RULES OF ORIGIN TRAINING MODULES
PART A. TUTORIAL
Module 2 - How do Rules of Origin Work
This module comprises three topics which explain how Rules of Origin (ROO) work.
• Topic 1 introduces certain terminology that is used in ROO. Before you can fully understand
ROO you have to understand the ROO Terminology.
• Topic 2 discusses how to identify the good that is being produced. It is important to identify
the good so that you can then determine which ROO applies to that particular good. As
goods are identified using the Harmonized System (HS) the HS is also explained.
• Topic 3 discusses the different types of ROO that are used in the Agreement Establishing
the ASEAN-Australia-New Zealand Free Trade Area (AANZFTA).
• Topic 2 -1: Terminology
The following are definitions that are used within ROO.
‘In a Party’
‘In a Party’ means 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. Within AANZFTA there are 12 Parties, the ten ASEAN countries, Australia and
New Zealand.
Material
A material is any matter or substance:
• used or consumed in the production of a good;
• physically incorporated into a good; or
• subjected to a process in the production of a good.
A material is therefore a good in its own right which can be traded, but when it is used in the
production of a good it is a material.
Good
A good is the product that is produced or manufactured from materials and may either be a good for
final sale to consumers or itself an input (material) for use in production of another good.
Differentiating between a material and a good
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Timber is a material used to make doors. The doors are the good. If those doors are subsequently
used in the manufacture of a cabinet, then the doors become the materials and the cabinet
becomes the good.
Originating material
An originating material is a material that qualifies as originating under the ROO in AANZFTA and is
used in the production of a good.
Non-originating material
A non-originating material is a material that does not qualify as originating under AANZFTA. It is a
material or component imported from a country outside the AANZFTA territory or materials
produced in the AANZFTA territory that, because of ROO. Any material of unknown or unconfirmed
origin should always be treated as nonoriginating. The concept of non-originating materials is
important in determining origin because it is the non-originating materials that have to satisfy the
requirements of the CTC ROO.
AANZFTA Originating good
A good is an AANZFTA originating good if it is:
• wholly produced or obtained in a Party as provided in Article 3 (Goods Wholly Produced or
Obtained) of Chapter 3 (Rules of Origin);
• not wholly produced or obtained in a Party provided that the good has satisfied the
requirements in Article 4 (Goods Not Wholly Produced or Obtained) of Chapter 3 (Rules of
Origin); or
• produced in a Party exclusively from originating materials from one or more of the Parties
and meets all other applicable requirements of Chapter 3 (Rules of Origin).
Note that only an originating good is entitled to preferential tariff treatment under AANZFTA.
Good imported from another AANZFTA Party
Just because a good (or a material) has been imported from another AANZFTA Party does not
make it originating.
To be originating the good must meet the requirements of AANZFTA Chapter 3 (Rules of Origin).
That is it must meet the required ROO and be imported with an AANZFTA Certificate of Origin
(COO).
Non-originating good
A non-originating good is one that does not comply with the ROO requirements of AANZFTA. A
non-originating good or material originates from a country that is not an AANZFTA Party or which is
produced in an AANZFTA Party but, because of the low level of substantial transformation used to
produce it, does not meet the ROO.
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A non-originating good is not eligible for preferential tariff treatment under AANZFTA.
Product Specific Rule
A Product Specific Rule (PSR) is the origin test that applies to goods of each tariff classification
within the Harmonized Commodity Description and Coding System (HS).
In AANZFTA the PSRs are referred to in Article 4 (Goods Not Wholly Produced or Obtained) of
Chapter 3 (Rules of Origin) and are contained within Annex 2 (Product Specific Rules).
The PSRs specify that the materials used to produce a good have:
• undergone a Change in Tariff Classification (CTC);
• satisfied a Regional Value Content (RVC) threshold;
• completed a Specific Process of Production; or
• satisfied a combination of any of these ROO.
Change in Tariff Classification
The concept of CTC means that a non-originating material used in the production of a good must
not have the same classification under the HS as the final good into which it is incorporated. The
non-originating material must undergo a specified CTC within the territory of the exporting
AANZFTA Party for it to be considered as originating in the country of export.
The CTC requirement is applied only to non-originating materials.
Regional Value Content
The RVC is a threshold which corresponds to a specified percentage of the Free on Board (FOB)
value of the exported good.
Under a RVC a specified proportion of the final value of the good must come from within an
AANZFTA Party.
Specific Process of Production
Specific Process of Production ROO require that the non-originating materials undergo a specified
manufacturing or production process in an AANZFTA Party for the good to be classed as an
originating good.
• Topic 2 -2: How to identify the good being produced
Before you can determine if a good meets the ROO, making it an originating good eligible for
preferential tariff treatment, you must identify the good in regard to the HS.
The Harmonized System
The HS is an internationally standardised system of names and numbers for classifying traded
products developed and maintained by the World Customs Organization (WCO), an independent
International organisation with over 170 member countries.
