TPP and the EU VN FTA march 2016

CUSTOMS, TRADE & RISK MANAGEMENT SERVICES (VIETNAM) CO., LTD

TPP: The Most Comprehensive and Complex
NAFTA - model FTA
Trade in Goods Chapters – Part I
November, 2015

Summary
The long-awaited full text of the Trans-Pacific Partnership Agreement
(“TPP”) was published on the website of the Office of the U.S. Trade
Representative (“USTR”) and sites of TPP countries on November 5, 2015.
“Full text” does not mean “final text” as, the following disclaimer appears at
the top of pages of the text, with an additional caution about the extremely
important Annexes containing the complex Product-Specific Rules of Origin
(“PSR”) to Chapter 3 (Rules of Origin and Origin Procedures) and Chapter
4 (Textiles and Garments):

“…Subject to Legal Review in English, Spanish and French
for Accuracy, Clarity and Consistency
Subject to Authentication of English, Spanish and French Versions

The product-specific rules of origin (PSR) Annex and its Appendix are subject
to transposition and legal verification by the Parties. The only authentic PSR
are those that are set out in the PSR Annex and Appendix that accompany the
final, signed Agreement.”

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Despite the qualification, the TPP is a very big, very complex, very
technical and, very comprehensive agreement. As predicted in our July
newsletter, it’s trade in goods provisions and origin procedures are based
on the North American Free Trade Agreement (“NAFTA”) model in its most
recent version, the Korea-US FTA, with the exception of provisions for trade
in textiles and garments that more closely resemble the U.S. Central
America – Dominican Republic Free Trade Agreement (“CAFTA-DR”).
Companies and professionals with experience of these agreements will
recognize its structure, however, the TPP reflects years of hard negotiations
by many countries and contains many new provisions, Chapters,
intertwining rules, numerous exceptions and differences from previous
agreements. It is not possible to summarize the many parts of this
agreement in general terms in any single document. As a result, this
newsletter will introduce key elements concerning practical topics that are
most important to companies and traders, for strategic planning,
implementation and compliance purposes. Subsequently, future newsletters
will be devoted to more detailed analyses of specific Chapters and new
rules, as a continuing series.
As predicted by many, Vietnam negotiated special allowances in the
TPP by winning important concessions with respect to “Non-Conforming
Measures” involving periods of transition that will allow for the many changes
it must make with respect to laws, regulations, practices and trade facilitation
reforms. More importantly, Vietnam not only gained very important benefits
in terms of tariff elimination for Vietnam’s exports - it even received a special
“Earned Import Allowance” program from the United States with respect to
textile products, providing an encouragement to make use of imported U.S.
textile materials.
Companies already operating in Vietnam and those planning trade

operations involving goods from Vietnam should begin their detailed

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analyses and strategic planning for how to benefit from TPP now. It will take
time, effort, specialist expertise and resources for companies and traders to
successfully implement the benefits of TPP with respect to their goods.

TPP: Relationship to Other Agreements
Some commentators have written that TPP will supersede or “take the
place of” other trade agreements – it does not. Article 1.2 (1) of Chapter 1
(Relations to Other Agreements) provides:

“Article 1.2: Relations to Other Agreements
… 1. Recognizing the Parties’ intention for this Agreement to coexist with their
existing international agreements, each Party affirms,
(a) in relation to existing international agreements to which all Parties
are party, including the WTO Agreement, its existing rights and
obligations with respect to each other; and
(b) in relation to existing international agreements to which that Party
and at least one other Party are party, its existing rights and
obligations with respect to such other Party or Parties, as the case
may be…”

For companies and traders, this means that goods exported to other

countries continue to be eligible for preferential treatment under existing
FTA’s, multilateral or bilateral trade agreements, if they independently fulfill
the origin eligibility rules of such other agreements. Because the rules of
origin of other FTA’s involve different standards for Regional Value Content
(“RVC”) percentages and different rules for calculation of these, as well as,
different “exceptions” or additional rules, it is often the case that a good may
qualify for preferential treatment under one such agreement and not others.

