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CHAPTER 1: INTRODUCTION
1.1 Background
The concept of Rules of Origin has become increasingly
important for international trade. In fact, the implementation
of preferential trade regimes and the application of trade
measures, such as, import bans and prohibitions, discriminatory
restrictions, tariff quotas, among others, depend on the application
of rules of origin.
The Treaty Establishing the Common Market for Eastern and
Southern Africa (COMESA) provides, in Article 48, that goods
shall be accepted as eligible for Common Market treatment
if they originate in the member States, and the definition
of such products shall be as provided in a Protocol on Rules
of Origin to be concluded by the member States.
The determination of the eligibility of products to COMESA
origin and the granting of preferential tariffs to goods originating
in the member States are important processes in the implementation
of the COMESA trade regime. The effective and uniform implementation
of the provisions of the Protocol on Rules of Origin by the
member States is important as it helps in strengthening the
COMESA trade regime.
1.2 Scope
This Leaflet outlines the procedures to be followed by the
business community in order to benefit from the preferential
duty regime and increase inter community trade. It outlines
the conditions and steps to be taken to obtain the required
import permit (Certificate of Origin) and provides guidance
on the records necessary in the event of a verification visit
by the Designated Issuing Authorities and/or Customs Administration.
1.3 Product coverage
Under the COMESA trade regime, goods qualify for preferential
tariff treatment if they originate in the member States. This
means that all goods that meet the requirements of the COMESA
Rules of Origin qualify for preferential tariff treatment
when they are traded within COMESA.
CHAPTER 2: COMESA RULES OF ORIGIN
2.1 Definition
COMESA Rules of Origin are a set of criteria that
is used to distinguish between goods that are produced within
the COMESA member States and are entitled to preferential
tariff treatment and those that are considered to have been
produced outside the COMESA region that attract full import
duties when traded.
Since COMESA Rules of Origin are used for granting tariff
preferences, they are referred to as preferential rules of
origin.
2.2 Determination of origin [Rule 2 of the Protocol
on Rules of Origin]
2.2.1 Article 48 of the Treaty Establishing
the Common Market for Eastern and Southern Africa provides
that goods shall be accepted as eligible for Common Market
tariff treatment if they originate in the member States, and
the definition of products originating in the member States
shall be as provided for in a Protocol on Rules of Origin.
2.2.2 Under the COMESA trade regime, a product
shall be considered as originating in a member State if it
is consigned directly from a member State to a consignee in
another member State and has either been;
| Wholly produced or undergone substantial
transformation in that Member State. |
2.2.3 The COMESA Rules of Origin have five
independent criteria, and goods are considered as originating
in a member State if they meet any of the five. The criteria
are as follows:
| (i) The goods should be
wholly produced in a member State; or
(ii) The goods should be produced in the member States
and the c.i.f. value of any foreign materials should
not exceed 60% of the total cost of all materials used
in their production; or
(iii) The goods should be produced in the member States
and attain a value added of at least 35% of the ex-factory
cost of the goods; or
(iv) The goods should be produced in the member States
and should be classifiable under a tariff heading other
than the tariff heading of the non-originating materials
used in their production;
(v) The goods should be designated by the Council of
Ministers as "goods of particular importance to
the economic development of the member States"
and should contain not less than 25% value added, notwithstanding
the provisions of paragraph (iii) above. |
These rules are discussed in detail in paragraphs that follow.
2.3 Direct consignment rule
The goods should be consigned directly from one Member State
to a consignee in another member State. This implies that
goods should be transported directly from a consignor in another
member State.
However, goods consigned from and to land locked member States
may for purposes of transportation, transit through other
countries.
2.4. Wholly produced goods - [Rule 2(1)(a)
of the Protocol]
They have been wholly produced in a member State as defined
in Rule 3 of the Protocol.
Explanation:
Rule 3 provides a list of products that are considered as
"wholly produced" in the member States.
Such products contain no materials imported from outside
the COMESA region.
Goods wholly produced in the member States:
| (a) Mineral products extracted
from the ground or seabed of the member States;
(b) Vegetable products harvested within the member
States;
(c) Live animals born and raised within the member
States;
(d) Products obtained from live animals within the
member States;
(e) Products obtained by hunting or fishing conducted
within the member States;
(f) Products obtained from the sea and from rivers
and lakes within the member States by a vessel of a
member State;
(g) Products manufactured in a factory of a member
State exclusively from the products referred to in sub-paragraph
(f) of paragraph 1 of this Rule;
(h) Used articles fit only for the recovery of materials,
provided that such articles have been collected from
users within the member States;
(i) Scrap and waste resulting from manufacturing operations
within the member State;
(j) Goods produced within the member States exclusively
or mainly from one or both of the following:
(i) Products referred to in sub-paragraphs (a) to
(i), above
(ii) Materials containing no element imported from
outside the member states or of undetermined origin
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Note: Electrical power, fuel, plant, machinery
and tools used in the production of goods shall always be
regarded as wholly produced within the Common Market when
determining the origin of the goods.
