<p>Rules of Origin in the GCC States </p>
<p>Corporate Structuring / GCC</p>
Rules applying to the determination of the country of origin for an imported good have become increasingly controversial in the Gulf Cooperation Council Member States (“GCC Member States.”) This stems from the differences between the governing systems in each member state and the enforcement of bilateral or multilateral agreements between them. The GCC Member States constitute a regional economic union in the Middle East, and the pillars of this union reside in the GCC Economic Agreement of 1981 and 2001. One of the aims of the GCC Economic Agreement is to unify the trade policies between the GCC, and the rest of the world. Despite this, there is no harmonization between the GCC Member States over the rules of origin.
When considering the export and import of foreign goods across borders into GCC Member States, it is pivotal to determine the country of origin for a given product for a variety of reasons. This includes; quantitative restrictions or tariff quotas, anti-dumping measures, determining whether the products enjoy preferential or non-preferential treatment, or for administrative purposes such as determining trade statistics. It is also necessary to determine the nationality of a given product, and not to confuse it with the last country that it passed through.
According to the Common GCC Customs Law of 2021 (the “GCC Customs Law”), the Country of Origin is defined as the country where the goods are produced, whether it be natural resources, agricultural crops, minerals, or industrial products. The GCC Customs Law further implies that two types of rules of origin are implemented:
The Preferential Rules of Origin relate to trade agreements that determine whether the goods qualify for preferential tariff treatment (reduced or zero customs duty) under contractual or autonomous trade agreements between one country and/or more.
The Non-preferential Rules of Origin relate to laws, regulations, and administrative determinations of general application applied by a country to determine the country of origin of goods. It does not lead to reduced tariffs for a product but instead is used for determining trade statistics, quantitative restrictions, anti-dumping, labelling and government procurement.
Products of origin from one of the GCC Member States, enjoy preferential treatment when passing to another GCC Member State. More so, local products are exempted from customs duties by virtue of the GCC Economic Agreement of 2001.
While the GCC Member States have ratified the GCC Customs Law through their respective implementation of domestic regulations; the general rule under the GCC Customs Law on the proof of origin is subject to the international and regional economic agreements in force. For instance, GCC Member States are signatories to the Revised Kyoto Convention of 2006 on the Simplification and Harmonization of Customs Procedures (the “Revised Kyoto Convention”). The Revised Kyoto Convention stipulates that the country of origin of goods is the country in which the goods have been produced or manufactured; this is according to the criteria laid down for the purposes of applying the Customs Tariff (Chapter 1, Annex K). Over and above this, the rules of origin in the Revised Kyoto Convention are based on the below two criteria:
Wholly obtained products: goods produced wholly in a country shall be taken in that country (i.e., live animals born and raised in the country, vegetable products harvested in that country, mineral products extracted from that country).
Substantial transformation: This test is used where two or more states have taken part in the production of the final product. Three criteria are considered: (1) the change of tariff classification; (2) added value percentage criterion; and (3) the manufacturing or processing operation.
Below is a synopsis of the specific regulations and practices that each GCC Member State implements to determine the country of origin for a given product that goes into substantial transformation.
United Arab Emirates (the “UAE”)
The UAE Ministry of Industry and Advanced Technology (“MOIAT”) is the institution that defines and governs the meaning of ‘country of origin’ for a given good. This is executed by virtue of the UAE Federal Law No. 11 of 2019 on the Rules and Certificate of Origin (the “UAE CoO Law”) and the Executive Regulation No. 43 of 2022 on the Implementation of the CoO Law (the “Regulation of CoO Law”).
Article (5) of the Regulation of the UAE CoO Law further states that products shall be deemed to have been processed, operated on, or manufactured (to determine the non-preferential origin), if the last major operation or processing underwent, meets the criteria below.
The processing, manufacturing or operation must:
A. be economically justified;
B. take place inside a facility that is equipped for the purpose;
C. result in the manufacture of a new product or represent an important stage of manufacturing, through a change in the customs HS code; and
D. is not among those stipulated in Article (4) of the UAE CoO Law which are deemed as insufficient or secondary, and include any of the following cases:
i. Operations necessary for assuring the proper preservation of commodities for the purposes of transportation or storage including, ventilation, diffusion, drying, cooling, removal of damaged parts, etc.
ii. Simple operations conducted on the products including, removal of dust, filtering, ordering, classification, washing, varnishing, cutting, changing, and disengaging and assembling of covers, simple packaging in bottles, vials, bags, cans, or boxes, labelling the trademarks on the products or its boxes, simple mix-up, animal slaughtering, in addition to other similar simple operations.
