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RULES OF ORIGINFOR FTA
MALAYSIA – PAKISTANMALAYSIA – JAPAN
ASEAN – CHINAASEAN – KOREA
MATRADE MATRADE12 OCTOBER 200612 OCTOBER 2006
Content
Background:- Definition of ROO- Origin criteria- Important concepts
Malaysia - Pakistan FTA (MPFTA) Malaysia - Japan FTA (MAJEPA) ASEAN - China FTA (ACFTA) ASEAN - Korea FTA (AKFTA) Operational Certification
Procedures (OCP)
ROO DefinitionROO Definition
The The criteriacriteria used to determine used to determine the the countrycountry in which the in which the goodgood has has been been producedproduced or or manufacturedmanufactured..
The The basisbasis used for used for internationalinternational trade purposestrade purposes..
Becoming Becoming more complexmore complex since since more more goods are produced from goods are produced from inputsinputs/ / materialsmaterials coming from coming from multiplemultiple originsorigins..
Determine whether a good qualifies for preferential treatment under a trading arrangement (FTA).
Ensure benefits are limited to products originated from the contracting parties.
Preserve (increase) existing external protection of countries within the
FTA.
Why We Need ROO?Why We Need ROO?
Goods that meet the conditions for preferential market access.
All other goods are called the non-originating goods.
Originating GoodsOriginating Goods
Wholly obtained or produced
Substantial Transformation (ST):
- Value added (VA) method
- Change in Tariff Classification (CTC)
- Specified Process of Manufacture
Origin CriteriaOrigin Criteria
Wholly Obtained Goods
Originate entirely within the exporting country. Includes:
- live animals born and raised in that country;- animals obtained by hunting, trapping, fishing, gathering or capturing in that country;
- products obtained from live animals;- plants and plant products harvested, picked or gathered in that country;- products of sea-fishing and other products taken from the sea outside a country;- goods obtained or produced on board factory ships;
…..wholly Obtained Goods
Products taken from the sea-bed or subsoil beneath the sea-bed outside a country;
Minerals and other naturally occurring substances;
Scrap and waste derived from manufacturing or processing operations or from consumption in that country and fit only for disposal or for the recovery of raw materials; and
Goods obtained or produced in that country solely from products referred to above
A product has undergone sufficient working or processing in the exporting country and has been transformed into a new and different article.
ST can be measured through:- Value added (VA)/test of origin
method;
- Change in Tariff Classification (CTC);
- Specified Process of Manufacture;
- Combinations of the above;
Substantial TransformationSubstantial Transformation
Value-added Method
Defines the degree of transformation required in terms of:
- minimum percentage of value that must come from the originating country; or
- maximum amount of value that come from the use of imported parts and materials.
Methods for calculating VA:- net-cost method- ex-factory method- FOB-based (transaction value)
…… Value-added Method
The results of the calculation is called:- Local/Regional Value Content (RVC) or- Qualifying Value Content (QVC)
Examples:
- CEPT/AFTA: 40%; - ASEAN-China FTA: 40%- NAFTA: 50-60%- Singapore-Japan FTA: 60%
Net-cost methodNet-cost method
RVC = RVC = x 100x 100
– RVC is the regional value content of a good (%);RVC is the regional value content of a good (%);
– VNM is the value of non-originating materials used VNM is the value of non-originating materials used by the producer in the production of the goods; by the producer in the production of the goods; andand
– NC is the total cost occurred in respect of all goods NC is the total cost occurred in respect of all goods produced by a producer, minus any costs related produced by a producer, minus any costs related to sales promotion, marketing, after-sales service, to sales promotion, marketing, after-sales service, packaging shipping, etc.packaging shipping, etc.
NC – VNM
NC
where
CEPT Local CEPT Local ContentContent
Calculation of 40% local contentCalculation of 40% local content
Value of importedValue of imported Value of undeterminedValue of undeterminednon-ASEAN materials, +non-ASEAN materials, + origin materials, partsorigin materials, parts
parts or produce parts or produce or produce or produce
________________________________________ x 100% ________________________________________ x 100% << 60 60
FOB PriceFOB Price
Change in Tariff ClassificationChange in Tariff Classification(Tariff shift rule)(Tariff shift rule)
Determine the origin of good by specifying the CTC of the Harmonised System of Tariff Nomenclature (HS)
ST occurred if a good obtained is classified in a different tariff classification than that of its non-originating inputs used in the process
CTC can occur at:- Chapter level (CC): 2 digit HS- Heading level (CTH): 4 digit HS- Sub-heading level (CTSH): 6 digit HS- Split heading/sub-heading
Specified Process of Manufacture Defines certain manufacturing or
processing operations that a product must undergo in the exporting country to confer origin (positive test).