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For example, goods produced in Canada or Mexico and exported to the
United States may not qualify under NAFTA but, may qualify under TPP. It
is why global companies invest considerable resources and efforts in
developing FTA Certification of Origin databases and supporting recordkeeping procedures, along with use of experts and compliance staffs. These
are necessary to maximize the ability to take advantage of the benefits of
these agreements while mitigating multiple customs and trade compliance
risks.

Scope of TPP Customs Duty Tariff Benefits
The most significant benefits of TPP are found in the Tariff Elimination
Schedules that each member country has negotiated and filed with the
agreement. These list by all of the Harmonized System’s (“HS”) customs
tariff classifications the schedule of duty rates in effect for goods imported
into each TPP member country, along with codes that indicate the timing or
“staging” of reductions of such duties from the time the agreement enters

into force. These are found in Annex 2-D of Chapter 2 of TPP (National
Treatment and Market Access for Goods) and may be reviewed at the
website

of

USTR

at:

/>
agreements/trans-pacific-partnership/tpp-full-text
Readers are advised to review these schedules with great care and
conduct due diligence with qualified professional experts before relying upon
these schedules, with respect to application to their own goods or products.
This is because accurate HS customs tariff classification codes for goods
involve the very technical rules of the Harmonized System as implemented
in each TPP member country’s customs law and, differing applications of
these frequently result in disputes, customs rulings and court cases in a
number of countries. Readers should also carefully review the General
Notes of each TPP member country that will appear in each country’s
customs tariff – these explain the timing or “staging” of tariff elimination and

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may contain additional individual country Notes which can contain
exceptions that can result in a different HS classification for a good, than
that used in the exporter’s country. TPP provides that producers and
exporters will be able to seek advance customs rulings from the customs
authorities in TPP countries to avoid such issues and, it will be prudent to
do so in certain circumstances.
The timing or “staging” of tariff elimination involves codes such as “EIF”
which means that customs duties will be eliminated immediately upon entry
into force of the TPP. A code such as “B2” indicates that customs duties will
be eliminated in two equal installments divided between the year of entry
into force and on January 1 of the second year. “B3” provides for duty
elimination in three equal installments over a three-year period, and so on.
Vietnam’s staging schedule provides for items that will stage down over
sixteen years, while still other categories exist with a staging schedule that
differs in terms of when reductions occur.
What customs duties will be eliminated? Article 1.3 (General
Definitions) makes this clear:

“Article 1.3: General Definitions
…customs duty includes any duty or charge of any kind imposed on or in
connection with the importation of a good, and any surtax or surcharge imposed
in connection with such importation, but does not include any:
(a) charge equivalent to an internal tax imposed consistently with Article
III:2 of GATT 1994;
(b) fee or other charge in connection with the importation commensurate
with the cost of services rendered; and

(c) antidumping or countervailing duty…”

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This means that, while duties and taxes on imports will be eliminated,
domestic national taxes such as VAT will not be eliminated. Customs user
fees will also not be affected (with the exception of the Merchandise
Processing Fee method used by the United States) and, antidumping and
countervailing duties are not included. The TPP does not change the
statuses of either the Agreement on Implementation of Article VI of GATT
1994 (WTO Antidumping Agreement) nor, the Agreement on Subsidies and
Countervailing Measures of GATT 1994, both of which continue to be
applicable to trade in goods by WTO members under TPP.

Rules of Origin – Goods Eligible for Preferential Treatment
Only goods that can be certified to “originate” in TPP countries will
qualify for the preferential treatment of TPP, when imported into TPP
countries from other TPP countries. The rules for qualifying goods are found
in Article 3.2 of Chapter 3 (Rules of Origin and Origin Procedures) of TPP.

