CHAPTER 3

RULES OF ORIGIN

Article 1

Eligibility for Preferential Tariff Treatment

In determining the origin of a good eligible for

preferential tariff treatment pursuant to Chapter 2
(Trade in Goods) of this Agreement, the provisions
under this Chapter shall apply.

Article 2

Definitions

For the purposes of this Chapter:

(a) aquaculture means the farming of aquatic

organisms including fish, molluscs,
crustaceans, other aquatic invertebrates and
aquatic plants, from seedstock such as eggs,
fry, fingerlings and larvae, by intervention in
the rearing or growth processes to enhance
production such as regular stocking, feeding,
or protection from predators;

(b) Costs, Insurance and Freight (CIF) means

the value of the good imported, and includes
the cost of freight and insurance up to the port
or place of entry into the importing Party;

(c) Free-on-board (FOB) means the free-on-

board value of the good, inclusive of the cost
of transport to the port or site of final shipment

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 abroad;

(d) generally accepted accounting principles

(GAAP) means the recognised consensus or
substantial authoritative support in a Party,
with respect to the recording of revenues,
expenses, costs, assets and liabilities; the
disclosure of information; and the preparation
of financial statements. These standards may
encompass broad guidelines of general
application as well as detailed standards,
practices and procedures;

(e) good means a material or product, which can

be wholly obtained or produced, even if it is
intended for later use as a material in another
production process. For the purposes of this
Chapter, the terms “good” and “product” can
be used interchangeably;

(f) identical and interchangeable materials

means materials being of the same kind and
commercial quality, possessing the same
technical and physical characteristics, and
which after being incorporated into the finished
product cannot be distinguished from one
another for origin purposes by virtue of any
markings, or mere visual examination, etc.;

(g) material means any matter or substance used

or consumed in the production of a good or
physically incorporated into another good or
subjected to a process in the production of
another good;

(h) non-originating good or non-originating

material means a good or material that does
not qualify as originating in accordance with

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 the provisions of this Chapter;

(i) originating good or originating material

means a good or material that qualifies as
originating in accordance with the provisions of
this Chapter;

(j) packing material and container for

transportation means the good used to
protect a good during its transportation,
different from that container or material used
for its retail sale;

(k) preferential tariff treatment means tariff

concessions granted to originating goods as
reflected by the tariff rates applicable under
this Agreement;

(l) production means methods of obtaining

goods, including growing, mining, harvesting,
raising, breeding, extracting, gathering,
aquaculture, collecting, capturing, fishing,
trapping, hunting, manufacturing, producing,
processing or assembling goods; and

(m) Product Specific Rules means the rules set

out in Annex 3-2 (Product Specific Rules) that
specify that the materials used to produce a
good have undergone a change in tariff
classification or a specific manufacturing or
processing operation, or satisfy a regional
value content criterion or a combination of any
of these criteria.

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 Article 3

Origin Criteria

For the purposes of this Chapter, a good imported

into a Party from another Party shall be treated as an
originating good if it conforms to the origin
requirements under any one of the following
conditions:

(a) a good which is wholly obtained or produced

in the exporting Party as set out in Article 4
(Wholly Obtained or Produced Goods);

(b) a good produced in the exporting Party

exclusively from originating materials from
one or more of the Parties; or

(c) a good not wholly obtained or produced in

the exporting Party, provided that the good is
eligible under Article 5 (Not Wholly Obtained
or Produced Goods);

and meets all other applicable requirements of this

Chapter.

Article 4

Wholly Obtained or Produced Goods

For the purposes of subparagraph (a) of Article 3

(Origin Criteria), the following goods shall be
considered as wholly obtained or produced in the
exporting Party:

(a) plants and plant products, including fruits,

flowers, vegetables, trees, seaweed, fungi

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 and live plants, grown, harvested, picked or
gathered in a Party1;

(b) live animals including mammals, birds, fish,

crustaceans, molluscs, reptiles, bacteria and
viruses, born and raised in a Party;

(c) goods obtained from live animals in a Party;

(d) goods obtained from hunting, trapping,

fishing, farming, aquaculture, gathering or
capturing conducted in a Party;

(e) minerals and other naturally occurring

substances, not included in subparagraphs
(a) to (d), extracted or taken from the soil,
waters, seabed or beneath the seabed in a
Party;

(f) products of sea-fishing extracted or taken by

vessels registered with the exporting Party
and entitled to fly the flag of that Party, and
minerals and other naturally occurring
substances extracted or taken from the
waters, seabed or beneath the seabed
outside the waters of the exporting Party,
provided that that Party has the rights to

1
For the purposes of this Article, “in a Party” means:
(i) for ASEAN Member States, the land, territorial sea, exclusive economic
zone, continental shelf over which a Party exercises sovereignty, sovereign
rights or jurisdiction, as the case may be, in accordance with international
law.
(ii) for Hong Kong, China, the Area of Hong Kong, China.