Or, specifying manufacturing/processing procedures that do not confer origin (negative test).
Often used in conjunction with CTC and/or VA methods.
Widely applied for textiles & clothing and chemical products.
Products Specific Rules
Product Specific Rule or PSR is applicable to certain goods due to:
- inability of the product to meet the general rule;
- requirement for flexible rule; or
- sensitivity of the products that requires stringent rule.
Cumulation Tolerance or De Minimis Absorption principle Neutral elements Packing and packaging Accessories, parts and tools Interchangeable goods/materials Minimal operations and processes
Important ConceptsImportant Concepts
CumulationCumulation
InputsInputs originating in originating in other countriesother countries which which are are membersmembers of the of the regional associationregional association
are are regardedregarded as as domestic inputdomestic input..
Types: Types: -- bilateralbilateral-- diagonaldiagonal
-- full cumulationfull cumulation
ROO: 50% local contentROO: 50% local content
Country ACountry A Country BCountry B Country CCountry C Country DCountry DMaterials 20 % LC 30% LC Donor country
Tolerance or De MinimisTolerance or De Minimis
Rules that Rules that allowallow certain percentagecertain percentage of of non-non-originating materialsoriginating materials to be used to be used without without affectingaffecting the the originorigin of the of the final productfinal product..
The rule applies to The rule applies to CTCCTC and and specific specific manufacturing processmanufacturing process but but not affectnot affect the the value added rulevalue added rule..
Absorption PrincipleAbsorption Principle
PartsParts and and materialsmaterials which have which have acquired acquired originating statusoriginating status by satisfying the by satisfying the relevant ROO for that product relevant ROO for that product can be can be treatedtreated as being of as being of domestic origindomestic origin in any in any further processingfurther processing and and transformationtransformation..
Neutral elementsNeutral elements
The The originorigin of the of the powerpower and and fuelfuel, , plantplant and and equipmentequipment, including , including safety equipmentsafety equipment, or , or machinesmachines and and toolstools used to obtain a goodused to obtain a good or the or the materialsmaterials used in its manufacture used in its manufacture which which do not remaindo not remain in the goodin the good or or form form partpart of the good of the good shall not be taken into shall not be taken into accountaccount..
Packing and Packaging MaterialsPacking and Packaging Materialsand Containersand Containers
The origin of The origin of packingpacking and and packaging packaging materialsmaterials and and containerscontainers presentedpresented and and classifiedclassified with the goodswith the goods shall be shall be disregardeddisregarded..
Accessories, Spare Parts and Accessories, Spare Parts and ToolsTools
To be To be disregardeddisregarded when when sold therewithsold therewith and and correspondcorrespond, in , in kind and numberkind and number, to , to the the normal equipmentnormal equipment thereof. thereof.
Minimal Operations and Processes
Operations or processes undertaken, by themselves or in combination with each other for the purposes listed below, are considered to be minimal and shall not be taken into account in determining whether a good has been wholly obtained in one country:
ensuring preservation of goods in good condition for the purposes of transport or storage;
facilitating shipment or transportation; packaging or presenting goods for sale;
MALAYSIA-PAKISTAN FTAMALAYSIA-PAKISTAN FTA(MPFTA)(MPFTA)
Malaysia - PakistanMalaysia - Pakistan
Interim ROO for the Early Harvest Programme (EHP)
Origin criteria:- Wholly obtained or produced- 40% value content (single/cumulative)
Cumulation: Aggregate Malaysia-Pakistan FTA content on final product must not be less than 40%.
Specific rules for selected products:
- textiles and textile products- jewellery
FormulaFormula for calculating the Regional Value for calculating the Regional Value Content (Content (RVC)RVC)
Value of Non Value of Non Value of materialsValue of materials
Malaysia-PakistanMalaysia-Pakistan ++ of undetermined of undetermined FTA materialsFTA materials origin origin x 100% x 100%
< 60% < 60%
FOBFOB
Malaysia-PakistanMalaysia-Pakistan
Malaysia-PakistanMalaysia-Pakistan
PODUCT SPECIFIC RULESPODUCT SPECIFIC RULES
Textiles and textile productsTextiles and textile products
One processOne process rule: rule:- spinningspinning- weavingweaving- bleachingbleaching- dyeingdyeing- printingprinting- finishingfinishing
Jewellery Jewellery
Change in tariff heading (Change in tariff heading (CTHCTH))
Minimal operationsMinimal operations and processes and processes Ensuring preservation of goods in good Ensuring preservation of goods in good
condition for the purposes of transport condition for the purposes of transport or or storage.storage.
