While waiting for the Philippines to ratify the Regional Comprehensive Economic Partnership (RCEP), exporters can take this time to review the RCEP’s rules of origin (ROO), which are crucial to avail of preferential tariff treatment under the world’s biggest trade deal.
“Rules of origin are a very important part of any free trade agreement because if you want to avail of the preferential arrangement under the FTA, it is a must that you comply with the rules, with the requirements before any exporter or importer can avail of the preferential tariff arrangement,” said Allan Gepty, assistant secretary at the Department of Trade and Industry, in an online presentation.
The ROO set out the criteria for determining the country of origin of a product and establishing whether a product is eligible for preferential tariff treatment under a trade accord.
Found in Chapter 3 of RCEP, the ROO define the three categories of goods that can qualify as “originating goods” and are eligible for applying for preferential treatment, Gepty said in a one of the webinar series on RCEP hosted by the Economic Research Institute for East Asia and ASEAN.
The first category pertains to goods wholly obtained or produced in an RCEP party, such as live animals born and raised in a party; goods obtained in a party by fishing or hunting; or goods obtained in other areas, like outside the territorial sea, that become qualified under the requirement that the vessel is registered in a party allowed to fly that particular flag of a party.
The second refers to goods “produced entirely” (PE) in a party exclusively from originating materials from one or more of the parties. This means that goods may be produced from a combination of materials that are wholly obtained and materials that are substantially transformed.
For the second category, Gepty cited as an example pineapple tidbits, in which the pineapple comes from the Philippines, sugar from Thailand and pineapple concentrate from Indonesia. Since all the materials come from RCEP parties, the product is eligible for the “produced entirely in a party” requirement of ROO.
The third refers to goods that have undergone substantial transformation and meet the requirements on regional value content (RVC), on a change in tariff classification (CTC), and on the process rule. For RVC requirements, a good must have an RVC of not less than 40% to be considered substantially transformed.
For CTC, the origin is based on the required change in tariff classification, which could be a change in chapter, a change in tariff heading, or a change in tariff subheading.
For the process rule to apply, meanwhile, the origin should be based on a specific production or manufacturing process. “In RCEP, there is only one process rule, and that is the chemical reaction rule,” Gepty said.
He added that the chapter on ROO also provides for the accumulation of origin, which allows a producer or manufacturer to use originating materials from one or more parties in producing another good.
“This provision is one of the ROO elements that enhance the value chain within the FTA region as it allows activities outside the territory of a party to contribute to the production process of an exporter of another party,” he said.
To illustrate, Gepty said a motorcycle made in the Philippines uses parts from non- RCEP parties such as electronic parts from the European Union (25% of the value of the motorcycle) and engine from Taiwan (30%). At the same time, the product uses gears, axle, and chains from RCEP parties such as Japan (25%), lights and electricals from Thailand (10%), and 10% value addition (assembly cost and locally sourced accessories) from the Philippines, which gives the product an RVC of 45% and qualifies it to claim to be an originating good.
Gepty said that under the ROO, exporters of goods classified as originating based on these three categories (wholly obtained, produced entirely, or substantially transformed) must then prove compliance by obtaining a proof of origin from the respective issuing authority to be able to claim preferential tariff.
“A proof of origin may be in the form of a Certificate of Origin (CO) or an Origin Declaration (OD),” he said.
The official also noted that Annex 3A of the RCEP provides a comprehensive list of product-specific rules (PSR) that will help exporters determine the applicable requirements per product. RCEP has liberalized some of the PSRs for certain products to qualify for preferential treatment compared with the other ASEAN Plus One FTAs. For canned tuna, for instance, global sourcing of the fish outside of the RCEP region is allowed, with the fish processed and exported in the RCEP region.
Other products of interest with similarly liberal PSRs for sourcing of raw materials include garments, footwear, copper wire and canned fruits.
Another advantage of the RCEP is it provides a wider area for cumulation of raw materials. “In the RCEP region you can source raw materials, intermediate goods from the 15 countries and process it in any party of the RCEP region. In the Philippines, for
example, you source textiles from China, manufacture it in the Philippines then export it to Japan,” Gepty said.
Merchants also have to know the other rules and provisions that affect the origin status of a product, including those on minimal operations, direct consignment, treatment of accessories, spare parts and tools, treatment of packing and packaging materials, deminimis, fungible goods or materials, indirect materials, unit of qualification, and materials used in production.
To avail of the preferential arrangement under RCEP, Gepty said would-be importers and exporters should do the following:
• Identify the product code
• Check the product’s tariff eligibility
• Determine the applicable rule for your product
• Check the other relevant rules in the ROO Chapter
• Determine the RCEP country of origin of the goods
• Apply for a CO or issue an OD
Twelve parties have so far ratified the RCEP, while the Philippines, Myanmar and Indonesia have still to enforce the deal. In the Philippines, calls have mounted for the Philippine Senate to ratify the 15-member trade agreement amid growing concern that further delay will slow the country’s growth momentum and cast doubts about its openness to trade and investment.
The RCEP, which came into force on January 1, 2022, is made up of the 10 ASEAN member states and their partners Australia, China, Japan, South Korea, and New Zealand. It is the world’s biggest FTA, encompassing 30% of the world population, around 30% of global gross domestic product, and nearly 28% of global trade.