The UAE’s locally manufactured products are required by virtue of Article (4) of Cabinet Resolution No. (25) of 2017 regarding the regulation of the "Made in UAE" marking, to achieve at least 40% of the value of the product through local processing, manufacturing, or operation.
Kingdom of Saudi Arabia (the “KSA”)
The Saudi Ministerial Decision No. 8352 for 1442 H (corresponding to 2020) on the Country of Origin (the “Saudi CoO Law”) regulates the country of origin for products that are manufactured in the KSA and imported from the GCC Member States. According to the Saudi CoO Law, a product is deemed of KSA origin if the value-added ratio is 40%, provided that at least 25% of the employees of manufacturing facilities are KSA citizens. This is unlike the GCC Economic Agreement, which does not require a minimum percentage of nationals to work in the manufacturing facility.
KSA is yet to enact domestic regulations that determine the rule of origin of foreign products imported from outside the GCC Member States. However, the KSA has ratified the Revised Kyoto Convention by virtue of Royal Decree No. 23 M of 1432 H (corresponding to 2011), and it applies the Revised Kyoto Convention in testing the rules of origin where it deems it necessary.
Notably, a Certificate of Origin for foreign goods attracting non-preferential treatment is not requested by the Customs Authority, unlike all other GCC countries. Needless to say, that some local authorities, such as the Saudi Food and Drug Authority, require a Certificate of Origin for all shipments.
In Kuwait, there is no specific law that governs the rules of origin. Instead, Kuwait relies on a collective set of laws and conventions to determine the rules of origin. More specifically, the rules of origin in Kuwait are governed by the provisions of the Revised Kyoto Convention, the GCC Economic Agreement, and the Kuwaiti Ministerial Decision No. 193 of 2020 regarding the General Rules for Issuing a Certificate of Origin at the Ministry of Trade and Industry (the “Kuwaiti Certificate of Origin Law”). Most notably, Kuwait requires a ratio of 40% for the value-added percentage of the final value of the product in line with Article (3) of the GCC Economic Agreement.
Article (5) of the Kuwaiti Certificate of Origin Law lists a number of rules that determine which products cannot be considered to be wholly produced in Kuwait, and it also lists operations that do not constitute a sufficiently substantial manufacturing transformation of the product, such as roasting and grinding coffee beans.
The Minister of Finance's Resolution No. (7) of 2020 on the Rules of Origin of Imported Goods (the “MOF’s Resolution”) is the primary legislative instrument that regulates the rules of origin in Qatar. The MOF’s Resolution emphasizes the provisions that refer to the regional and international conventions for determining the rules of origin. It further states that if goods are manufactured in a country other than the country in which the raw material used in manufacturing is produced, and the cost of workforce and additives in the country of manufacture equals 40% or more of gross production cost, then the origin of such goods will be deemed the country of manufacture.
The MOF’s Resolution also provides that goods imported from a state that has a trade agreement with the State of Qatar, which stipulates a preferential treatment in the percentage of the customs duties, shall be subject to the rules of origin set forth in the relevant agreement. Qatar has ratified the Revised Kyoto Convention and it applies its provisions where applicable.
Oman does not have a standalone law that regulates the rules of origin. Instead, it adheres to and applies a value-added percentage requirement of 40% on local products, and local producers are required to achieve a requirement of 50% local ownership. This is in line with the GCC Economic Agreement, and for products that which to benefit from the Customs exemption under the GCC Economic Agreement.
In the event that a local product would like to use the logo for Omani local products; the Omani Ministry of Commerce, Industry and Investment Promotion states it is sufficient to have 20% or more of local inputs in the final version of a product. This is in line with Regulation No.62 of 2023 on Regulating the License for Using Logo for Local Products (the “Regulation for the Logo of Local Products.”)
Oman also applies bilateral agreements for preferential rules of origin. For example, US and Singaporean goods are required to achieve only 35% value-added percentage. On another side, for non-preferential rules of origin, Oman applies rules of origin as stated in the Revised Kyoto Convention.
Much like in Oman, Bahrain applies the Revised Kyoto Convention to determine the rule of origin for foreign products and non-preferential rules of origin. Locally, Bahrain considers that the industrial product of national origin shall mean the product in which the added value resulting from manufacturing the good in a GCC Member State is not less than 40% of its final value when its production is completed.
Not all GCC Member States have local legislation that determines the rules of origin for a given product. Nonetheless, all agree to apply a threshold value-added percentage criterion of 40% on local products and are all signatories to the Revised Kyoto Convention, which determines the rule of origin of foreign products and non-preferential rules of origin.