“…Article 3.2: Originating Goods
Except as otherwise provided in this Chapter, each Party shall provide that
a good is originating if it is:
(a) wholly obtained or produced entirely in the territory of one or more
of the Parties as established in Article 3.3 (Wholly Obtained or
Produced Goods);
(b) produced entirely in the territory of one or more of the Parties,
exclusively from originating materials; or

(c) produced entirely in the territory of one or more of the Parties using
non-originating materials provided the good satisfies all applicable
requirements of Annex 3-D (Product-Specific Rules of Origin), and
the good satisfies all other applicable requirements of this Chapter.”

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The first two of these rules (Article 3.2(a) and Article 3.2(b)) are called
“general rules of origin” by practitioners. These involve only goods that are
either the agricultural, animal, sea products and mineral commodities, as
well as, scrap, listed in Article 3.3. or, to goods produced exclusively from
originating materials in TPP countries. There can be no non-originating
materials used to produce goods that are to qualify under these rules and,
the producer or exporter must have supporting documentation to prove
these facts in the event of a customs verification (audit) of a certification.
Because the majority of manufactured goods in global trade involve
intermediate goods or finished goods, the number of such goods or products
that are produced with no non-originating materials or components is
limited. As a result, the majority of traded goods will instead either qualify for
eligibility under the Product-Specific Rules of Origin contained in Annex 3-D
of Chapter 3 of the agreement and, in the case of automotive goods, the
additional rules contained in Appendix 1 to this Annex. In the case of textile
and apparel goods, the requirements of Chapter 4 of the agreement and the
Product-Specific Rules of Origin contained in Annex 4-A of Chapter 4, as
well as, the Appendix to the Annex that provides for certain exceptions to

these for non-originating materials in a “Short Supply List of Products”
involving such goods.
The technical complexities of the Product-Specific Rules of Origin
require the application of professional expertise and experience with the
rules of the Harmonized System of customs tariff classification to both
finished goods and to all non-originating materials used to produce these,
as well as, application of Customs Valuation rules for determination of
Regional Value Content percentages under one of several specified
methods of calculation that are subject to specified definitions of the values
to be used for such calculations. These are far beyond the scope of any
newsletter and, it is strongly recommended that a qualified professional be

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engaged to assist producers, exporters or importers with determinations of
the rules applicable to specific goods or products and, with origin certification
procedures and related compliance requirements.

Origin Procedures and Compliance
Certification of Origin Procedures and related compliance processes
are extremely important for companies to understand and prepare for.
Selected provisions concerning these are reproduced below to make it
easier for readers to find these, with highlights and notes added for
emphasis.

“…Article 3.19: Application of Origin Procedures

Except as otherwise provided in Annex 3-A (Other Arrangements), each
Party shall apply the procedures in this Section.
Article 3.20: Claims for Preferential Treatment

1. Except as otherwise provided in Annex 3-A (Other Arrangements), each Party
shall provide that an importer may make a claim for preferential tariff treatment,
based on a certification of origin completed by the exporter, producer or
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importer .
___________________________________________________________________________
2 Nothing

in this Chapter shall prevent a Party from requiring an importer, exporter or producer in its territory
that completes a certification of origin to demonstrate that it is able to support that certification.
3 For

Brunei Darussalam, Malaysia, Mexico, Peru and Viet Nam, implementation of paragraph 1 with respect
to a certification of origin by the importer shall be no later than five years after their respective dates of entry
into force of this Agreement.”

Please note that Vietnam will not allow importers to make claims for
TPP preferential treatment of goods based upon a certification of origin

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completed by an importer in Vietnam, for a period of up to five years after
TPP enters into force with respect to Vietnam.

