they are used for further manufacturing operations of originating goods in the same Partner State and to disregard the part of all former non-originating materials contained in intermediate products for the determination of the origin of the finished product.
The effect of this is that:
- the value of the non-originating materials contained in intermediate products which acquire originating status is disregarded in the calculation of the value added and are not considered in the computation of the Value of Non-Originating Materials;
- the non-originating parts contained in intermediate products are not considered for the determination of origin under a change of tariff classification rule; or
- the manufacturing processes of non-originating materials contained in intermediate products are not taken into account when assessing the requirements of other technical operations for the origin determination of a final product.

Tolerance Rule 6 (10)

Tolerance allows for the use of non-originating materials in the manufacture of goods without affecting the originating status of goods.
Under the tolerance provisions, goods that do not completely satisfy the origin criteria in the Second Schedule can qualify as originating if they meet the following conditions:
- Agricultural products (Chapters 2 and 4 to 24) -15 % of the weight of the finished product.
- Textiles of Chapters 50 to 63 -Tolerances are based on weight and are provided in Notes 6 and 7 contained in Part 2 of the First Schedule.
- Products (other than textiles of Chapters 50 to 63) – 15 % of the ex-works price of the finished product

There are instances where the 3rd Column of Part 1 of the Firts Schedule will specify the tolerance to be applied for that particular commodity: eg: heading 27.07 and 27.10.
The following steps are to be followed when determining whether a product originates under Rule 4 (1) (b) of the EAC Rules of Origin, 2015:

Establish the tariff classification of the product, (8 digit Harmonised System Code of the Product);
Establish the applicable specific rule (i.e. check Column 3). Where two or more rules are provided in Column 3, one has a choice of using any of the rules in Column 3. If rule is met, then the product may be regarded as originating in a Partner State. If not, then the product does not qualify
Where a specific rule is not mentioned for the given product, refer to the section dealing with the Chapter or Heading you are concerned with.

Processes Not Conferring Origin

Origin, 2015, there are certain processes that have a minor effect on the finished product such that they cannot be regarded as conferring originating status on finished products, even where their application would seem to fulfil the conditions set in the Third Column of Part 1 of the First Schedule for a particular product.
These operations when carried out alone or where they are combined shall not confer origin as they are simple.
- The following operations and processes are considered as insufficient to confer originating status on the finished products:
  - packaging, bottling, placing in flasks, bags, cases and boxes, fixing on cards or boards and all other simple packaging operations;
(i) simple mixing of ingredients imported from outside a Partner State;
(ii) simple assembly of components and parts imported from outside a Partner State to constitute a complete product;
- operations to ensure the preservation of merchandise in good condition during transportation and storage, spreading out, drying, freezing, removal of damaged parts and similar operations;
- change of packing and breaking up or assembly of consignments;
- marking, labelling or affixing other like distinguishing sign on products or their packages;
- simple operations consisting of removal of dust, including the making up of sets of goods, washing;