TNAG-0132-FCO40-168-Tariff-preferences-for-developing-countries-1969 — Page 135

10.

CONFIDENTIAL

--

-3.

and no internationally agreed definition of 'substantial transformation' exists.

The European Free Trade Association (E.F.T.A.) determines origin by reference to long and detailed lists of specific manufacturing processes required to be carried out on specific raw materials or semi-manufactures for specific products. The Brussels Tariff Nomenclature (B.T.N.) purports to indicate "substantial transformation" ipso facto by a change in heading.

With

If rules of origin based on E.F.T.A. procedures were to be adopted, Hong Kong and possibly other developing countries as well, would find themselves virtually excluded from preferential treatment on a wide range of products. regard to the use of the B.T.N. as a guide, the "rules", if any, used by the B.T.N's drafters are not known. event, the B.T.N. has had to be supplemented by other criteria in particular cases, and is not in universal use.

In any

(2) The value added beyond a certain percentage criterion:

(a) There is no internationally agreed standard, but the

The 0.3.C.D. experts suggested a minimum of 50%. Australian scheme of preferences, specifies a 50% developing country (or Australian) content in order for goods to qualify for preference. It is possible that the developed countries will cite this scheme as a precedent for the application of a criterion that has not apparently caused undue difficulty to developing countries. We suspect, however, that this is because

and the criterion has not been strictly enforced that if it were it would cause much difficulty.

(b) Hong Kong would find itself unable to meet a 50% value

added criterion for a large range of manufactured goods (as might indeed many other developing countries) though this range might be reduced if developing countries were treated as a group. In this connection the present Hong Kong origin criteria, which have, from past experience been found reasonably easy to apply, are a guide to what would best suit the Hong Kong origin criteria; "goods which are the product of a manufacturing process which has changed permanently and substantially the shape, nature, form or utility of the basic materials. marginal cases eligibility is favourably considered if at least 25% of the manufacturing cost is attributable to local materials and/or work done in Hong Kong".

(c)

i.e.

In

any value added" criterion would involve complicated accounting procedures. It is doubtful wnether any developing country apart from Hong Kong possesses adequately sophisticated administrative machinery for co doing, although the lack of such muchinery might not deter them from certifying compliance.

We are still studying the Rules of Origin paper (TD/B/AC.5/3 of 29 November) issued by the U.N.C.T.A.D. Secretariat for the Special Committee on Preferences and received by us only a few days ago. Supplementary comments will be forwarded when this study has been completed.

Hong Kong Government, January 1969.

+

Page 135Page 136