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[Certificate of Origin System]
A certificate of origin(C/O) is a document certifying that the goods originate from a specific country. The certificate of origin may be utilized in various purposes, but it's significantly important because it's a sort of preferential certificate of origin importers submit to Customs in order to benefit from preferential treatment, which is issued by the exporter or issuing agency of an exporting country.
C/O is a key basis of whole requirements to benefit from preferential treatment, and in order to enjoy low tariff treatment, the exporter and importer shall closely cooperate each other.
Import may not be prohibited when the importer fails to furnish the certificate of origin, but such importer may take a great risk in cost competitiveness because he/she has to bear high tariffs wholly.
■ Procedures for Preferential Treatment in Tariff at Import
Not all exporters or importers furnishing C/O may enjoy low tariff preferential treatment, but this will depend on the compliance of requirements as below, and other processes concerned.
1. Confirmation of parties to agreements or parties concerned
Goods shall be imported from the countries whose preferential treatment for tariff is provided by international agreements or Japan's laws(EPA (FTA) Contracting Party, GSP Benefit Bureau, etc.). Otherwise, there is no possibility to benefit from any preferential treatment, but general tariff may be applied according to priority order of tariff rates application.
2. Confirmation of Trading Goods
Even in the case where tariff rates by agreements such as FTA may be applied, confirmation shall be made whether a good concerned is subject to preferential treatment. The application may be determined by taking a look at HS code by good and contents of the agreement.
The goods not subject to preferential treatment may be applied by general tariffs.
3. Confirmation of Preferential Treatment in Tariff
It's beneficial to confirm the conditions and the degree of preferential treatment in detail despite the goods subject to such benefits. For instance, the case where tariff rate under agreements is the same with that of general tariff, and the case where amounts of trade and tariffs are insignificant, so that the customs benefit is also insignificant, it is not necessary to do through the process of applying agreement tax rate.
4. Preparation of documents required
The importer who intends to benefit from preferential treatment shall verify that relevant goods originates from the parties to agreements, that proof documents is called as a certificate of origin.
The certificate of origin mostly is issued by official issuing bodies as determined in agreement, and it may be also issued by the exporter himself/herself as determined in agreement.
On the other hand, the criteria for determining whether a product can be recognized as an originating country of the agreement subject to a certain requirement are fixed, in order to prevent the goods not originating from parties to agreement from enjoying low tariff rates, which are called Criteria of the Determination of Origin.
The goods which fail to comply with such rules of origin shall not enjoy preferential treatment.
5. Application of preferential treatment
It totally depends on the importer whether to obtain preferential treatment status, so, the importer only who applies for such preferential treatment may benefit from such preferential price.
Therefore, a key for application of preferential treatment is to submit the certificate of origin complying with rules of origin to Customs of an importing country.
6. Retention of documents concerned
The importer requires to keep a certificate of origin, import declaration form, contract, and other documentations for a certain period time because he/she may be subjected to verifying the legality of preferential treatments acquired afterwards. Otherwise, disadvantages may be followed, such as post-collection of customs duty, and so on.
■ Legal basis for Japan's Preferential Rules of Origin
ㅇCustoms Act and Enforcement Order
ㅇAct on Temporary Measures concerning Customs
ㅇRecognized Standards for Country of Origin when Conventional Tariff is Applied
ㅇEPA - Economic Partnership Agreement
■ Countries Related to A Preferential Certificate of Origin
The following countries require a certificate of origin to benefit from preferential treatment for the goods imported to Japan:
☉ Target countries subject to conventional tariff with Japan(parties to FTA, etc. )
ㅇ Agreed country in effect: ASEAN (except Indonesia), Indonesia, Vietnam, Thailand, Malaysia, Brunei, Philippines, Singapore, India, Mongolia, Australia, Chile, Mexico, Switzerland, Peru
- December 30, 2018. Enforcement: Japan, Singapore, Canada, Mexico, New Zealand, Australia (6 countries)
- January 1, 2014. Enforcement: Vietnam
- The remaining four countries (Malaysia, Brunei, Chile, Peru) are in the process of domestic ratification
ㅇ Japan-EU EPA has signed the 2018.7 agreement and domestic approval process is in progress (not yet effective)
☉ Target countries subject to preferential tariff provided by Japan
ㅇCountries subject to preferential tariff(GSP) : 151 countries and regions such as Azerbaijan(137 countries, 14 regions)
ㅇCountries subject to special preferential tariff(LDC) : 49 countries, including Afghanistan
■ Rules of Origin
Rules of origin are determined separately by item in each international agreement, providing preferential treatment. In this section, general rules of origin that the majority of countries including Japan and the rest of the world adopts will be explained. The criterions below have advantages and disadvantages respectively. Therefore, the country of origin may be determined by adopting specific criteria on a item by item basis, or by applying a combination of multiple criteria.
