Interpreting the Log of Preference Determination

Every productive run of preference determination creates a log that can be displayed using the Display Preference Determination Logs app. In a simulation run, the system writes a log if the Save Log indicator is set on the selection screen of the apps Perform Preference Determination, Perform Preference Determination for a Product, and Perform Preference Determination for New Products. This log can be displayed using the Display Preference Determination Logs from Simulation app.

Logs are not only a valuable source of information for the in-house analysis of preference determination results. They can also be presented to an external auditor who wants to verify that the company was actually entitled to issue proofs of origin.

SAP GTS provides six comparison methods for preference determination. Based on the agreements of the EU, the system applies the transaction value method to calculate a minimum price or threshold value for the main part of the bill of material. In a sales process, the system compares the threshold value to the actual sales price of the product to determine whether it is originating in either of the signatories.

In preference determination based on certain rules of the EPA, however, the system calculates two threshold values: a minimum ex-works price, as for the other agreements of the EU, and a minimum free on board price. When mapping rules of this type in SAP GTS, it is therefore necessary to specify the value basis of the threshold value in combination with the comparison method.

Rules of origin of the USMCA that define a minimum regional value content, calculated either by applying the transaction value method or the net cost method, have to be mapped in a similar way.

If the transaction value method is applied, the system calculates a threshold value that meets the requirement of a certain minimum regional value content. If the net cost method is applied, the system deducts the total value of the non-originating materials from the net cost of the main part of the bill of material to calculate its actual regional value content. If this regional value content is less than required in the rules of origin, the product is non-originating.

In preferential agreements, rules for products of the chemical industry and other process industries frequently describe specific manufacturing steps or the results of such steps. If these steps are carried out on non-originating materials, the end-product obtains originating status.

Similar steps are specified in the USMCA in rules 1 through 8 for products classified under chapter 28 through 38, with few exceptions.

The SAP GTS system cannot check whether the required processing is actually carried out in the manufacturing of products classified under subheadings 291816 through 292241. However, a condition can represent the processing steps listed in the rule of origin. If the manufacture of a product classified under subheadings 291816 through 292241 consists of one of these steps, the condition is fulfilled and a corresponding indicator may be set in the product master data.

The manual mapping of rules of origin using conditions is explained in the learning journey Configuring the Essential Functions of SAP Global Trade Services.

SAP GTS provides four types of base rules for preference determination:

1. Basic Rule
2. Minimal Operations Rule
3. Set of Goods
4. General Tolerance Rule

Unlike product-specific rules, base rules may apply to all products regardless of the chapter, heading or subheading under which they have been classified (SAP Global Trade Services, edition for SAP HANA→Preference Management→Define Rule Set Attribute for Preference Processing (Manual)→Assign Base Rules to an Agreement).

Preferential agreements may define tolerance or de minimis rules. Such rules allow the use of non-originating materials that do not undergo the change of heading or subheading required in the applicable product-specific rule up to a certain percentage of the product price. The Regional Convention, for example, provides for a general tolerance of 15% of the ex-works price of the product.

A similar tolerance might be granted for sets as defined in General Rule 3 of the HS. A set regarded as originating might thus contain non-originating components up to a certain percentage of the price of the set.

In contrast to base rule types 3 and 4, base rule type 1 does not relate to special provisions in agreements. If rules of origin are mapped manually in SAP GTS, any procedure group or rule group can be made the basic rule of an agreement. In preference determination, the system applies the basic rule if there is no procedure group or rule group assigned to the chapter, heading or subheading of the product (SAP Global Trade Services, edition for SAP HANA→Preference Management→Define Rule Set Attribute for Preference Processing (Manual)→Assign Rules to Agreement and Classification).

If a product is manufactured from non-originating materials that have not sufficiently been worked or processed, it cannot obtain originating status. The activities that the agreements consider as insufficient working or processing are often referred to as minimal operations.

Data providers supply rules of rule type 2 using a preference procedure of the Third Country Screening ID type. In the demonstration How to Use Base Rules, you will learn how to prevent the system from carrying out preference determination for products manufactured from non-originating materials that have not sufficiently been worked or processed.