“Article 3.20: Claims for Preferential Treatment (Continued)
2. An importing Party may:
(a) require that an importer who completes a certification of origin
provide documents or other information to support the certification;
(b) establish in its law conditions that an importer shall meet to complete
a certification of origin;
(c) if an importer fails to meet or no longer meets the conditions
established under subparagraph (b), prohibit that importer from
providing its own certification as the basis of a claim for preferential
tariff treatment; or
(d) if a claim for preferential tariff treatment is based on a certification of
origin completed by an importer, prohibit that importer from making
a subsequent claim for preferential tariff treatment for the same
importation based on a certification of origin completed by the
exporter or producer.
3. Each Party shall provide that a certification of origin:
(a) need not follow a prescribed format;
(b) be in writing, including electronic format;
(c) specifies that the good is both originating and meets the requirements
of this Chapter; and

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(d) contains a set of minimum data requirements as set out in Annex 3-B
(Minimum Data Requirements).
4. Each Party shall provide that a certification of origin may apply to:
(a)

a single shipment of a good into the territory of a Party; or

(b) multiple shipments of identical goods within any period specified in
the certification of origin, but not exceeding 12 months.
5. Each Party shall provide that a certification of origin is valid for one year
after the date that it was issued or for such longer period specified by the laws
and regulations of the importing Party.
6. Each Party shall allow an importer to submit a certification of origin in
English. If the certification of origin is not in English, the importing Party may
require the importer to submit a translation in the language of the importing
Party.
Article 3.21: Basis of a Certification of Origin
1. Each Party shall provide that if a producer certifies the origin of a good, the
certification of origin is completed on the basis of the producer having
information that the good is originating.
2. Each Party shall provide that if the exporter is not the producer of the good,
a certification of origin may be completed by the exporter of the good on the
basis of:
(a) the exporter having information that the good is originating; or
(b) reasonable reliance on the producer’s information that the good is
originating.

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3. Each Party shall provide that a certification of origin may be completed by
the importer of the good on the basis of:
(a) the importer having documentation that the good is originating; or
(b) reasonable reliance on supporting documentation provided by the
exporter or producer that the good is originating.
4. For greater certainty, nothing in paragraph 1 or 2 shall be construed to allow
a Party to require an exporter or producer to complete a certification of origin
or provide a certification of origin to another person.”
In practice, very few exporters or importers will be in a position certify
origin eligibility of goods on the basis of “having information that the good is
originating.” This is typically only possible for very large multinational
manufacturers who have in-house professional compliance staffs who have
implemented sophisticated global trade management IT databases and
procedures and, who primarily trade with related subsidiaries of the
company group involved which use the same IT systems and, whose staffs
have been trained in compliance procedures.
“Having information that the good is originating” really means
maintaining records in document or electronic form to demonstrate to
Customs officers that the goods truly fulfill the rules of origin, either upon
request or, in the course of a verification audit. Such records must be
maintained for a period of five years from the date of the certification of origin
issued and used for a claim for preferential treatment.

Companies experienced with NAFTA-model FTA’s find it prudent to
“reasonably rely” upon producer’s certificates of origin before filing claims
for preferential treatment. Such certifications of origin must be in the

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importer’s possession at the time of filing claims for preferential treatment
with customs declarations.

Minimum Data Requirements for a TPP Certification of Origin
For ease of reference for the reader, selected text of Annex 3-B of
Chapter 3 of the TPP is reproduced below. Readers are cautioned that there
are many obligations, rules and requirements relating to certification of origin
that have not been reproduced and, should rely upon their own or their
advisor’s reviews of the full texts of TPP Chapters, Annexes and
Appendices.

“Annex B: Minimum Data Requirements
A certification of origin that is the basis for a claim for preferential tariff
treatment under this Agreement shall include the following elements:
1. Importer, Exporter or Producer Certification of Origin
Indicate whether the certifier is the exporter, producer or importer in
accordance with Article 3.20 (Claims for Preferential Treatment).
2. Certifier
Provide the certifier’s name, address (including country), telephone

number and e-mail address.
3. Exporter
Provide the exporter’s name, address (including country), e-mail address
and telephone number if different from the certifier. This information is not
required if the producer is completing the certification of origin and does
not know the identity of the exporter. The address of the exporter shall be
the place of export of the good in a TPP country.