Facilitating shipment or transportation.Facilitating shipment or transportation.
Packaging or presenting goods for sale Packaging or presenting goods for sale (This (This excludes encapsulation which is excludes encapsulation which is termed termed packaging by the electronics packaging by the electronics industry).industry).
Malaysia-PakistanMalaysia-Pakistan
Malaysia-PakistanMalaysia-Pakistan
Example of PSR
5208.11.000 - Unbleached: Plain weave, weighing not more than 100 g/m2:
“A change to heading 52.08 through 52.12 from any heading outside that group, provided that the fabric is undergone one or more of the preparatory or finishing operations.”
Malaysia-PakistanMalaysia-Pakistan
Example of PSR
5509.11.000 - Containing 85% or more by weight of polyester staple fibres: Single
yarn:
“A change to heading 55.09 from any heading outside that group, except from heading 50.04 through 50.06, 51.06 through 51.10, 52.03 through 52.07, 54.01 through 54.06 or 55.06 through 55.11.”
Malaysia - PakistanMalaysia - Pakistan 5516.12.000 - Woven fabrics of artificial
staple fibres: Dyed
“A change to heading 55.16 from any heading outside that group” or,
“A change to heading 55.16 from heading 50.04 through 50.06, 51.06 through 51.10, 52.04 through 52.07, 53.06 through 53.08, 54.01 through 54.06 or 55.08 through 55.11, provided that the fabric is dyed or printed, undergone one or more of the preparatory or finishing operations”; or
“A change to heading 55.16 from heading 50.04 through 50.06, 51.06 through 51.10, 52.04 through 52.07, 53.06 through 53.08, 54.01 through 54.06 or 55.08 through 55.11, provided that the yarn is dyed prior to weaving the fabric, undergone one or more of the preparatory or finishing operations.”
Malaysia - PakistanMalaysia - Pakistan
Example of PSR
7113.11.000 - Of precious metal whether or not plated or clad with precious metal: Of silver, whether
or not plated or clad with other precious metal:
“A change to heading 7113 from any other headings.”
MALAYSIA-JAPAN FTAMALAYSIA-JAPAN FTA(MAJEPA)(MAJEPA)
Malaysia - JapanMalaysia - Japan
Origin criteriaOrigin criteria:: Wholly obtainedWholly obtained or produced or produced 40% Value Content40% Value Content oror CTSHCTSH
Cumulation: Cumulation: for for certain productscertain products allows allows for for cumulationcumulation from from ASEAN ASEAN countriescountries..
Specific rulesSpecific rules for for selected productsselected products:: textiles and clothingtextiles and clothing agriculture and processed agricultural agriculture and processed agricultural productsproducts
leather and footwear productsleather and footwear products cementcement
FormulaFormula for calculating the for calculating the RVCRVC
FOB - Value of Non-originating MaterialFOB - Value of Non-originating Material x x 100%100%
FOBFOB
Malaysia - JapanMalaysia - Japan
Malaysia-JapanMalaysia-Japan Refrigerator:Refrigerator:
Part A (Japan)Part A (Japan) -- US$ 200US$ 200
Part B (Japan)Part B (Japan) -- US$ 100US$ 100
Part C (China)Part C (China) -- US$ 200*US$ 200*
Part D (India)Part D (India) -- US$ 200*US$ 200*
Other Costs (N/A) Other Costs (N/A) -- US$ 300US$ 300
FOB PriceFOB Price -- US$1,000US$1,000
US$1,000- US$400*US$1,000- US$400* x 100 = 60% x 100 = 60%
US$1,000US$1,000
The product (refrigerator) qualifies as an The product (refrigerator) qualifies as an originating good.originating good.
Malaysia - JapanMalaysia - Japan
PRODUCT SPECIFIC RULESPRODUCT SPECIFIC RULES
Textiles and clothing
Two process rule:- spinning- weaving- bleaching- dyeing- printing- finishing
Flexibility – one of the processes could be done within the ASEAN countries.
