Consultations on Proposed Amendments to CARICOM’s Rules of Origin

Consultations on Proposed Amendments to CARICOM’s Rules of Origin

For the last few months, undoubtedly most persons’ attention have been on matters associated with the Coronavirus Disease 2019 (COVID 19), a pandemic that as wreaked havoc on the global and domestic economies. Globally, the International Monetary Fund (IMF) estimates a 4.9% contraction in World Gross Domestic Product (GDP) and for Latin America and the Caribbean that decline is estimated at 9.4%. Here at home, the Belize’s output is forecast to be down by more than 16% for 2020, and in the second quarter alone, GDP declined by approximately 23%, largely due to the public health restrictions that were implemented in early April so as to contain the spread of COVID 19.

Naturally, the on-the-ground experiences of businesses that drive those sorts of statistics would be enough to capture the full bandwidth of our collective attention, however, it simultaneously remains important to recall that regional activity and policy debates continues. One such regional activity is the ongoing Caribbean Community (CARICOM)-wide consultations on possible amendments to the Rules of Origin (ROO) regime.

In its simplest sense, the World Trade Organization (WTO) defines ROO as “the criteria needed to determine the national source of a product. Their importance is derived from the fact that duties and restrictions in several cases depend upon the source of imports.” Said differently, the Rules set the conditions under which a good could legitimately enjoy preferential treatment within CARICOM. Of course, if the good is 100% produced in a CARICOM Member State with all inputs originating from that Member State there would be little question as to its “origins”. Therefore, such a “wholly produced” product would unquestionably be able to receive preferential treatment in accordance with Article 84 of the Revised Treaty of Chaguaramas (RTC).

The debate, however, can emerge as it pertains to goods that are “partly” produced from “materials imported from outside the Community or from materials of undetermined origin”. In the most general sense, the expectation is that the imported inputs from outside CARICOM (“extra-regional”) would have to undergone a “substantial transformation” either by the good being classified under a new tariff heading or in accordance with parameters set out in the RTC’s Schedule I.

An example of these criteria at work could be seen for cheese (Tariff Classification 0406). For this product, the rules stipulate that if the producers use inputs from More Developed (Non-Caricom) Countries (MDCs) the “value of the extra-regional materials used [ought not] exceed 65 percent of the export price of the finished product”. While this is used merely for illustrative purposes in this article, the Schedule I review process may ask stakeholders to indicate whether or not a change of that threshold (i.e. the 65%) is desired. A lowering of the threshold could be deemed advantageous to regional suppliers of inputs, while increasing of the threshold may prove less beneficial to local/regional stakeholders as such a change would permit cheese manufacturers to source more of their inputs from extra-regional sources.

As stated above, the forgoing is for illustrative purposes only, but clearly these changes must be handled with care as they can impact how intra-CARICOM trade is conducted; therefore, the participation in the ROO Regional Working Group (“Working Group”) sessions become especially essential. The “Working Group” was established to “advance regional consultations between technical experts of Member States, [so as] to develop a regional consensus on the review of the Community Rules of Origin to make them more suited for [their intended] purpose. This will include simplifying rules, where necessary, as well as introducing new concepts for consideration.”

Chaired by the Directorate General of Foreign Trade (DGFT), Belize Chamber of Commerce & Industry (BCCI)’s secretariat and private-sector members recently participated in one such session, with a follow-up scheduled for the first week in October 2020. The BCCI also convened an interim session this week (Wednesday, September 23^rd) with our members to gather direct inputs from stakeholders as it pertains to four specific ROO-related recommendations: (i) Co-equal Rules, (ii) Cumulation, (iii) Value Tolerance (De minimis), and (iv) the matter of Fungibility. Subsequent installments of the Business Perspective Column will look at some of these in more detail.