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4. Producer
Provide the producer’s name, address (including country), e-mail address
and telephone number, if different from the certifier or exporter or, if there
are multiple producers, state “Various” or provide a list of producers. A
person that wishes for this information to remain confidential may state
“Available upon request by the importing authorities”. The address of a
producer shall be the place of production of the good in a TPP country.
5. Importer
Provide, if known, the importer’s name, address, e-mail address and
telephone number. The address of the importer shall be in a TPP country.
6. Description and HS Tariff Classification of the Good
(a) Provide a description of the good and the HS tariff classification of the
good to the 6-digit level. The description should be sufficient to relate
it to the good covered by the certification; and
(b) If the certification of origin covers a single shipment of a good,

indicate, if known, the invoice number related to the exportation.
7. Origin Criterion
Specify the rule of origin under which the good qualifies.
8. Blanket Period
Include the period if the certification covers multiple shipments of identical
goods for a specified period of up to 12 months as set out in paragraph
3.20.4 (Claims for Preferential Treatment).

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9. Authorized Signature and Date:
The certification must be signed and dated by the certifier and accompanied
by the following statement:
I certify that the goods described in this document qualify as originating and the
information contained in this document is true and accurate. I assume
responsibility for proving such representations and agree to maintain and
present upon request or to make available during a verification visit,
documentation necessary to support this certification.”

Conclusion
This newsletter is the first in a series of TPP materials that will be
provided. These will cover key topics in these and other Chapters of the
agreement on an individual basis, to provide practical and useful information
of interest to companies and traders concerning TPP. It is strongly
recommended that companies and traders who wish to enjoy the trade

benefits of TPP start their preparations at this time, regardless of when
ratification and entry into force of the agreement will occur. This
recommendation is based upon the actual experience of a very large
multinational consumer products company that implemented NAFTA for
hundreds of products involving thousands of materials. The development of
corporate compliance procedures, databases, expert analyses, supplier
solicitations of certifications of origins of materials and components involved
dedicated efforts and resources for a period of one year. As a result, it was
the first such company program to receive 100% compliance verification by
the customs services of Canada and the United States.

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Disclaimer
All information provided is of a general nature and is not intended to
address the circumstances of any particular individual or entity. Although we
endeavor to provide accurate and timely information, there can be no
guarantee that such information is accurate as of the date it is received or
that it will continue to be accurate in the future.
No one should act upon such information without appropriate
professional advice after a thorough examination of the facts of their
particular situation. Liability claims regarding damage caused by the use or
disuse of any information provided, including any kind of information which
is incomplete or incorrect, will therefore be rejected, if not generated
deliberately or grossly negligent.

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CUSTOMS, TRADE & RISK MANAGEMENT SERVICES (VIETNAM) CO., LTD

TPP: The Most Comprehensive and Complex
NAFTA - model FTA
Trade in Goods Chapters – Part II
December, 2015

Summary

As reported in our November newsletter (“TPP - Trade in Goods
Chapters Part I”), the full text of the Trans-Pacific Partnership Agreement
(“TPP”) was published on the website of the Office of the U.S. Trade
Representative and sites of TPP countries on November 5, 2015. This
newsletter will continue our focus upon key elements of TPP on practical
topics that are important to companies and traders, for strategic planning,
implementation and compliance purposes. Future newsletters in our series
on TPP will continue to provide more detailed analyses of the numerous new
rules that are intertwined with equally numerous “exceptions” in various
Chapters and Annexes of TPP.
Companies already operating in TPP countries and those planning
trade operations involving trade benefits in TPP countries, should begin their
detailed reviews and strategic planning for how to benefit from TPP now. It
will take time, effort, specialist expertise and dedicated resources for
companies and traders to successfully implement the benefits of TPP with
respect to their goods. Why should companies begin detailed analysis and
strategic planning now and, why will a series of newsletters be necessary?

