Comprehensive Study Guide on Rules of Origin (ROO) and ATIGA

Overview of Rules of Origin (ROO)

• Definition of Rules of Origin (ROO): ROO are sets of principles used to determine the economic content and nationality of a product. They determine where a good was produced or manufactured, rather than simply where it was shipped from.
• WTO Agreement on ROO: Defines ROO as the determination of the economic nationality (as opposed to geographical nationality) of a good. This is necessary for implementing trade policy instruments such as import duties, quotas, or trade statistics collection.
• ASEAN Trade in Goods Agreement (ATIGA) ROO: Refers to criteria used to determine a product’s production origin and its eligibility for preferential tariff treatment. Products complying with ATIGA ROO are classified as originating from the ASEAN region and enjoy ATIGA preferential tariff rates.
• Distinction Objective: ROO is established to provide criteria that distinguish between originating and non-originating goods.
• Purposes of ROO Implementation:
  • To implement commercial policy measures such as anti-dumping duties and quotas.
  • To determine if products receive Most Favored Nation (MFN) or preferential treatment.
  • For trade statistics and the issuance of certificates of origin.
  • For labeling and marking requirements.
  • For public procurement processes.
  • For process patents.

Country of Origin and Types of ROO

• Country of Origin: The country where a product is obtained, produced, or manufactured. In global production chains, goods often use materials from multiple countries and undergo assembly in various locations.
• Two Types of Rules of Origin:
  • Non-preferential ROO: Used for commercial policy instruments including quotas, anti-dumping, safeguards, subsidies, anti-circumvention, trade statistics, and origin labeling.
  • Preferential ROO: Used to determine if a product qualifies for preferential tariff treatment under specific Free Trade Areas (FTAs), regional, or bilateral arrangements. These are designed to avoid transshipment.
• Reduction/Elimination of Import Duties: Member States reduce or eliminate duties on originating goods from other Member States. This applies to goods that are Wholly Obtained (WO) or goods that meet specific criteria like Regional Value Content (RVC), Change in Tariff Classification (CTC), or specific manufacturing operations.
• Note on Variations: ROO requirements for specific goods are not identical across all FTA agreements.

Origin Criteria: Wholly Obtained (WO) Goods

• Basic Definition: A product occurring naturally within a country or made entirely from such products. Origin is derived from the country where the good is obtained.
• ATIGA Wholly Obtained Categories:
  • Plants and plant products: Includes fruits, flowers, vegetables, trees, seaweed, fungi, and live plants grown and harvested/gathered in the exporting Member State.
  • Live animals: Mammals, birds, fish, crustaceans, mollusks, reptiles, bacteria, and viruses. Note: They must be both born AND raised in the country. Birth alone or raising alone is insufficient.
  • Goods from live animals: Does not strictly require the animal to be born and raised in that party, only obtained there.
  • Hunting/Fishing: Products from hunting, trapping, fishing, farming, aquaculture, or capturing in the Member State.
  • Minerals: Substances extracted from soil, waters, seabed, or beneath the seabed.
  • Sea-fishing and Marine Products: Taken by vessels registered with a Member State and flying its flag. This includes waters outside territorial waters if the State has exploitation rights under international law.
• UNCLOS (1982): Generally accepted international law governing ocean resource use and rights to exploitation in the seabed and subsoil.
• Factory Ships: Products processed on factory ships registered with a Member State and flying its flag, provided they are made from originating marine products.
• Waste and Scrap: Articles that can no longer perform original purposes, only fit for disposal, recovery of parts, or recycling, and waste/scrap derived from production in the Member State.

Comparison of Wholly Obtained Provisions in Other FTAs

• ASEAN-India FTA (AIFTA): Goods from live animals must come from animals that were born and raised in the Party.
• ASEAN-China FTA (ACFTA): Includes milk, eggs, natural honey, hair, wool, semen, and dung obtained without further processing. Animals do not necessarily need to be born and raised in the Party.
• ASEAN-Korea FTA (AKFTA): Requires animals to be born and raised in the territory. Uniquely includes goods taken from outer space if obtained by the Party or a person of that Party.
• ASEAN-Australia-New Zealand FTA (AANZFTA): Includes goods taken from the seabed/beneath the seabed beyond the EEZ and Continental Shelf, provided they are beyond areas of third-party jurisdiction.
• Philippines-European Free Trade Association (PH-EFTA):
  • Distinguishes between goods from live animals (only raised) and slaughtered animals (must be born and raised).
  • Includes goods obtained via cell cultures.
  • Includes goods (Chapters 29-39) obtained by fermentation.

Substantial Transformation (Non-Wholly Obtained Goods)

• Definition: Requires a good to be transformed into a new and different article with a distinctive name, character, or use. Origin is conferred by the country where the last substantial transformation occurred.
• Major Rules Applied:
  1. Regional Value Content (RVC) Requirement.
  2. Change in Tariff Classification (CTC) Criteria.
  3. Specific Process Rule (SPR).

