In international trade, for taxpayers, if they can make full use of the rules of origin of relevant countries in the supply chain, reasonably arrange and organize the procurement, manufacturing, processing, logistics and other links of raw materials, so as to enjoy the preferential policies brought by the rules of origin to the greatest extent, they can legally and reasonably reduce the operating costs and enhance the comprehensive competitiveness. However, the determination of the origin of goods needs technical skills. It is necessary to accurately understand and master the rules of origin, before making the decision. Otherwise, it may encounter the risk of compliance due to the wrong declaration of origin, which may result in administrative punishment at least, and may even constitute smuggling crime. In this issue, the authors will take you to explore and understand the Customs rules of origin, so as to grasp the business opportunities and perfect the compliance management.
I. Five Questions Helping to Understand the Basic Concepts of Rules of Origin
Origin, commodity classification and commodity valuation are considered as the three major technical problems in international trade. Different from the “explicit” impact of commodity classification and commodity valuation exerted on the interests of enterprises, the role of origin is more like an “invisible hand”. Although it is invisible, it directly affects the tax preference that goods can enjoy and the control policies that need to be implemented. In recent years, with the increasingly frequent and intensified trade frictions between countries, this invisible hand is more and more powerful, which makes import and export enterprises have to pay attention to it. In this issue, the authors will take you to understand the basic knowledge of China’s rules of origin. We hope it will help.
1. What is the origin?
Generally speaking, origin is the economic “nationality” of goods. It refers to the origin of goods in international trade, i.e., the place where goods are produced, collected, raised, extracted, processed and manufactured.
2. Why need to determine the origin of the goods?
In international trade, origin symbolizes the “specific identity” of goods, and is the reference for goods quality and brand, which directly affects the price, quality, reputation and trade treatment of goods. When it comes to trade treatment, for example, the implementation of national trade control policies (anti-dumping, quota control, quarantine restrictions, etc.) is often carried out through the origin as a medium.
3. What is a certificate of origin?
The certificate of origin is a necessary certificate for enterprises to enjoy the differential tariff treatment of the importing country. Through the certificate of origin, the export enterprises can obtain the tariff reduction and exemption of the importing country, reduce the trade cost and enhance the competitiveness of the goods in the overseas market. Based on the importance of certificate of origin, some people vividly call the certificate of origin as “golden key” to open the door of international trade or “paper gold”.
4.What are rules of origin?
As the name implies, the rules of origin are generally applicable laws, regulations and administrative rulings implemented by various countries to determine the origin of goods. In short, it is the rules to be followed and applied when determining the origin of goods. China’s rules of origin are divided into rules on non-preferential origin and rules on preferential origin.
5. What are the legal consequences of wrong declaration of origin?
The origin of imports and exports is an important basis for the Customs to determine and implement national preferential tariff policies, most favored nation treatment, anti-dumping and countervailing, safeguard measures, origin mark management, country quantity restriction, tariff quota and other trade measures, as well as for government procurement, trade statistics and other activities. According to the relevant provisions of customs laws, enterprises have the obligation to declare the origin of goods truthfully and accurately. If the declaration of origin is wrong and the customs investigation finds that it is in violation of the customs supervision regulations or other behaviors in violation of the Customs Law, the Customs shall punish these behaviors in accordance with the provisions of the Customs Law and the Implementation Regulations of the Customs on Administrative Penalties; if a crime is constituted, the company and relevant personnel will also be investigated for criminal responsibility according to law.
II. Classification and Legal Basis of Rules of Origin in China
(I) Classification of Rules of Origin in China
China’s rules of origin are divided into rules on non-preferential origin and rules on preferential origin.
Rules on Non-preferential Origin refers to the rules of origin independently formulated by a country’s legislation according to the needs of implementing its customs tariff and other trade measures, so it is also called “autonomous rules of origin”. The implementation of rules on non-preferential origin must comply with the principle of MFN treatment, i.e., it must be applied to all imported goods with MFN origin universally without discrimination.
Rules on Preferential Origin refers to the origin policy formulated by a country in order to implement national preferential policies. The specific criteria for determining the origin of goods shall follow the corresponding preferential trade agreements. At present, China has signed preferential trade agreements with 19 countries or economies. The scope of preferential treatment is limited to the import and export products of the member countries of the preferential trade agreement signed by China or the import products of the beneficiary countries which China unilaterally grants preferential tariff policies.
The legal basis of the two types of rules of origin is different.
Rules on Non-preferential Origin
At present, the World Trade Organization’s Rules on Non-Preferential Origin has not been issued. The rules on non-preferential origin are still independently formulated by the domestic legislation of each country. Specifically in China, the legal basis is mainly the Regulations of the People’s Republic of China on Place of Origin of Imports and Exports (hereinafter referred to as the Regulations on Place of Origin) and the Provisions of the Customs of the PRC on Executing “Provisions on the Substantial Transformation of Criteria in Non-Preferential Rules of Origin”.