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The answers to these questions will become apparent with a single image
that saves many words of explanation.
Below is an image of the printed full text of the agreement on the desk
of U.S. Senator Jeff Sessions of Alabama – the printed version of TPP is
almost a meter high and consists of 5,544 pages that weigh approximately

45 kilos.

The need to make dedicated efforts and get expert help will also
become more apparent with our introductory basic primer focusing on the
TPP’s Rules of Origin (“ROO”), that is provided with this December
newsletter.
In reality, even the 5,544 pages of TPP are insufficient to convey its
comprehensiveness and technical complexity. This is because the ProductSpecific Rules of Origin of TPP embed additional hundreds of pages of rules
of the Harmonized System of customs tariff classification, as well as, the
rules of the Customs Valuation Agreement of GATT 1994. These must also
be referred to, understood and, accurately applied to a company’s specific
goods and factual situation. Readers are cautioned that there are very many

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obligations, rules, exceptions and requirements relating to TPP that have
not been reproduced in the basic primer that follows and, should instead rely
upon their own or their advisor’s detailed reviews of the full texts of relevant
TPP Chapters, Annexes and Appendices.

Rules of Origin – Goods Eligible for Preferential Treatment
Only goods that can be certified to “originate” in TPP countries will
qualify for the preferential treatment of TPP, when imported into TPP
countries from other TPP countries. What are goods that “originate” for
purposes of this and similar free trade agreements? Very simply, a good that

fulfills the applicable Rule of Origin of TPP will be considered to “originate”
in a TPP country and, as a result, will be eligible for preferential trade
benefits. This is subject to an important proviso that, (i) compliance with all
other requirements for TPP certification of origin, (ii) record-keeping and (iii)
trade procedures are fulfilled in the countries of export and import of the
goods.
Goods that are assembled or produced in a TPP country may well
routinely be reported with that country being the “country of origin” of the
good for many other trade purposes. This may include reporting upon export
documents, certificates of origin for other trade purposes, product labeling,
statistics reporting and other similar requirements. However, this does not
mean that such goods will automatically be considered to “originate” for
TPP purposes and qualify for TPP benefits. Eligibility for TPP trade benefits
occurs if, and only if, a good that is produced and exported fulfills the
applicable Rule of Origin of TPP and, all other trade procedures and TPP
certification of origin compliance requirements are fulfilled.

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Rules of Origin – “General Rules”
The rules for qualifying goods are found in Article 3.2 of Chapter 3
(Rules of Origin and Origin Procedures) of TPP. Selected provisions for
“Wholly Obtained or Produced” goods are reproduced below for ease of
reference by readers.

“…Article 3.2: Originating Goods
Except as otherwise provided in this Chapter, each Party shall provide that
a good is originating if it is:
(a) wholly obtained or produced entirely in the territory of one or more
of the Parties as established in Article 3.3 (Wholly Obtained or
Produced Goods);
(b) produced entirely in the territory of one or more of the Parties,
exclusively from originating materials; or
(c) produced entirely in the territory of one or more of the Parties using
non-originating materials provided the good satisfies all applicable
requirements of Annex 3-D (Product-Specific Rules of Origin), and
the good satisfies all other applicable requirements of this Chapter.”
The first two of these rules (Article 3.2(a) and Article 3.2(b)) are
informally called “general rules of origin” by practitioners. These involve only
goods that are either the agricultural, animal, sea products and mineral
commodities, as well as, scrap, listed in Article 3.3. or, to goods produced
exclusively from originating materials derived from these in TPP countries.
There can be no non-originating materials used to produce goods that are
to qualify under these rules and, the producer or exporter must have

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supporting documentation to prove these facts in the event of a customs
verification (audit) of a certification.