2.5 Material content criterion - [Rule 2(1)(b)(i)
of the Protocol]
The goods have been produced in a member State wholly or
partially from imported materials (or from materials of unknown
origin) and the c.i.f. value of materials imported from outside
the region does not exceed 60%
of the total cost of materials used in production.
Explanation:
Under this criterion, only the cost of the materials (domestic
and imported) used in production is considered for purposes
of determining origin. Materials whose origin is unknown are
considered as "imported" for purposes of this rule,
and their price shall be the earliest ascertainable price
paid for them in the Member State where they are used in a
process of production. The value of the imported materials
is the c.i.f. value accepted by Customs at the time of clearance
for home consumption or under temporary admission procedures.
Formula for calculation of material content (%):
| Import material content: |
Import material content
=
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c.i.f. value of imported materials
cost of local materials + c.i.f. value of imported
materials |
| Local material content:
|
Local material content
= |
cost of local materials
cost of local materials + c.i.f. value of imported
materials |
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This rule can also be expressed in terms of domestic materials
where a minimum of 40% local
content should be for the finished goods to
qualify as originating in a member state.
2.6 Value-added criterion - [Rule 2(1)(b)(ii) of
the Protocol]
The goods have been produced in a member state wholly or
partially from imported materials (or materials of unknown
origin) and the value added resulting from the process of
production accounts for at least 35% of the ex-factory cost
of the finished product.
Explanation:
The value added is the difference between the ex-factory
cost of the finished product and the c.i.f. value of imported
materials used in production.
Ex-factory cost means the value of the total inputs required
to produce a given product.
In applying this criterion, domestic material content may
be either low or non-existent in the composition of the products
to be exported.
Materials whose origin cannot be determined shall be deemed
to have been imported from outside the region.
Calculation of ex-factory cost:
The following costs, charges and expenses should be included:
a) The cost of imported materials, as represented by their
c.i.f. value accepted by the Customs authorities on clearance
for home consumption, or on temporary admission at the time
of last importation into the member State where they were
used in a process of production, less the amount of any transport
costs incurred in transit through other member States. Provided
that the cost of imported materials not imported by the manufacturer
will be the delivery cost at the factory but excluding customs
duties and other charges of equivalent effect thereon;
(b) The cost of local materials, as represented by their
delivery price at the factory;
(c) The cost of direct labour as represented by the wages
paid to the operatives responsible for the manufacture of
the goods
(d) The Cost of direct factory expenses, as represented by:
-
The operating cost of the machine being used to
manufacture the goods;
-
The expenses incurred in the cleaning, drying,
polishing, pressing or any other
-
Process, as may be necessary for the finishing
of the goods;
-
The cost of putting up the goods in their retail
packages and the cost of such packages but
-
Excluding any extra cost of packing the goods for
transportation or export and the cost of any
-
Extra packages;
-
The cost of special designs, drawings or layout;
and the hire of tools, or equipment for the production
of the goods.
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(e) The cost of factory overheads as represented by: rent,
rates and insurance charges directly attributed to the factory;
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Indirect labour charges, including salaries paid
to factory managers, wages paid to foremen, examiners
and testers of the goods;
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Power, light, water and other service charges directly
attributed to the cost of manufacture of the goods;
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Consumable stores, including minor tools, grease,
oil and other incidental items and materials used
in the manufacture of the goods;
-
Depreciation and maintenance of factory buildings,
plant and machinery, tools and other items used
in the manufacture of the goods.
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The following costs, charges and expenses should be excluded:
(a) Administration
expenses as represented by:
-
Office expenses, office rent and salaries paid
to accountants, clerks, managers and other executive
personnel;
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Directors' fees, other than salaries paid to directors
who act in the capacity of factory managers;
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Statistical and costing expenses in respect of
the manufactured goods; investigation and experimental
expenses.
(b) Selling expenses, as represented
by:
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The cost of soliciting and securing orders, including
such expenses as advertising charges and agents'
or salesmen' commission or salaries;
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Expenses incurred in the making of designs, estimates
and tenders.
(c) Distribution expenses, represented
by all the expenditure incurred after goods have left
the factory, including;
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The cost of any materials and payments of wages
incurred in the packaging of the goods for export;
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Warehousing expenses incurred in the storage of
the finished goods;
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The cost of transporting the goods to their destination.
(d) Charges not directly attributed
to the manufacture of the goods:
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Any customs duty and other charges of equivalent
effect paid on the imported raw materials;
-
Any excise duty paid on raw materials produced
in the country where the finished goods are manufactured;
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Any other indirect taxes paid on the manufactured
products;
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Any royalties paid in respect of patents, special
machinery or designs;
Finance charges related to working capital. |
Example: A producer in Member State X makes
wooden tables for sale to a buyer in Member State Y. The producer
uses local timber and timber imported from member State Z
and Malaysia, respectively. The producer incurs the following
costs per table, but he is not sure whether the tables qualify
for preferential tariff treatment or not:
Materials
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Cost (currency unit)
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Timber:
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Local timber
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200 |
From member State Z
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100 |
Malaysian origin
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900 |
| |
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Other costs:
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Glue (imported from Brazil)
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5 |
Varnish (imported from Germany)
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8 |
Factory overheads:
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Rent and rates
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100 |
Depreciation of machinery
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80 |
| Direct labour |
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300 |
| |
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Ex-factory cost |
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1693 |
Calculations:
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| (a)(i) Import material content |
= |
900+5+8 |
= |
913 |
= 75% |
| |
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200+100+900+5+8 |
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1213 |
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| OR |
|
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| (ii) Local material content |
= |
200+100 |
= |
300 |
= 25% |
| |
|
200+100+900+5+8 |
|
1213 |
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| |
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| (b) Value added |
= |
1693-913 |
= |
780 |
= 46% |
| |
|
1693 |
|
1693 |
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The material content and value added should be calculated
to the nearest whole number. Example:
74,9% = 75%
74.4% = 74% |
Explanation:
It is clear from the above that the table largely satisfies
the value added criterion. However,
the same table would not satisfy the material content criterion,
since imported materials exceed 60% of the total cost of materials
used in producing the table.
