Page 42 - ELT_2nd_15th April 2020_Vol 372_Part

A58 EXCISE LAW TIMES [ Vol. 372

quirements relating to sufficient processing, change of tariff classification is the
most frequently used criterion in current preferential trade agreements.
A further feature of globalization is that, for such products as clothing,
computers, and telecommunication equipment, much of the value added lies in
the intermediate products. High value added requirements therefore become
particularly difficult for developing countries to satisfy, since it is the final,
labour-intensive stage that they host. In this way, restrictive rules of origin act to
constrain specialization at the country level. The available evidence suggests that
for many products, value added in low-income countries is substantially less
than 30 per cent. When the final stage of production involves labour-intensive
activities applied to relatively high-value imported inputs, it is more difficult for
low-wage countries to satisfy a particular value added requirement than it is for
higher-wage countries. In general, these percentage value rules are rarely ap-
plied as the sole test of origin and are typically employed with the change of tar-
iff classification. Exceptions among agreements are the Australia–New Zealand
Closer Economic Relations Trade Agreement (ANZCERTA), the South Pacific
Trade and Economic Co-operation Agreement (SPARTECA), and the Association
of Southeast Asian Nations (ASEAN) Free Trade Agreement (AFTA), which have
percentage requirements without any additional need for change of tariff head-
ing. All three agreements do require that the last process of manufacture be un-
dertaken in the exporting country. As noted earlier, under the value added
method, origin is sensitive to changes in factors such as exchange rates, wages,
and commodity prices. The value added method thus tends to penalize low-
labor-cost locations, which will find it more difficult than higher-cost locations to
add the necessary value. It is likely to cause particular problems of compliance
for companies in developing countries that lack the sophisticated accounting sys-
tems necessary under this method. Rules based on specific manufacturing pro-
cesses are widely used (in 74 of the 83 preferential trade agreements analyzed by
the WTO), often in conjunction with the change of tariff classification criterion,
the value added criterion, or both. They are a particular feature in the textiles and
clothing sectors. Some examples of the application of the rules follow :
 A producer imports cotton fabric (HS5208), which is then dyed, cut,
and made up into cotton shirts (HS 6105). The value of the imported
materials amounts to 65 per cent of the value of the shirts. In this
case, origin would come under a change of tariff heading rule, but
not under a value added rule, which requires an import content of
not more than 60 per cent or a domestic content of more than 40 per
cent. A specific manufacturing process requirement that the prod-
ucts have been manufactured from yarn (the production stage be-
fore fabric) would mean that the product would not be originating.
 A doll (HS 9502) is made from imported plastics and imported
readymade garments and footwear. The value of the imported ma-
terials amounts to 50 per cent of the value of the doll. In this case,
the doll would be originating under a value added rule requiring an
import content of not more than 60 per cent; it would not be origi-
nating under the change of tariff heading because garments and ac-
cessories for dolls are classified under the same tariff heading as
dolls.

EXCISE LAW TIMES  15th April 2020  58