Rules on Preferential Origin
Since the rules of origin are formulated for the implementation of national preferential policies, they are certainly the gaming result of all parties. In the rules, both the maximization of domestic interests and the interests of other Member States shall be taken into account. Naturally, the main basis of rules on preferential origin is the bilateral or multilateral international agreements, namely preferential trade agreements. For China, the relevant preferential trade agreements are often transformed into domestic laws in the form of regulations of the General Administration of Customs, such as the Order of the General Administration of Customs on Promulgating and implementing the Administrative Measures of the Customs of the People’s Republic of China on Place of Origin of Imports and Exports under the Asia-Pacific Trade Agreement. In addition, the legal basis also include the Administrative Provisions of the Customs of the People’s Republic of China on Preferential Origin of Imports and Exports.
III. Differences between Two Types of Rules of Origin
Although they are both rules of origin, there are great differences between rules on preferential origin and non-preferential origin, which can be seen from the definition and legal basis of the two in the second part of this issue. For easier understanding, the author makes a general distinction between the two through the form of table as follow, and makes a brief introduction one by one.
(I) Legal Basis
See II. (II).
(II) Purpose of Application
Rules on Non-preferential Origin is applicable to non-preferential trade measures such as MFN treatment, anti-dumping and anti-subsidy, safeguard measures, origin mark management, national quantity restriction, tariff quota and other non-preferential trade measures, as well as government procurement, trade statistics and other activities.
Rules on Preferential Origin are the rules of origin formulated for the purpose of implementing national preferential policies (tariffs), for example, the application of Free Trade Agreement members belongs to this category.
(III) Specific Content of Origin Standards
Both rules on preferential origin and non-preferential origin can be divided into “entirely obtained standards” and “not entirely obtained standards” in terms of origin standards. However, there are great differences in the content and application of specific standards, and enterprises need to determine according to the specific standards of origin in the actual international trade. As for the specific content of the origin standards, we will give a special introduction in the following articles.
(IV) Transportation Requirements
The rules on preferential origin have no requirements on transportation, but the rules on preferential origin require “direct transportation”, i.e., direct transportation from exporting member states to importing member states.
There are two meanings of direct transportation: 1. Direct transportation in literal sense, that is, transported directly without passing through a country or region other than the member countries or regions; 2. being deemed as direct transportation. That is to say, although the transportation passes through countries or regions other than the member countries or regions, it is managed according to the direct transportation because it conforms to the specific circumstances stipulated by the law. It shall be deemed as direct transportation, such as only for geographical reasons or transportation needs, without any value-added treatment, and not entering the consumption or trade field of the transit country. As for the exact provisions and requirements, it depends on the specific application of preferential trade agreements. Because under different preferential trade agreements, there are still subtle differences in the situation and management of direct transportation. Although the differences are subtle, but in practice, it may result in wide divergence, so they needs to be applied accurately.
(V) Declaration Requirements
Rules on Preferential Origin According to the Article 14 of Administrative Provisions of the Customs of the People’s Republic of China on Preferential Origin of Imports and Exports, “At the time of declaration of importation of goods, the consignee of imports or its agent shall fill in a “Customs Declaration Form of the Customs of the People’s Republic of China for Imports” pursuant to the declaration provisions of the Customs, state whether conventional tariff or ex-gratia tariff is applicable, and submit the following documents together with the declaration: (1) a valid original copy of the certificate of origin for the goods or a written declaration on place of origin stipulated by the relevant preferential trade agreement; and...”It can be tell from the word “shall”, that it is a compulsory requirement for the consignee or consignor to submit the certificate of origin or declaration documents, i.e., the import and export goods must submit the certificate of origin or declaration documents issued by the designated organization, and declare the application of preferential tax rate under the corresponding agreement, otherwise, they can not enjoy the corresponding tax preference.
Rules on Non-preferential Origin According to the Article 14 of Regulations of the People’s Republic of China on Place of Origin of Imports and Exports, “When examining and determining the place of origin of the imports, the Customs may require the consignee of the imports to submit the certificate of origin of the imports for examination. Where necessary, the Customs may request that the relevant organization in the exporting country to examine the place of origin of the goods.” The word “may” indicates the Customs has discretion. Thus, it can be seen that when it comes to rules on non preferential origin, the consignee or consignor will submit the certificate of origin only when required by the Customs.
In the current management measures, the situation where the certificate of origin shall be submitted under the rules on non-preferential origin is mainly “two anti and one safeguarding”, i.e., the import and export goods which implement anti-dumping, anti-subsidy and safeguarding measures need to submit the certificate of origin.