⊙ Wholly Obtained Criterion
ㅇ A full production standard is a principle that states that a country does not use the materials of other countries in the production of an article and that the production process is carried out only in that country.
ㅇ Minerals, animals, plants and products thereof may be subject to wholly obtained criterion.
⊙ Substantial Transformation Criterion
In the case where more than two countries are involved in production, a country which give the essential characteristics of the goods, in other words, made substantial transformation to the relevant goods shall be recognized as country of origin. It applies to manufactured goods. Sub-criterion is as below:
ㅇ Change in Tariff Classification Criterion
Under this rule, the HS code of non-native materials and other HS code products must be produced through the manufacturing and processing processes in a specific country, it's recognized as substantial transformation, so such country is acceptable as the country of origin.
But, there is a problem that the number of HS code unit which may be recognized as substantial transformation may vary depending on countries, but most of country accepts change in 4-digit or 6-digit as substantial transformation.
ㅇ Value Added Criterion
Under this rule, the country which generates value added exceeding specific ratio against manufactured cost, FOB price or CIF price may be accepted as the country of origin.
ㅇ Specific Processing Criterion
The country where the processing or workings providing major characteristics to products have been made, such country may be accepted as the country of origin.
☉ Direct Shipping Principles
The principle of direct carriage refers to the principle that the exporting country is considered to be the origin only when it originates in the exporting country and is transported directly to the importing country without going through other countries, even if you go through another country, it is still common to be recognized as origin goods if you do not do any further processing there.
☉ Other standards
In addition, there are special or complementary criteria such as the cumulative standard for considering the products produced in the partner country as products of the originating country, and the spare parts attached to the accessories or the main body to be ignored when determining the origin.
■ Verification of the Country of Origin
Verification of the country of origin means to confirm whether all the requirements such as the above mentioned origin requirements are met to prevent illegal preferential treatment by falsely indicating country of origin.
The methods for verification vary according to the regulations as determined in each agreement. Generally, there are 3 types of verification methods, categorized as direct verification method under which Customs of an importing country verifies the country of origin against the exporter, and indirect verification method under which Customs of an exporting country(on behalf of the importing country) verifies against the exporter, and mixed method above two methods are combined.
The verification of country of origin is mostly made on paper, and in a post-management manner. Relevant documents including the certificate of origin should be kept for a certain period of time, if there is custom benefits.
■ Export and A Certificate of Origin
Unless DDP terms(the exporter pays all costs incurred from whole processes to destination of importing country) are applied under incoterms, customs duty generally is paid by the importer of an importing country. Therefore, the certificate of origin is closely involved with the interests of the importer.
However, given that trade is the process to fulfill mutual benefits through cooperation between the exporter and importer, trade contract commonly specifies that the exporter has cooperative obligation, including issuance of a certificate of origin. Even though a trade contract fails to specify such provision, it's beneficial that the exporter takes cooperative attitude by helping the importer to obtain a certificate of origin and enjoy the preferential treatment for the maintenance of future contract.
■ Confirmation Requirements for Issuing at Export
In order the exporter to determine whether the importer needs the certificate of origin for preferential treatment, advance research, such as confirming parties to agreement, trading goods, preferential tariff of the importing country, and rules of origin, and so on, is necessary.
The certificate of origin isn't required if the goods and partner country aren't subject to preferential tariff.
■ Issuing Method of Certificate of Origin in Japan
The verification method, issuing subject, document form, validity term, language, etc. are all different depending on each international agreement or treaty.
The procedure for issuing the certificate is also different depending on issuing subject, categorized as trading party(mostly the exporter), and issuing authority(governmental) or its agent authorized by issuing body.
With regard to self-issuing by trading party, the exporter shall designate the person authorized to sign, and issue a specified formed certificate to sign on it, and manage the signed certificate.
Issuing body is Japan Chamber of Commerce which is responsible for document application and on-line issuance of C/O. The certificate of origin may be issued when specified documents, such as export declaration form, invoice, contract, manufacturer of goods, place of manufacture, manufacturing processing, etc. are submitted.
■ Other Notes
ㅇThis TCS system contains all tariff rates requiring a certificate of origin, such as FTA conventional tariff, etc.
ㅇThis TCS system automatically provides the result by considering all aspects of countries, items, tax rates, tax amounts, and so on subject to preferential rules of origin
ㅇUnder TCS system, the result is provided on the premise that preferential tariffs exist according to country of origin of trading country and items, and if such tariff competes against other tariffs with the possibility of being final tariff, the importer already furnished the certificate of origin and applied for preferential treatment.
However, in the case where the trading party intentionally chooses not to obtain preferential treatment or fails to prepare the certificate of origin, he/she may press No C/O Effects button to run a mini-simulation which will bring out the result.