“…Article 3.3: Wholly Obtained or Produced Goods
Each Party shall provide that for the purposes of Article 3.2 (Originating
Goods), a good is wholly obtained or produced entirely in the territory of one or
more of the Parties if it is:
(a) a plant or plant good, grown, cultivated, harvested, picked or gathered
there;
(b) a live animal born and raised there;
(c) a good obtained from a live animal there;
(d) an animal obtained by hunting, trapping, fishing, gathering or
capturing there;
(e) a good obtained from aquaculture there;
(f)

a mineral or other naturally occurring substance, not included in
subparagraphs (a) through (e), extracted or taken from there;

(g) fish, shellfish and other marine life taken from the sea, seabed or
subsoil outside the territories of the Parties and, in accordance with
international law, outside the territorial sea of non-Parties by vessels
that are registered, listed or recorded with a Party and entitled to fly
the flag of that Party;
(h) a good produced from goods referred to in subparagraph (g) on board
a factory ship that is registered, listed or recorded with a Party and
entitled to fly the flag of that Party;

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(i)

a good other than fish, shellfish and other marine life taken by a Party
or a person of a Party from the seabed or subsoil outside the
territories of the Parties, and beyond areas over which non-Parties
exercise jurisdiction provided that Party or person of that Party has
the right to exploit that seabed or subsoil in accordance with
international law;

(j)

a good that is:
(i)

waste or scrap derived from production there; or

(ii) waste or scrap derived from used goods collected there, provided
that those goods are fit only for the recovery of raw materials;
and
(k) a good produced there, exclusively from goods referred to in
subparagraphs (a) through (j), or from their derivatives.

Very careful attention to details is necessary to accurately apply these
rules to a company’s or trader’s situation and goods. For example, the rules
in Article 3.3 (j)(ii) and (k) that deal with waste or scrap provide one of
numerous “exceptions” to be alert to, when dealing with the TPP ROO.
Used goods collected in a TPP country may well have originated in a nonTPP country and, are then recycled in the TPP country for recovery of
valuable raw materials. The valuable raw materials extracted from the scrap

goods are next used to produce a new product or good in a TPP country. In
such a case, the good may well qualify for TPP treatment under the “wholly
obtained” ROO, despite the fact that it may be derived from scrap goods of
a non-TPP origin providing, all other requirements are met.

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Rules of Origin – Advance Rulings
Because there may exist “close” (or unclear) circumstances in
determining whether a particular producer’s or exporter’s goods will qualify
or not under an ROO or, for an “exception,” producers and exporters in a
TPP country are advised to work with a qualified professional to apply for
and obtain an Advanced Customs Ruling (see our September newsletter),
from the customs authorities in the destination TPP country of import of their
goods. An advance customs ruling provides the producer and exporter in a
TPP country with reliable guidance as to whether their good will qualify or
not and, it provides the buyer / importer in the TPP country of import with a
written official determination that is binding on customs authorities in the
country of import. This is very important to avoid the risks of possible
retroactive denial of TPP treatment for the goods in the country of import by
customs verification officers, who discover errors with application of the
ROO in a certification, with possible imposition of unforeseen additional
duties and stiff customs penalties.
Taking advantage of the guidance and binding effect of advanced
rulings is strongly recommended as a best practice for producers, exporters

and importers whose strategic business plans are based in part upon the
trade benefits of TPP, particularly if they wish to issue or obtain so-called
“blanket” certificates of origin for TPP purposes that cover identical goods
for a period of up to one year. In such circumstances, the retroactive risks
involved with erroneous or false certifications of origin and related claims for
preferential TPP treatment by the importer can be very significant and, very
damaging to a company’s business and reputation. In today’s global supply
chain environment, significant buyers and importers in TPP countries will
require a high standard of informed compliance from producers and
exporters in TPP countries.