For the avoidance of doubt, nothing contained in the above definition shall be
construed as conferring recognition or acceptance by one Party of the outstanding
maritime and territorial claims made by any other Party, nor shall be taken as pre-
judging the determination of such claims.

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 exploit such waters, seabed and beneath the
seabed in accordance with international law2;

(g) products of sea-fishing and other marine

products taken from the high seas by vessels
registered with a Party and entitled to fly the
flag of that Party;

(h) products processed or made on board factory

ships registered with a Party or entitled to fly
the flag of that Party, exclusively from
products referred to in subparagraph (g);

(i) goods which are:

(i) waste and scrap derived from production

and consumption in a Party, provided
that such goods are fit only for the
recovery of raw materials or for recycling
purposes; or

(ii) used goods collected in a Party, provided

that such goods are fit only for the
recovery of raw materials or for recycling
purposes; and

(j) goods obtained or produced in the exporting

Party from products referred to in
subparagraphs (a) to (i).

Article 5

Not Wholly Obtained or Produced Goods

1. For the purposes of subparagraph (c) of Article 3

(Origin Criteria), except for those goods covered under
2
“International law” refers to generally accepted international law such as the United
Nations Convention on the Law of the Sea, 1982.

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paragraph 2, a good shall be treated as an originating
good if the good has a regional value content
(“Regional Value Content” or “RVC”) of not less than
40 per cent calculated using the formula set out in
Article 6 (Calculation of Regional Value Content).

2. In accordance with paragraph 1, a good subject

to the Product Specific Rules shall be treated as an
originating good if it meets those Product Specific
Rules as specified in Annex 3-2 (Product Specific
Rules):

(a) Where a Product Specific Rule provides a

choice of rules from a RVC-based rule of
origin, a change in tariff classification (“CTC”)-
based rule of origin, a specific manufacturing
or processing operation, or a combination of
any of these criteria, each Party shall permit
the exporter of the good to decide which rule
to use in determining whether the good
qualifies as an originating good of the Party.

(b) Where a Product Specific Rule specifies a

certain RVC, the RVC of a good shall be
calculated using the formula set out in Article
6 (Calculation of Regional Value Content).

(c) Where a Product Specific Rule requires that

the materials used have undergone CTC or a
specific manufacturing or processing
operation, the rules shall apply only to non-
originating materials.

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 Article 6

Calculation of Regional Value Content

1. For the purposes of Article 5 (Not Wholly

Obtained or Produced Goods), the formula for
calculating RVC is as follows:

(a) Direct /Build-up Method

or

(b) Indirect /Build-down Method

2. For the purposes of calculating the RVC

provided in paragraph 1:

(a) AHKFTA Material Cost is the value of

originating materials, parts or produce that
are acquired or self-produced by the producer
in the production of the good;

(b) Value of Non-Originating Materials, Parts

or Produce is the CIF value at the time of

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 importation or the earliest ascertained price
paid for all non-originating materials, parts or
produce that are acquired by the producer in
the production of the good; non-originating
materials include materials of undetermined
origin;

(c) Direct labour cost includes wages,

remuneration and other employee benefits
associated with the manufacturing process;

(d) Direct overhead cost includes, but is not

limited to, real property items associated with
the production process (insurance, factory
rent and leasing, depreciation on buildings,
repair and maintenance, taxes, interests on
mortgage); leasing of and interest payments
for plant and equipment; factory security;
insurance (plant, equipment and materials
used in the manufacture of the goods);
utilities (energy, electricity, water and other
utilities directly attributable to the production
of the goods); research, development, design
and engineering; dies, moulds, tooling and
the depreciation, maintenance and repair of
plant and equipment; royalties or licences (in
connection with patented machines or
processes used in the manufacture of the
goods or the right to manufacture the goods);
inspection and testing of materials and the
goods; storage and handling in the factory;
disposal of recyclable wastes; and cost
elements in computing the value of raw
materials, i.e. port and clearance charges and
import duties paid for dutiable component;
and

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 (e) Other Costs are the costs incurred in placing
the good in the ship or other means of
transport for export including, but not limited
to, domestic transport costs, storage and
warehousing, port handling, brokerage fees
and service charges.

3. The value of goods under this Chapter shall be

determined in accordance with the Customs Valuation
Agreement. The Parties shall harmonise, to the extent
possible, administrative procedures and practices in
the assessment of value of goods for customs
purposes.