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The World Customs Organization
The WCO is an International organisation headquartered in Brussels, Belgium. With its worldwide
membership, the WCO is recognised as the voice of the global customs community. It is particularly
noted for its work in areas covering the development of international conventions, instruments, and
tools on topics such as commodity classification, valuation, ROO, collection of customs revenue,
supply chain security, international trade facilitation, customs enforcement activities, combating
counterfeiting in support of Intellectual Property Rights, integrity promotion, and delivering
sustainable capacity building to assist with customs reforms and modernisation. The WCO
maintains the international HS goods nomenclature, and administers the technical aspects of the
World Trade Organization (WTO) Agreements on Customs Valuation and Rules of Origin.
Under the HS Convention, the contracting parties are obliged to base their tariff schedules on the
HS nomenclature, although parties set their own rates of duty.
The HS is organised into 21 sections and 96 chapters, accompanied with general rules of
interpretation and explanatory notes. The system begins by assigning goods to categories of raw
materials and natural goods, and from there proceeds to categories with increasing complexity, i.e.
unworked goods, then semi-finished goods, and finally finished goods.
Chapters are numbered with two digits (e.g., 01), headings with four digits (e.g., 0101) and
subheadings with six digits (e.g., 0101.99). The number of digits therefore always indicates clearly
how a tariff item fits into the hierarchy of the HS.
The HS sets out the international classification of goods at the 6-digit level. In National tariffs,
individual countries are allowed to use extra digits to set their tariffrates.
The chapter, heading and subheading numbers for any good are identical in all countries using the
HS. For this reason the Change in Tariff Classification ROO does not extend beyond the six-digit
subheading level.
"Chapter" the first two digits of the classification in the Harmonized System (HS)
nomenclature.
"Heading" the first four digits of the classification in the Harmonized System (HS)
nomenclature.
"Subheading" the first six digits of the classification in the Harmonized System (HS)
nomenclature.
"CC" means change from any other chapter.
"CTH" means change from any other heading.
"CTSH" means change from any other subheading.
"CTHS" means change to this split heading from any other split of this heading or from any
other heading;
"CTSHS" means change to this split subheading from any other split of this subheading or
from any other subheading or heading.
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Section (21 categories)
Chapter (99 categotries)
Heading (1400 categories)
Sub-heading (5000 categories)
Code Section Level HS 2 HS 4 HS 6
01 1 2 01 Live animals
01.01 4 0101 Live horses, asses, mules and hinnies
0101.10 6 0101.10 Pure-bred breeding animals
0101.10.10 National sub-division
The hierarchy of the Harmonized System
The HS is organised into chapters (two-digit level), headings (four-digit level) and subheadings (six-
digit level). Here is an example:
47 Pulp of wood or of other fibrous cellulosic material; recovered (waste and scrap)
paper and paperboard
4703 Chemical wood pulp, soda or sulphate, other than dissolving grades
4703.11 Unbleached - coniferous
So how does an exporter find the HS code for the good they wish to export? The first person to
seek guidance from is their Customs Broker who prepares their export documentation. This
documentation usually contains the HS code for the good being exported. Alternatively, the exporter
can seek advice from the relevant Customs Authority.
The AANZFTA web site created by the ASEAN Secretariat contains an AANZFTA Tarff Finder. This
assists exporters, traders, and others to find the HS code for their good. The Tariff Finder works by
just typing the name of the product. The Tariff Finder then displays any HS code that contains the
name of the good. The exporter then selects the code that matches their good. The Tariff Finder
also displays the applicable tariff rates for each country and assists in finding the applicable PSR for
each tariff line.
Additional examples of the hierarchy of the Harmonized System
The HS for Chapter 10, heading 1006, and subheading 1006.10
10 Cereals
1006 Rice
1006.10 Rice in the husk (paddy or rough)
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The HS for Chapter 20, heading 2002, and subheadings 2002.10 and 2002.90
20 Preparations of vegetables, fruit, nuts, or other parts of plants
2002 Tomatoes prepared or preserved otherwise than by vinegar or acetic acid
2002.10 Tomatoes, whole or in pieces
2002.90 Other
The HS for Chapter 52, heading 5204, and subheadings 5204.11, 5204.19 and 5204.20
52 Cotton
5204 Cotton sewing thread, whether or not put up for retail sale
5204.11 Not put up for retail sale: containing 85 % or more by weight of cotton
5204.19 Not put up for retail sale: other
5204.20 Put up for retail sale
The HS for Chapter 52, heading 5207, and subheadings 5207.10 and 5207.90
52 Cotton
5207 Cotton yarn (other than sewing thread) put up for retail sale
5207.10 Containing 85 % or more by weight of cotton
5207.90 Other
The HS for Chapter 78, heading 7802, and subheading 7802.00
78 Lead and articles thereof
7802.00 Lead waste and scrap
• Topic 2 -3: Different types of ROO in the Preferential Trade
Agreement
Article 2 (Originating Goods) of Chapter 3 (Rules of Origin) details what goods under the AANZFTA
can be classed as an originating good.