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Article 5.3 in Chapter 5 of TPP requires that the customs authorities of
TPP countries must provide advance customs rulings to importers in the
TPP country concerned, as well as, to producers and exporters in the TPP
country of export with respect to:

“...
(a) tariff classification; (HS customs tariff classification or ‘code’ for a
good)
(b) the application of customs valuation criteria for a particular case in
accordance with the Customs Valuation Agreement;
(c) whether a good is originating in accordance with Chapter 3 (Rules of
Origin and Origin Procedures);...”

As explained in our August newsletter, free trade is not really “free”
under trade agreements such as TPP – they have teeth.

“...Article 5.8: Penalties
1.

Each Party shall adopt or maintain measures that allow for the imposition
of a penalty by a Party’s customs administration for a breach of its customs
laws, regulations or procedural requirements, including those governing
tariff classification, customs valuation, country of origin and claims for
preferential treatment under this Agreement...”
In practice, this means that TPP countries will subject producers,

exporters and other persons who issue TPP certifications of origin that are
later determined to be false, to the same customs penalty risks as those
faced by importers, who claim preferential treatment with their import
declarations. In certain cases, these may be required to be significantly
increased in order to provide a deterrent to customs and related trade fraud

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under TPP. The huge trade benefits and opportunities for economic growth
to be enjoyed by legitimate businesses and traders as a result of agreements
like TPP cannot be secured in an environment of rampant trade fraud and,
experience in over two decades with NAFTA-model agreements has

confirmed that high standards of compliance are necessary to their success.

Product-Specific Rules of Origin
Because the majority of manufactured goods in global trade involve
intermediate goods or finished goods, the number of such goods or products
that are produced with no non-originating materials or components is quite
limited. As a result, the majority of traded goods will instead qualify for
eligibility under the Product-Specific Rules of Origin contained in Annex 3-D
of Chapter 3 of the TPP and, in the case of automotive goods, the additional
rules contained in Appendix 1 to this Annex. In the case of textile and apparel
goods, they must qualify under requirements of Chapter 4 of the TPP and
the Product-Specific Rules of Origin contained in Annex 4-A of Chapter 4,
as well as, the Appendix to the Annex that provides for certain exceptions to
these for non-originating materials in a “Short Supply List of Products”
involving such goods.
The technical complexities of the Product-Specific Rules of Origin
require the application of professional expertise and experience with the
rules of the Harmonized System of customs tariff classification to both
finished goods and to all non-originating materials used to produce these,
as well as, application of Customs Valuation rules for determination of
Regional Value Content percentages, under one of several specified
methods of calculation that are subject to specified definitions of the values
to be used for such calculations.

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An example of a Product-Specific Rule of Origin in TPP’s Annex 3-D of
Chapter 3 for “Spark-ignition reciprocating or rotary internal combustion
piston engines” of the type used in motorbikes and motorcycles reads, as
follows:

8407.31 - 8407.32 A change to a good of subheading 8407.31 through
8407.32 from any other heading; or
No change in tariff classification required for a good of
subheading 8407.31 through 8407.32, provided there is a
regional value content of not less than:
(a) 35 per cent under the build-up method; or
(b) 35 per cent under the net cost method; or
(c) 45 per cent under the build-down method.
In this example, the producer in a TPP country of the motorbike engines
which typically have many parts, components or materials that may come
from multiple countries of origin, must know (and be able to prove) the origin
of each such part or component, as well as, accurately determine the HS
customs tariff classification of each such part or component to at least the
six-digit HS subheading level. Once this is determined, the producer’s
manufacturing or production process in the TPP country must cause a
change in HS tariff classification for each and every non-originating (nonTPP) part, component or material that is used, from its individual four-digit
level HS tariff heading classification, to the appropriate six-digit level HS
subheading classification of the finished motorbike engines.
For goods such as motorbike engines that are manufactured or
produced through an extensive manufacturing process, the producer may
well be able to qualify the engines under this first part of the relevant
Product-Specific Rule of Origin. However, in the situation where a producer

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