The European Union ('EU') Rules of Origin provide a comprehensive framework to ascertain the origin of goods for the purpose of compliance with regulations, trade agreements and trade measures. There are two types of Rules of origin in the EU namely Preferential and Non-Preferential Rules of Origin. The present article focuses on the implication of the judgement of Court of Justice of the European Union ('CJEU') on the Non-Preferential Rules of Origin which are used to determine the origin of goods from a country not part of any trade agreements with the EU.
Reference may be made to our last article wherein the Non-Preferential Rules of Origin ('ROO') of EU were analyzed in detail1. As per Article 60 of the EU's Customs Code ('UCC'), one of the fundamental principles under ROO is the test of 'substantial transformation.' This criterion assesses whether the processing or manufacturing conducted in the exporting country has significantly altered the product. If a substantial transformation has occurred, the product is deemed to originate from that country.
Article 62 of the UCC provides for delegation of power to the European Commission for making rules according to which last, substantial, economically justified processing or working for manufacturing a new product is determined. In light of the above, for specific goods,legally binding rules have been laid down under Annexx 22-01 of the ROO by the EU. These rules are specific for each chapter and tariff code and provide primary rules specific for a particular product to determine the true origin of that product.
Matter before the CJEU
The validity of a specific ROO for goods falling under Customs Tariff Heading 7304 under Annexx 22-01 was recently adjudged by the CJEU2. The Finance Court, Hamburg, Germany, had requested CJEU for a preliminary ruling under Article 267 of the Treaty on the Functioning of the EU on the validity and interpretation of the primary rule applicable under the Customs Tariff Sub-heading ('CTSH') 7304 41. Article 267 of the TFEU empowers the CJEU to give preliminary rulings on the interpretation of the EU law and on the validity of acts of the institutions, bodies, offices, and agencies of the EU.
The case stemmed from a request of a European importer for a binding origin information decision. This importer was importing seamless stainless-steel pipes and tubes under CTSH 7304 41 from South Korea. These pipes were produced in South Korea from hot rolled mother tubes or mother pipes imported from China. The Korean entity was first importing the mother tubes from China and performing cold rolling process to convert them to cold rolled pipes in South Korea.
In this decision, CJEU has noted that as per Article 62 of the UCC, the European Commission is empowered to adopt delegated acts laying down rules through which the country where the goods have undergone their last, substantial, economically justified processing or working resulting in the manufacture of a new product. The purpose of these rules is to specify how this abstract criterion must be interpreted and applied in specific situations.
As per the product specific rules listed under Annex 22-01, the specific non-preferential rule of origin for CTSH 7304 41 is as below:
|
HS 2017 Code |
Description of Goods |
Primary Rules |
|
7304 41 |
--Cold-drawn or cold-rolled (cold-reduced) |
CTH, or change from hollow profiles of subheading 7304 49 |
Annex 22-01 has put in place specific primary rules in order to determine and confer origin. For cold rolled pipes under CTSH 7304 41, apart from CTH, production of cold drawn or cold-rolled pipes from hollow profiles in the exporting country can also confer origin.
The CJEU noted that a cold-rolled pipe can be produced by processing a hot-rolled hollow profile or a hot-rolled tube or pipe through cold drawn or cold rolled process. The criterion for determination of the country of origin for products under CTSH 7304 41 is based on the type of treatment performed on the product, i.e., cold drawn or rolling on a hot-rolled hollow profile under CTSH 7304 49. As per the above product specific rule, cold rolling process on these hollow profiles has been considered as substantial process or working within the meaning of Article 60(2) of the UCC delegated Act. However, the rule does not consider the same processing performed on a tube or pipe classified under CTSH 7304 49 for changing the origin of a product.
The CJEU observed that origin must in any case be determined based on the decisive criterion of the 'last substantial processing or working' of the goods concerned. The cold forming of tubes and pipes of CTSH 7304 49 should therefore be considered as 'last substantial processing or working' according to the CJEU. The CJEU further refer to the final findings of the Anti-circumvention investigation against India3 in which the Commission had found that tubes and pipes undergo substantial transformation because of their cold forming. Cold forming brings irreversible changes to the physical, mechanical, and metallurgical properties of the tubes and pipes, and such changes determine the origin of a product.
Considering this discrimination or contradiction, the CJEU held this primary rule for CTSH 7304 41 under the ROO to be invalid to the extent it excludes the cold rolled processing performed on hot-rolled tubes or mother pipes classifiable under CTSH 7304 49.
Fate of OLAF investigations
In the recent past, the European Anti-Fraud Office ('OLAF') has initiated a number of investigations against several exporters from India suspecting evasion of anti-dumping duties imposed on certain seamless pipes and tubes of stainless-steel originating in China. The cases were opened by OLAF following information received from a trade source on imports of seamless pipes and tubes of stainless steel declared as originating in India. It was suspected to be of Chinese origin and therefore anti-dumping duties were alleged to be evaded. As per OLAF, one of the possible fraud modus operandi was in cases wherein Indian exporters are involved in import into India of Chinese origin hot-finished products and after insufficient transformation by way of cold rolling, exporting it to the EU declaring such exports as Indian originating product.
As per OLAF's understanding, such processing in India does not fulfill the rules of origin laid down in Annex 22-01 i.e., no cold processing is carried out by Indian exporters on hollow profiles and cold rolling on hot rolled tubes & pipes does not meet the condition of the primary rules in Annex 22-01. In other words, converting Chinese origin 'mother tubes' to cold-drawn seamless stainless pipes and tubes was held to be insufficient by OLAF to confer it Indian origin in the light of the EU's legally binding rules on non-preferential origin. This stand of OLAF was contradictory to the findings in the Anti-circumvention investigation conducted by the EU Commission which determined that cold processing in India of hot formed tubes originating from China represented a substantial transformation of the product.
Now, considering the CJEU's decision, the primary rule of determination of rule of origin for cold-drawn or cold-rolled (cold-reduced) under HS subheading 7304 41, would also include the cold-rolled processing performed on hot-rolled mother tubes/pipes.
Accordingly, the country of origin of cold-rolled pipes exported by an Indian exporter shall be Indian origin in cases where cold rolled processing on Chinese origin hot rolled mother tubes has been carried out by such exporter in India.
Opportunity for Indian exporters
The investigations by the OLAF against Indian exporters of seamless stainless-steel pipes and tubes were a big barrier. Several customs administrations of different countries in the EU had decided to adopt OLAF's recommendations and claimed retroactive duties on these Indian imports. Therefore, many of the importers in the EU were deterred from buying from Indian exporters due to apprehension of evasion of duty. This decision of the CJEU comes as a big relief for the Indian exporters and their customers in EU. In view of the decision of CJEU which will be binding on OLAF, the OLAF must terminate the investigations against Indian exporters who are carrying out cold rolling process in India. In any case, the exporters facing OLAF investigations should reach out to them and request to drop the proceedings. As the EU market opens, this will give a significant boost to exports from this sector.
Footnotes
2. C‑210/22 - CURIA - Documents (europa.eu)
3. Commission Implementing Regulation (EU) 2017/2093 of 15 November 2017 terminating the investigation concerning possible circumvention of the anti-dumping measures imposed by Council Implementing Regulation (EU) No 1331/2011 on imports of certain seamless pipes and tubes of stainless steel originating in the People's Republic of China by imports consigned from India- EUR-Lex - 32017R2093 - EN - EUR-Lex (europa.eu)
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