Article 7

Accumulation

Unless otherwise provided in this Agreement, a good

which complies with the origin requirements provided
herein and which is used in another Party as a material
for a finished good eligible for preferential tariff
treatment shall be considered to be originating in the
latter Party where working or processing of the finished
goods has taken place.

Article 8

Minimal Operations and Processes

1. Notwithstanding any provisions in this Chapter, a

good shall not be considered to be originating in the
Area of a Party if the following operations are
undertaken exclusively by itself or in combination in the
Area of that Party:

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 (a) preserving operations to ensure that the good
remains in good condition during transport
and storage;

(b) changes of packaging, breaking-up and

assembly of packages;

(c) simple 3 washing, cleaning, removal of dust,

oxide, oil, paint or other coverings;

(d) simple3 painting and polishing operations;

(e) husking, partial or total bleaching, polishing

and glazing of cereals and rice;

(f) operations to colour sugar or form sugar

lumps;

(g) simple3 peeling, stoning, or un-shelling;

(h) sharpening, simple3 grinding or simple3

cutting;

(i) sifting, screening, sorting, classifying,

grading, matching;

(j) simple3 placing in bottles, cans, flasks, bags,

cases, boxes, fixing on cards or boards and
all other simple3 packaging operations;

(k) affixing or printing marks, labels, logos and

other like distinguishing signs on products or
their packaging;

3
“simple” means an activity which does not need special skills, machines, apparatus
or equipment especially produced or installed for carrying out the activity.

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 (l) simple mixing4 of products, whether or not of
different kinds;

(m) simple3 assembly of parts of articles to

constitute a complete article or disassembly
of products into parts;

(n) simple3 testing or calibrations; or

(o) slaughtering5 of animals.

2. A good originating in the Area of a Party shall

retain its initial originating status, when exported from
another Party, where operations undertaken have not
gone beyond those referred to in paragraph 1.

Article 9

Direct Consignment

1. Preferential tariff treatment shall be applied to

goods satisfying the requirements of this Chapter and
which are consigned directly between the exporting
Party and the importing Party.

2. The following shall be considered as consigned

directly from the exporting Party to the importing Party:

4
“simple mixing” means an activity which does not need special skills, machines,
apparatus or equipment especially produced or installed for carrying out the activity
and does not include chemical reaction. Chemical reaction means a process
(including a biochemical process) which result in a molecule with a new structure by
breaking intramolecular bonds and by forming new intramolecular bonds, or by
altering the spatial arrangement of atoms in a molecule.

5
“slaughtering” means the mere killing of animals and subsequent processes such as
cutting, chilling, freezing, salting, drying or smoking, for the purpose of preservation
for storage and transport.

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 (a) goods transported from the exporting Party to
the importing Party; or

(b) goods transported through one or more

Parties, other than the exporting Party and
the importing Party, or through a non-Party,
provided that:

(i) the transit entry is justified for

geographical reason or by consideration
related exclusively to transport
requirements;

(ii) the goods have not entered into trade or

consumption there; and

(iii) the goods have not undergone any

operation there other than unloading and
reloading or any other operation to
preserve them in good condition.

Article 10

De Minimis

1. A good that does not satisfy a CTC requirement

shall be considered as originating if the value of all non-
originating materials used in its production that do not
undergo the required CTC does not exceed 10 per cent
of the FOB value of the good and the good meets all
other applicable criteria set forth in this Chapter for
qualifying as an originating good.

2. The value of non-originating materials referred to

in paragraph 1 shall be included in the value of non-
originating materials for any applicable RVC
requirement for the good.

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 Article 11

Treatment of Packing and Packaging Materials

and Containers

1. Packing materials and containers for

transportation and shipment of a good shall not be
taken into account in determining the origin of any
good.

2. Packaging materials and containers in which the

good is packaged for retail sale, which are classified
with the good pursuant to Rule 5 of the General Rules
for the Interpretation of the Harmonized System, shall
be disregarded in determining the origin of the good,
provided that:

(a) the good is wholly obtained as set out in

subparagraph (a) of Article 3 (Origin Criteria);

(b) the good is produced entirely in the Area of a

Party as set out in subparagraph (b) of Article
3 (Origin Criteria); or

(c) the good is subject to a CTC requirement set

out in Annex 3-2 (Product Specific Rules).

3. If a good is subject to a RVC requirement, the

value of the packaging materials and containers in
which the good is packaged for retail sale shall be
taken into account as originating or non-originating
materials, as the case may be, in calculating the RVC
of the good.

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 Article 12

Accessories, Spare Parts and Tools

1. If a good is subject to the requirements of CTC or

specific manufacturing or processing operation, the
origin of accessories, spare parts, tools and
instructional or other information materials presented
with the good shall not be taken into account in
determining whether the good qualifies as an
originating good, provided that:

(a) the accessories, spare parts, tools and

instructional or other information materials are
not invoiced separately from the good; and

(b) the quantities and value of the accessories,

spare parts, tools and instructional or other
information materials are customary for the
good.

