Zhaokang Jiang

Sandler, Travis & Rosenberg, PA

zjiang@strtrade.com

There are two types of rule of origin (ROO): one is for most-favoured nation (MFN) trade, known as non-preferential ROO, and the other is for preferential trade – preferential ROO such as generalised system of preferences (GSP) and FTA/RTA. But the World Trade Organisation has not reached agreement on product-specific and detailed ROO.

With international trade governed by national laws (MFN and GSP trade) as well as bilateral and multilateral agreements, and with regional economic integration intensifying in the Asia Pacific, China signed free-trade agreements (Closer Economic Partnership Arrangements) with Asean, Chile, Pakistan, New Zealand, Singapore, Hong Kong and Macau.

The Regulations of Rules of Origin of China (non-preferential ROO Regulations), effective January 1 2005, apply to determinations of country of origin concerning non-preferential commercial policy instruments. These include: most-favoured nation treatment; anti-dumping and countervailing duties; safeguard measures; marking of origin requirements; and quantitative restrictions or tariff quotas. They will also apply to government procurement and trade statistics.

General rules: The following rules shall apply for the purpose of determining the country of origin of imported goods: the good is wholly obtained in a country which is the country of origin; the good is produced or manufactured in two or more than two countries; and the country in which the good is finally materially changed is the country of origin of the good.

Goods wholly obtained in a country include, among many others, a live animal born and raised in that country, a vegetable or plant harvested in that country, waste and scrap from destruction or recycling derived from manufacturing, processing or use in that country, components, parts and raw materials recycled from goods which can neither be used or repaired, and goods taken from the seabed or beneath the seabed outside territorial waters, provided that the country has rights to exploit such seabed.

Substantial transformation: Substantial transformation means that:

1) the processed product falls into a four-digit tariff item of the harmonised tariff schedule of the PRC different from the tariff item of the materials used in the processing; or

2) the value of non-origin materials is less than 70% of the value of the processed product; or

3) manufacturing and processing standards.

Minor processing: The processing or fabrication, independently or jointly accomplished, for the purposes described as follows shall be deemed as minor processing and shall be disregarded in determining whether the good is wholly obtained from a country:

1) processing or fabrication necessary to maintain the good in good condition for transportation or storage;

2) processing or fabrication for placing the good in condition and ready for shipment; and

3) processing or fabrication such as packing and exhibition for sale of goods.

Declaration and certificate: Importers shall make a country of origin declaration in filing entry declarations and submit certificate of origin where customs requests them.

Pre-determination: Upon the application of an interested party, customs may make an advance decision on country of origin.

Anti-circumvention: The processing or fabrication aimed at circumventing regulation on goods from a specific country cannot be accepted as processing or fabrication for determining country of origin.

Marking of origin: The marking of origin on goods and packing shall be consistent with the standards of the rules of origin set up in these regulations.

For Preferential ROOs issued under the FTAs (closer economic partnership arrangements), the rules and standards vary from agreement to agreement, but there are similar arrangements differing from the above rules:

(i) regional value content is usually above 40%;

(ii) product-specific rules and standards;

(iii) content accumulation rule;

(iv) direct transportation if feasible; and

(v) certificate verification co-operation.

In addition to the rules and standards in the agreements and implementing rules, for administration purposes, the Chinese government enacted the general Regulations regarding Preferential Rules of Origin on January 8 2009 (effective on March 1) which provide general rules for “goods wholly obtained or produced in a member”, “goods not wholly obtained or produced in a member”, “direct transportation”, “documentation and certification”, “verification” and “circumstances disqualifying preferential duty application”.