Focus

Revising RKC Specific Annex K: key aspects of the proposal and of its objectives

By Roman Brühwiler, Senior Adviser, Section Free Trade- and Customs Agreements, Swiss Federal Customs Administration

The International Convention on the Simplification and Harmonization of Customs Procedures (Kyoto Convention) entered into force in 1974. To keep pace with the evolution of governments and international trade, the Kyoto Convention was revised in the 1990s and entered into force as the Revised Kyoto Convention (RKC) on 3 February 2006. The RKC became the blueprint for modern and efficient Customs procedures for years to come.

At a time of unprecedented change, with the rapid evolution of both international trade and the functioning of Customs administrations, some Members suggested as early as 2009 that the RKC should be revisited in order to reflect these new realities. After detailed discussions and preliminary studies, the WCO Policy Commission and Council approved the establishment of a Working Group on the Comprehensive Review of the RKC at their June 2018 sessions, recognizing the need to ensure that it remained the blueprint for modern and efficient Customs procedures in the 21st century. In so doing, the process for the comprehensive review of this WCO flagship instrument was launched.

Why Specific Annex K to the Revised Kyoto Convention (RKC) should be revised

Specific Annex K to the RKC addresses rules of origin and origin procedures (documentary evidence and control) but fails to take into account a number of important considerations. For example, no distinction is made between non-preferential and preferential rules of origin. However, Specific Annex K was not part of the comprehensive revision of the Kyoto Convention in the 1990s. This was mainly because, at the time, the harmonization of non-preferential rules of origin was being negotiated in the World Trade Organization (WTO) Harmonization Work Programme (HWP) established under the Agreement on Rules of Origin (ARO). The WCO Members had decided to wait for the HWP to be concluded before revising Specific Annex K. As has since become clear, the HWP, which originally envisaged that the work would be completed within three years after it commenced in 1995, proved to be more complex than initially thought and is still ongoing today.

In its current state, Specific Annex K offers a low level of detail and has been ratified by only a few Members; as a result, it amounts to little more than guidance regarding some aspects of rules of origin. In the absence of a multilateral instrument, non-preferential rules of origin remain a matter for each country, subject only to the general provisions of Article 2 of the ARO. As for preferential rules of origin, the multiplication in recent decades of free trade agreements (FTAs) specifying such rules creates a complexity that compromises the effective use of any preferential treatment. Economic operators and Customs administrations are left to deal with a variety of rules and procedures which may not reflect modern trading practices and which are often interpreted and implemented in different ways.

The review of Specific Annex K offers an opportunity to address the complexity of and the unnecessary costs arising from the current situation. To that end, a revised Specific Annex K should provide the parties involved, i.e. negotiators of FTAs, Customs administrations and economic operators, with a commonly understood and up-to-date set of tools on rules of origin and origin procedures.

Who was involved in drafting the joint proposal for the review of the Annex and what did they set out to achieve?

From the outset, there was considerable interest among Members and external stakeholders in the review of Specific Annex K. The first proposals aimed at improving transportation provisions, introducing self-certification and promoting the use of information technology. The European Union published a concept paper proposing a complete redrafting of rather than a set of amendments to Specific Annex K. The concept paper found broad support among proponents and interested parties, and it was decided to develop a joint proposal by merging the proposals based on the EU concept paper. The Sponsoring Group for the joint proposal includes China, the European Union, Japan, New Zealand, Norway, Switzerland, as well as the United Nations Conference on Trade and Development (UNCTAD), the Eurasian Economic Commission (EEC) and Private Sector Consultative Group (PSCG) members Renault-Nissan and Fonterra. During the drafting phase, it was important for the Sponsoring Group to coordinate with the WCO technical bodies and reach out to RKC Specific Annex K contracting parties and the private sector. To that end, the Sponsoring Group held several workshops and consultative meetings in order to ensure that it could take on board the views and inputs of the various stakeholders and address any concerns early on, as well as raise awareness of the ongoing work to review Specific Annex K.

Key aspects of the proposal’s content and structure (excerpt from the joint proposal)

As already stated, Specific Annex K makes no distinction between non-preferential and preferential rules of origin. Even though both sets of rules may, on the surface, appear to be based on similar concepts, the issue of origin cannot be addressed in the same way in relation to non-preferential and preferential measures, neither in terms of substance nor with regard to procedures. The review of Specific Annex K therefore offers an opportunity to ensure that this useful distinction is made.

Another important consideration to take into account is that the drafting of rules of origin and origin procedures, either autonomously or as a result of negotiations, is generally governed by policy choices inspired by a variety of objectives and constraints, many of which are not related to Customs. Therefore, while it might be possible to identify some common approaches – and the more this can be achieved, the better – their scope may be limited by those choices.

The proposal to redraft Specific Annex K is based on five principles:

  1. Establish a clear distinction in the structure and content of Specific Annex K between non-preferential origin and preferential origin, in line with the one established by the WTO ARO. Since Specific Annex K does not currently separate non-preferential from preferential rules of origin, this implies a complete reshaping of the Annex.
  2. Use the new Specific Annex K as a “toolbox”, building on the WCO Origin Compendium and other relevant literature and research, to provide RKC Contracting Parties (and other WCO Members) with clear concepts that allow them to establish their origin rules and procedures using a common language and a common meaning, thereby making them more easily understandable and applicable by Customs, other competent authorities and stakeholders.
  3. Identify and adopt into Specific Annex K some common approaches on aspects of substance which are commonly used in preferential trade arrangements and/or where there is a convergence on best practices – in all other respects, limit the level of ambition to potential recommended practices. It is not intended that this include the harmonization of product-specific rules (PSR).
  4. Consider common approaches of preferential origin procedures, subject to reconciling different long-standing traditions and practices inherited from the past, to balance the best of each procedural system.
  5. Draft Guidelines for Specific Annex K, taking into account the Notes of Annex D1 to the 1974 Kyoto Convention and the technical guidelines developed and included in the WCO Origin Compendium.

Next steps

With the development of the joint proposal, the Sponsoring Group reached an important milestone. The proposal is now making its way through the RKC review process, and the development and text-based discussion of the revised Specific Annex K could start as early as September 2021. Unsurprisingly, this is likely to become the most challenging part of the whole process, requiring considerable effort on the part of all parties involved. However, in a world where goods are processed, produced and sold globally and the number of FTAs is continuing to increase, the prospect of clarity and predictability provided by a commonly understood set of rules and procedures means that the effort involved in revising Specific Annex K is well worthwhile.

More information
Origin@wcoomd.org