2.7 Change in Tariff Heading (CTH) Rule - [Rule 2(1)(b)(iii)
of the Protocol]
The goods have been produced in a member State wholly or
partially from imported materials and are classified or become
classifiable under a heading other than the tariff heading
of the imported materials.
Explanation:
Under this criterion, origin is conferred if the manufacturing
or processing carried out in the member States is substantial
and results in a product which falls under a heading of the
Harmonized Commodity Description and Coding System (HS) which
is different from that under which the non-originating materials
used in its manufacture fall.
In applying the CTH Rule particular attention should be given
to exclusions.
Example I
| Margarine of tariff heading
15.07 manufactured in a COMESA member State can only qualify
as a COMESA originating product if it is manufactured
from imported materials classified in headings other than
15.07, 15.12 and 15.15. |
Example II
| Men's or boys' shirts,
knitted or crotcheted of tariff heading 61.05. Rule: CTH
except from cotton fabrics and goods of heading 61.17. |
Explanation:These products will qualify
as originating in COMESA if they are made from imported fabrics
other than cotton, and also if they have not been made from
parts and accessories of heading 61.17.
2.8 Goods of particular importance to economic development
- [Rule 2(1) (c) of the Protocol]
The goods have been produced in the member States and should
be designated by Council as "goods of particular importance
to the economic development of the member States" and
should contain not less than 25% value-added, notwithstanding
the provisions of Rule 2(1)(b)(ii) above.
Examples:
| Tariff Heading |
Commodity description |
| HS 25.23 |
Portland cement; |
| HS 84.53 |
Machinery for preparing hides; etc. |
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2.9 Cumulation of origin [Rule 2(3) of the Protocol]
For the purposes of implementing the Protocol on Rules of
Origin, the member States shall be considered as one territory.
Raw materials or semi-finished goods originating in any of
the member States and undergoing working or processing either
in one or more States shall, for the purpose of determining
the origin of a finished product, be deemed to have originated
in the member State where the final processing or manufacturing
takes place, provided they have undergone working or processing
going beyond that referred to in Rule 5 of the Protocol.
In applying this rule, the evidence of originating status
of raw materials or semi-finished goods imported from another
member State is given by a Certificate of Origin issued by
the Designated Issuing Authority in the exporting Member State.
2.10 Processes not conferring origin [Rule 5 of the
Protocol]
The Protocol contains a list of operations and processes,
which shall be considered as insufficient to support a claim
that goods originate from a member State. The list is as follows
| a) Packaging, bottling,
placing in flasks, bags, cases and boxes, fixing on cards
or boards, and all other simple packaging operations;
b)
(i) Simple mixing of ingredients imported from outside
member states
(ii) Simple assembly of components and parts imported
from outside member states to constitute a complete
product.
(iii) Simple mixing and assembly where the costs
of the parts and Components imported from outside
Member states and used In any such processes exceed
60% of the total costs of the Ingredients parts and
components used.
c) Operations to ensure the preservation of merchandise
in good condition during transportation and storage
such as ventilation, spreading out, drying, freezing,
placing in brine, sulphur dioxide or other aqueous solutions,
removal of damaged parts and similar operations;
d) Changes of packing and breaking up of or assembly
of consignments; |
Explanation:
Products resulting from these operations and processes retain
their foreign origin and are thus not entitled to preferential
tariff treatment.
2.11 Split consignments [Rule 6(3) of the Protocol
Unassembled or disassembled articles, which for transport
or production reasons may have to be exported at different
times shall for purposes of granting preference be treated
as one article. This means that upon importation of the first
consignment the importer should agree with the Customs authorities
for the goods to be treated as one article and hence a single
proof of origin (certificate) should be produced.
2.12 Goods produced in Export Processing Zones (EPZs)
Goods produced in Export Processing Zones within member States
shall be granted preferential tariff treatment if they meet
the requirements of the COMESA Rules of Origin.
2.13 Goods produced under license
Goods produced under license shall be granted preferential
tariff treatment if they meet the requirements of the COMESA
Rules of Origin. Companies manufacturing goods under license
of international firms should ensure that the outer package
of the product shows the name and address of the company producing
the products in the Member State. This will enable the goods
in question to be considered as goods of COMESA origin.
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