Regional Value Content (RVC)

• Expression: RVC can be a minimum value-added percentage of total product cost or a maximum allowable cost for imported (non-originating) materials.
• FTA RVC Requirements (Percentages):
  • AANZFTA, ACFTA, AJCEPA, AKFTA, AFTA, PH-KR FTA: $RVC \ge 40\%$
  • AIFTA: $RVC \ge 35\%$
  • PJEPA and PH-EFTA: Not Applicable (N/A)
• Calculation Methods:
  • Direct/Build-up Method:$RVC = \frac{\text{Value of Originating Materials} + \text{Overhead} + \text{Profit}}{\text{FOB Value}} \times 100\%$
  • Indirect/Build-down Method:$RVC = \frac{\text{FOB Value} - \text{Value of Non-Originating Materials (VNOM)}}{\text{FOB Value}} \times 100\%$
• Accumulation Rule: Products complying with origin requirements used as inputs in another FTA Party for a finished product are treated as originating in the Party where the final processing took place.
  • Full Accumulation: Accumulating the full value of the product.
  • Partial Accumulation: Parties accumulate inputs with other members to meet the ROO criterion; preference is granted to the final exporting country.

Change in Tariff Classification (CTC)

• Applicability: Applies to materials imported from outside the territory or materials produced in the territory that fail ROO requirements.
• Core Rule: The final product's HS code must differ from the HS codes of non-originating materials used. Unknown or unconfirmed origin is always treated as non-originating.
• Levels of Change:
  • Change of Chapter (CC): Change at the $2$-digit level.
  • Change of Tariff Heading (CTH): Change at the $4$-digit level.
  • Change of Tariff Subheading (CTSH): Change at the $6$-digit level.
• FTA Classification Requirements:
  • AANZFTA, AJCEPA, AKFTA, AFTA, PH-KR FTA: Change in Heading (CTH).
  • AIFTA: Change in Subheading (CTSH).
  • AHK FTA: Change in Tariff Classification.
• De Minimis Rule (ATIGA): If the required tariff shift is not met, the good may still originate if the Value of Non-Originating Materials (VNOM) does not exceed $10\%$ of the FOB value.

Specific Process and Indirect Materials

• Specific Process Rule (SPR): Requires products to undergo specific manufacturing operations (e.g., chemical reactions). Common for textiles, copper, and chemicals.
• Product Specific Rules (PSR): Specifies conditions (CTC and/or RVC) a specific tariff classification must satisfy to originate. For ATIGA PSR, typically $RVC \ge 40\%$ and/or a change in classification.
• Indirect Materials: Items like fuel, tools, lubricants, safety equipment, catalysts, and solvents. These do not form part of the good but are considered originating regardless of their actual origin.
• Accessories, Spare Parts, and Tools: Treated as originating if they are not invoiced separately and the quantity/value is customary for the good.
• Packaging Materials: For retail sale, if classified with the good under GIR 5, they do not need to meet CTC requirements but their costs are included in RVC calculations.
• Identical and Interchangeable Materials (Fungible Goods): Materials that are commercially identical and impractical to distinguish visually.

Processes that Do Not Confer Origin

• Operations for preservation during transport/storage (drying, chilling, salting).
• Simple operations: sifting, sorting, washing, painting, cutting.
• Changes of packing; breaking up or assembling consignments.
• Simple slicing, repacking, or placing in bottles/boxes.
• Affixing marks or labels.
• Simple mixing or simple assembly of parts.
• Slaughter of animals.

Certificate of Origin (CO)

• Purpose: A declaration by an exporter, certified by an authority (e.g., Bureau of Customs), proving a product meets origin requirements. It acts as an "economic passport" for the product.
• ATIGA Proof of Origin Forms:
  1. Certificate of Origin (Form D).
  2. Electronic Certificate of Origin (e-Form D).
  3. Origin Declaration.
• Box 13 Information (Form D):
  • Third Country Invoicing: Checked if the invoice is issued by a company in a third country.
  • Accumulation: Checked if originating goods from one Member State were used as materials in another.
  • Back-to-back CO: Issued by an intermediate Member State based on the first Member State's CO.
  • Partial Accumulation: Checked if RVC is less than $40\%$
  • Exhibition: For goods sent to a Member State for exhibition.
  • De Minimis: Checked if items not meeting CTC are within the $10\%$ FOB limit.
  • Issued Retroactively: Checked if the CO is issued after shipment due to errors.

Certification Procedures and Validity

• Issuance Timeframe: Form D is issued prior to, at the time of, or within $3$ days of the shipment date.
• Retroactive Issuance: Permitted up to $1$ year from the shipment date if marked "ISSUED RETROACTIVELY."
• Validity Period: Proof of Origin is valid for $12$ months.
• Alterations: No erasures or superimpositions are allowed. Corrections are made by striking out errors and having them certified, or by issuing a new form.
• Electronic CO (e-Form D): Shared via the ASEAN Single Window (ASW). As of January $2024$, ASEAN Member States primarily use e-Form D; paper-based forms are for system downtime only.
• Regional CO Forms:
  • Form E: ACFTA
  • Form AK: AKFTA
  • Form AI: AIFTA
  • Form AJ: AJCEPA
  • Form AANZ: AANZFTA
  • Form JP: PJEPA

Certifying Authorities and Industrial Implications

• Authorities (ATIGA): Brunei (Ministry of Foreign Affairs), Philippines (Customs), Singapore (Customs), Thailand (Dept. of Foreign Trade), Vietnam (Ministry of Trade), etc.
• Non-Preferential CO: Usually a white Certificate of Origin for general merchandise.
• Kinds of Certification:
  • Self-Certification: By certified exporters/producers.
  • Government Certification: By Customs or Trade Departments.
• Economic Implications: Proper origin conferment results in cheaper input costs, price advantages for exports, and wider market access.