Malaysia - JapanMalaysia - Japan
Agriculture and processed agricultural products (Chapter 1 -21)
Exclusive wholly obtained or
Chapter Change (CC) with allowable
cumulation from ASEAN countries. Leather and footwear products
(Chapters 41, 43 and 64)
Exclusive wholly obtained.
Malaysia - JapanMalaysia - Japan
Cement (Chapter 25)
Cement clinkers and portland
cement – change in tariff
heading (CTH)
Other white cement – change in
tariff subheading (CTSH)
De Minimis : A good that does not undergo a change in tariff classification (CTC) shall be considered as originating if:
if the value of non-originating materials (NOM) does not exceed 10% of the FOB value of the good; or
for textiles and apparel, if the weight of NOM does not exceed 7% of the
total weight of the product.
Malaysia - JapanMalaysia - Japan
Malaysia - JapanMalaysia - Japan
Example of PSR
Chapter 52 - Cotton
“A change to heading 52.04 through 52.07 from any heading outside that group, provided that, where non-originating materials of heading 52.03 are used, each of the non-originating materials is carded or combed in the territory of either Country or a third state which is a member country of the ASEAN.”
Malaysia - JapanMalaysia - Japan
Chapter 61 - Articles of Apparel and Clothing Accessories, Knitted or Crocheted
“A change to heading 61.01 through 61.17 from any other chapter, provided that, where non- originating materials of heading 50.07, 51.11 through 51.13, 52.08 through 52.12, 53.09 through 53.11, 54.07 through 54.08, 55.12 through 55.16 or chapter 60 are used, each
of the non-originating materials is knitted or crocheted in the territory of either Country or a third State which is a member country of the ASEAN.”
Malaysia - JapanMalaysia - Japan
1604.13 - Sardines, sardinella and brisling or sprats
“A change to subheading 1604.13 from any other chapter, provided that, where non- originating materials of chapter 3 are used, each of the non-originating materials is obtained by fishing in the territory of a third State which is a member country of the ASEAN or taken by vessels, which are registered in and sail under the flag of a third State which is a member country of the ASEAN, from the sea outside the territorial sea of that third State. ”
Malaysia - JapanMalaysia - Japan
Chapter 41 - Raw Hides and Skins (Other than Furskins) and Leather:
“A change to heading 41.01 through 41.03 from any other chapter.”
ASEAN-CHINA FTAASEAN-CHINA FTA(ACFTA)(ACFTA)
ASEAN-ChinaASEAN-China
Based on CEPT ROO and OCP Origin criteria:
Wholly obtained or produced 40% Value Content
Cumulative incl. all ASEAN countries and China (excl. Hong Kong, Taiwan, Macau)
Specific rules for selected products: textiles productstextiles products preserved fish foodpreserved fish food leather goods and furskin productsleather goods and furskin products
footwearfootwear
Formula for calculating the RVC
Value of Non Value of Non Value of materialsValue of materials
ACFTA materialsACFTA materials ++ of undetermined of undetermined originorigin x x
100% < 60%100% < 60%
FOB PriceFOB Price
ASEAN-ChinaASEAN-China
ASEAN-ChinaASEAN-China
PSR – as the Only Rule Applicable to 6 wool and woven
products.
PSR for other products is being negotiated
Products (input) must be wholly obtained from within ACFTA.
40% Value Added or other rules cannot be applied for these
products
ASEAN-ChinaASEAN-China
PSR – as the Alternative Rule
Applicable to 466 products covering:
- textiles and textiles products;- preserved fish food;
- leather goods, furskin products;
- footwear.
Exporters can choose whether to use 40% VA rule or alternative PSR.
ASEAN-ChinaASEAN-China
The Alternative Rule is based on:
- specific process of manufacture for textiles and textiles products (adopted from CEPT ROO).
- Change of Tariff Classification (CTC) for other products, mostly Change of Tariff Heading (CTH).
Minimal operations and processes
Ensuring preservation of goods in good condition for the purposes of transport or storage.
Facilitating shipment or transportation.
Packaging or presenting goods for sale (This excludes encapsulation which is termed packaging by the electronics industry).
