EPC/LIC/RCEP 2nd July, 2015
ALL THE MEMBERS OF THE COUNCIL
Third round of Consultations W.R.T. Rules of Origin under
RCEP- regarding |
Dear Sir/ Madam,
This is in continuation of our earlier circulars seeking inputs on RoO/ PSR’s regarding “Regional Comprehensive Economic Partnership (RCEP).
The Council has received communication from Department of Commerce (DOC) dated 1st July 2015, that the third round of consultations with the Trade & Industry for negotiating Rules of Orign (RoO) under RCEP shall be held on 17th July 2015 under the chairmanship of Shri Dammu Ravi- Joint Secretary at 11.00 AM at Udyog Bhawan New Delhi.
We would like to update you that  subsequent to the two earlier rounds of consultations held by DOC with trade/ industry in January and April, 2015, detailed HS code-wise PSRs for Chapters 1-97 have already been tabled by India for further negotiations in RCEP. 
Further, the sixth round of negotiations on RoO was held in June, 2015 in Kyoto, Japan. As decided during this round, detailed discussions would be held in the upcoming rounds on :
- How to calculate the Regional Value Content (RVC)- use of build-up or build down formula, and
- Evidence of origin (use of self-certification and/ or third party certification of the Certificate of Origin).
For this purpose, DOC proposes to hold a third round of consultation with the trade/ industry. In this context, kindly find enclosed a brief paper on valuations methods —that provides details about the 2 types of formulae used for valuation i.e. the build-up formula and the build-down formula is enclosed.
Member-exporters are requested to give their inputs/comments as to which formula should be preferred for India during the RCEP negotiations, along with detailed reasons for the same. The inputs/ comment be sent to us latest by 10th July 2015 on our e-mail ids- deepak.gupta@chemexcil.gov.in and balani.lic@chemexcil.gov.in so that the same could be deliberated during the meeting on 17th July 2015.
Thanking You,
Yours faithfully,
( S.G.BHARADI )
ACTG.EXECUTIVE DIRECTOR
Background paper on Build – up and Build down formulae to calculate Regional Value Content (RVC) in context of RCEP negotiations
- RCEP is a comprehensive Free Trade Agreement being negotiated between the 10 ASEAN Member States (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam) and ASEAN’s 6 FTA partner countries (Australia, China, India, Japan, Korea and New Zealand).
- Sub working Group on Rules of origin (SWGROO) is negotiating ROO for the RCEP. So far it has held its 6th meeting, last one was held in Kyoto, Japan in June 2015.
- Apart from various other issues such as Full cumulation , individual PSRs for each HS line at 6 digit HS classification and Self-Certification etc. SW Group is also negotiating ROO/OCO text
- One of the issues under discussions in ROO/OCP text is adoption of Build –up or Build- down formulae to calculate Regional value Content (RVC).
- Under RCEP negotiations, till now, RVC being discussed is 40% i.e. in order to attain status of originating material, a non-originating material must achieve a minimum of 40% value addition/RVC in a particular participating country
- The Value addition/RVC can be calculated in any of the two ways
- Build–down/ In- direct method
FOB value -- Value of Non-Originating material
RVC = FOB value-Value of Non-Originating material
__________________________________________ X 100>40
FOB value
Here RVC= Regional value content
FOB= Free on Board value
Build down/ Direct formula
Domestic material cost+ labour cost + Overhead cost +Profit +Other cost
…………………………………………………………………………….X 100 ≥40
FOB value
Where:
Domestic Material Cost is the value of originating materials, parts or produce that are acquired or self- produced by the producer in the production of the good
Labour Cost includes wages, remuneration and other employee benefits;
Overhead Cost is the total overhead expense;
Other Costs are the costs incurred in placing the good in the ship or other means of transport for export including, but not limited to, domestic transport costs, storage and ware housing, port handling, brokerage fees and service charges;
In our previous FTA, we had used both these formulae. In case of India- ASEAN and India-Japan, both Build-up and Build down formulae are included in ROO text and an exporter have an option to choose any one of the formula out of the two to calculate the value addition/RVC. In case of India-Korea, only Build-down formula has been prescribed to calculated VA/RVC
What is expected of stakeholders?
Stakeholders are requested to give their inputs/comments as to which formula should be preferred for India during the RCEP negotiations, along with detailed reasons for the same.
It needs to be borne in mind that final agreement on the formulae would be a result of the negotiations only.
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