Article 2
Originating Goods
1. For the purposes of this Chapter, a good shall be treated as an originating good if it is either:
(a) wholly produced or obtained in a Party as provided in Article 3 (Goods Wholly Produced or
Obtained);
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(b) not wholly produced or obtained in a Party provided that the good has satisfied the
requirements of Article 4 (Goods Not Wholly Produced or Obtained); or
(c) produced in a Party exclusively from originating materials from one or more of the Parties,
and meets all other applicable requirements of this Chapter.
2. A good which complies with the origin requirements of Paragraph 1 will retain its eligibility for
preferential tariff treatment if exported to a Party and subsequently re-exported to another
Party.
AANZFTA has a number of different types of ROO for determining if a good is an AANZFTA
originating good. These ROO are:
• wholly produced or obtained goods ROO;
• goods produced in a Party exclusively from originating materials from one or more of the
Parties; and
• a system for determining the origin of manufactured goods:
o the “General Rule”; and
o the “Annex of Product Specific Rules”.
Article 4 (Goods Not Wholly Produced or Obtained) of Chapter 3 (Rules of Origin) explains how the
“General Rule” and Annex of PSR interact and work within AANZFTA. Article 4 (Goods Not Wholly
Produced or Obtained) directs users to look up the HS code for the good in the Annex of PSR to
ascertain if a specific PSR is listed.
If no ROO is indicated in the Annex of PSR for the particular HS code, then the “General Rule” will
apply (Article 4.1).
The “General Rule” is either:
• a RVC of 40 per cent (this is explained in detail in Module 4); or
• a Change in Tariff Heading (CTH) (this is explained in detail in Module 5).
The “General Rule” has co-equal rules which means that to qualify as originating, the good is only
required to meet one of these rules. The decision on which ROO to use is a choice provided to the
manufacturer/producer of the good.
If a rule is indicated for any particular HS code in the Annex of PSR then the ROO will apply (Article
4.2). Column 4 of the Annex of PSR lists the ROO that must be met for the good to be an originating
good. The Annex of PSR contains a number of different types of ROO that must be met for the good
to be an originating good.
Article 4
Goods Not Wholly Produced or Obtained
1. For the purposes of Article 2.1(b) (Originating Goods), except for thosegoods covered under
Paragraph 2, a good shall be treated as an originating good if:
a. the good has a regional value content of not less than 40 per cent of FOB calculated using
the formulae as described in Article 5 (Calculation of Regional Value Content), and the final
process of production is performed within a Party; or
b. all non-originating materials used in the production of the good have undergone a change
in tariff classification at the four-digit level (i.e. a change in tariff heading) of the HS Code in
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a Party.
2. In accordance with Paragraph 1, a good subject to Product Specific Rules shall be treated as
an originating good if it meets those Product Specific Rules.
3. For a good not specified in Annex 2 (Product Specific Rules), a Party shall permit the producer
or exporter of the good to decide whether to use Paragraph 1(a) or (b) when determining if the
good is originating.
4. If a good is specified in Annex 2 (Product Specific Rules) and the relevant provisions of that
Annex provide a choice of rule between a regional value content based rule of origin, a change
in tariff classification based rule of origin, a specific process of production, or a combination of
any of these, a Party shall permit the producer or exporter of the good to decide which rule to
use in determining if the good is originating.
These different types of ROO are explained in detail in:
• Module 3 (Wholly Produced or Obtained Goods);
• Module 4 (General Rule - RVC Rule);
• Module 5 (General Rule - CTC Rule);
• Module 6 (Specific Process of Production Rule); and
• Module 7 (Product Specific Rules Annex).
To find the AANZFTA ROO for a particular good, these steps should be followed.
Each of these steps is explained in further detail in the diagram.
Step 1: Check whether the good meets AANZFTA requirements for a wholly obtained or
produced good as set out in Article 3 (Wholly Produced or Obtained Goods) of the
Chapter 3 (Rules of origin), or is produced in a Party exclusively from originating
materials from one or more of the Parties in accordance with Article 2.1(c). If the
good meets these requirements then it is deemed to be an AANZFTA originating
good. If the good does not meet these requirements, proceed to Step 2.
Step 2: Check whether the good is covered by the Product Specific Rules (PSR) set out in
Annex 2 of the Agreement. If the good is covered by one of the HS subheadings
listed in Annex 2, then it needs to meet the PSR set out in Column 4 of this Annex to
be deemed to be an AANZFTA originating good. If the good is not covered by Annex
2, proceed to Step 3.
Step 3: For goods not covered by Step 1 or Step 2, the General Rule set out in Article 4.1 of
the ROO Chapter applies. This General Rule provides that a good will be deemed to
be AANZFTA originating if it meets either of the following alternative RVC or CTC
rules:
- it has an RVC of not less than 40 per cent of the FOB value, and the final
process of production has been performed in an AANZFTA Party; or
- all non-originating materials used in its production have undergone a change in
tariff classification at the four-digit level (i.e. a change in tariff heading) within the
AANZFTA Parties.
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