2. If a good is subject to a RVC-based rule of origin,

the value of the accessories, spare parts, tools and
instructional or information materials shall be taken into
account as the value of the originating or non-
originating materials, as the case may be, in calculating
the RVC of the good.

Article 13

Neutral Elements

In order to determine whether a good is an originating

good, it shall not be necessary to determine the origin
of the following which might be used in its production
and not incorporated into the good:

(a) fuel and energy;

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 (b) tools, dies and moulds;

(c) spare parts and materials used in the

maintenance of equipment and buildings;

(d) lubricants, greases, compounding materials

and other materials used in production or
used to operate equipment and buildings;

(e) gloves, glasses, footwear, clothing, safety

equipment and supplies;

(f) equipment, devices and supplies used for

testing or inspecting the good;

(g) catalysts and solvents; and

(h) any other goods that are not incorporated

into the good but the use of which in the
production of the good can reasonably be
demonstrated to be a part of that production.

Article 14

Identical and Interchangeable Materials

1. The determination of whether identical and

interchangeable materials are originating materials
shall be made either by physical segregation of each of
the materials or by the use of GAAP of stock control
applicable, or inventory management method, in the
exporting Party.

2. Once a decision has been taken on the inventory

management method, that method shall be used
throughout the fiscal year.

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 Article 15

Certificate of Origin

Unless otherwise provided for in this Chapter, a claim

that a good is eligible for preferential tariff treatment
shall be supported by a Certificate of Origin (Form
AHK) issued by an issuing authority designated by the
exporting Party and notified to the other Parties in
accordance with Annex 3-1 (Operational Certification
Procedures).

Article 16

Amendments of Annexes and Appendix

1. The AHKFTA Joint Committee may, upon

recommendation of the Sub-Committee on Rules of
Origin, amend in writing Annex 3-1 (Operational
Certification Procedures), and Appendix (List of Data
Requirements).

2. The amendments to Annex 3-1 (Operational

Certification Procedures) and the Appendix (List of
Data Requirements) adopted in accordance with
paragraph 1 shall be promptly published and shall
come into effect on the date determined by the
Parties through the AHKFTA Joint Committee.

3. The AHKFTA Joint Committee shall, upon

recommendation of the Sub-Committee on Rules of
Origin, adopt the transposition that is in the revised
nomenclature of the HS following the World Customs
Organization’s periodic amendments to the HS
nomenclature in Annex 3-2 (Product Specific Rules).
Such transposition shall be carried out without
impairing the existing commitments and shall be
completed in a timely manner.

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 Article 17

Sub-Committee on Rules of Origin

1. For the purposes of effective and uniform

implementation of this Chapter, a Sub-Committee on
Rules of Origin shall be established.

2. The functions of the Sub-Committee on Rules of

Origin shall be to:

(a) monitor the implementation and operation of

this Chapter;

(b) review, as and when necessary, this Chapter

to provide appropriate recommendations with
the view to enhancing this Chapter to make it
responsive to the dynamic changes in the
regional and global production processes so
as to facilitate trade and investment among
Parties, promote a regional production
network, encourage the development of Small
and Medium Enterprises and narrow the
development gaps;

(c) review, as and when necessary, the

operational procedures of this Chapter with the
view to simplifying the procedures and making
them transparent, predictable and
standardised, taking into account the best
practices of other regional and international
trade agreements;

(d) consider any other matter as the Parties may

agree related to this Chapter; and

(e) carry out other functions as may be delegated

by the AHKFTA Joint Committee or other

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 higher-level body.

3. The Sub-Committee on Rules of Origin shall be

composed of government representatives of the
Parties, and may invite representatives of non-
governmental entities of the Parties with necessary
expertise relevant to the issues to be discussed, upon
agreement of all Parties.

4. The Sub-Committee on Rules of Origin shall

meet as mutually determined by the Parties. The
meetings of the Sub-Committee on Rules of Origin may
be conducted in person, or by any other means as
mutually determined by the Parties.

5. The Sub-Committee on Rules of Origin shall,

immediately after the date of entry into force of this
Agreement, continue the negotiations on the Product
Specific Rules of the tariff lines listed in Annex 3-3
(Product Specific Rules to be Reviewed).

6. The negotiations referred to in paragraph 5 shall

be concluded within one year from the date of entry into
force of this Agreement, unless otherwise agreed upon
by the Parties. The outcome of the negotiations shall
be incorporated into this Agreement in accordance with
Article 2 (Amendments) of Chapter 14 (Final
Provisions).

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