ASEAN-ChinaASEAN-China
ASEAN-KOREA FTAASEAN-KOREA FTA(AKFTA)(AKFTA)
ASEAN-KoreaASEAN-Korea
Origin criteria: Wholly obtained or produced 40% RVC or CTH
Cumulative includes all ASEAN countries and Korea
Specific rules for selected products:
agriculture products textiles products process agricultural products Iron and steel automotive
Formula for calculating RVC
Built-up Method
RVC = Value of Originating Material x 100%
FOB Build-down Method
RVC = FOB - Value of Non-originating Material x 100%
FOB
ASEAN-KoreaASEAN-Korea
ASEAN-KoreaASEAN-Korea PSR – as the Only rule
General rule of 40% RVC or CTH cannot be applied for these products
The rules are based on:- wholly obtained in a territory of
the exporting country- wholly obtained within AKFTA - process rule- Change in Tariff Classification at
various level: CC, CTH or CTSH- combination of RVC and/or CTC
ASEAN-KoreaASEAN-Korea
Agriculture (Chapter 1 – 14) wholly obtained in the territory of the
exporting country except:
- 25 tariff lines - wholly obtained in the territory of any party
- 27 tariff lines – RVC at various % or CTC at various level.
Processed agricultural products (Ch 15 - 24)
RVC or CTC or combination of RVC and/or CTC
ASEAN-KoreaASEAN-Korea
Textiles and clothing
Chapters 50 - 59: generally CTC or RVC 40%. Certain tariff lines require CTC accompanied by at least two preparatory or finishing operations.
Chapters 61 - 63 : CC provided that the good is both cut and sewn in the territory of any party.
ASEAN-KoreaASEAN-Korea
Other industrial products(124 tariff lines)
RVC
CTC Combination of RVC and/or CTC
De Minimis : A good that does not undergo a change in tariff classification shall be considered as originating if:
if the value of NOM does not exceed 10% of the FOB value; or
for textiles and apparel, if the weight of NOM does not exceed 10% of the total weight of the product.
ASEAN-KoreaASEAN-Korea
ASEAN-KoreaASEAN-Korea
Example of PSR
0305.20 - Livers and roes of fish, dried, smoked, salted or in brine
“Wholly-Obtained or Produced in the territory of any Party.”
ASEAN-KoreaASEAN-Korea
1604.16 - Anchovies
“Change to Subheading 1604.16 from any other Chapter, provided that the materials from Chapter 3 are Wholly-Obtained or Produced in the territory of any Party; or A regional value content of not less than 40 percent of the FOB value of the good, provided that the materials from Chapter 3 are Wholly-Obtained or Produced in the territory of any Party.”
ASEAN-KoreaASEAN-Korea
51.05 - Wool and fine or coarse animal hair, carded or combed (including combed wool in fragments).
“Change to Heading 51.05 from any other Chapter; or A regional value content of not less than 40 percent of the FOB value of the good.”
ASEAN-KoreaASEAN-Korea
61.04 - Women's or girls' suits, ensembles, jackets, blazers, dresses, skirts, divided skirts, trousers, bib and brace overalls, breeches and shorts (other than swimwear) knitted or crocheted.
“Change to Heading 61.04 from any other Chapter, provided that the good is both cut and sewn in the territory of any Party; or A regional value content of not less than 40 percent of the FOB value of the good.”
OPERATIONAL OPERATIONAL CERTIFICATION CERTIFICATION PROCEDURESPROCEDURES
Certificate of Origin (CO) Form MPFTA for Malaysia-Pakistan
Form XX for Malaysia-Japan
Form E for ASEAN-China
Form AK for ASEAN-Korea
For export to ASEAN countries, exporters can choose to use either CEPT Form D or FTA’s Forms.
Advisable to use Form D, unless using other FTA Forms could render more benefits
Certificate of OriginCertificate of Origin
Application for the CO: MITI is the sole issuance authority Forms are available from FMM and its branches.
Pre-exportation verification to determine the origin of a product is
required prior to CO approval.
Result of the verification is valid for two years.
Certificate of OriginCertificate of Origin
Claim for preferential tariff treatment Present the CO to Customs Authority
of the importing party. if there is reasonable doubt, Customs Authority of the importing party may request issuing authority of the exporting party to conduct retroactive check.
if not satisfied, the Customs Authority may conduct verification visit to the manufacturer’s premise in exporting country.
Certificate of OriginCertificate of Origin
Certificate of OriginCertificate of Origin
Time limit for presentation of CO
Normal Extension
Force Majeure
MPFTA 4 months
6 months Discretion
JMEPA 12 months
- -
ACFTA 4 months
6 months Discretion
AKFTA 6 months
- Discretion
Fraudulent ActFraudulent Act
Government Authorities concerned shall cooperate in the action to be taken in the territory of the respective Party against the persons involved.
Each Party is responsible to provide legal sanction for fraudulent acts related to a Certificate of Origin.