This article is regarding the India-Australia Economic Co-Operation and Trade Agreement (ECTA) which was signed on April 2nd 2022 and is part of our ongoing series on the historic deal.
As the title of the article suggests, this will cover the rules of origin in reference to the trade agreement between India and Australia. To put it simply, these rules are considered to be highly technical parameters for regulatory purposes, and they determine the economic nationality of any goods. In the FTA, such rules are based on the tariff classification in the harmonized system and on a few other trade factors.
Fundamentally, they're used for the following functions:
- to implement different sorts of commercial policy such as measures of safeguarding.
- to decide whether imported products are eligible for the most-favoured-nation (MFN) treatment.
- to fulfil the labelling and marking requirements.
What Is Their Status in The India-Australia Agreement?
Chapter 4 of the agreement constituting the rules of origin has explained the following subjects. This section contains 11 major subjects which will explain the significance of each rule in detail.
I. Originating Goods
A product shall be considered 'originating' if it is wholly produced in the territory of one or both parties to the agreement, occasionally using non-originating materials. Originating goods are generally divided into the following two categories:
- Goods Not Wholly Produced or Obtained: In an originating good, all non-originating materials should undergo a minimum of one change in tariff sub-heading (CTSH) level of the Harmonized System, and the good's Quality Value Convenience (QVC) should be at least 35% and 45% of the FOB value as per build-up formula and build-down formula respectively and the final production of the manufacturing must be performed within the territory of the exporting Party.
- Goods Wholly Produced or Obtained: Only selected goods would be considered as wholly obtained or produced in the territory of one or both Parties if they belong to the following list. The list is comprised of the following.
- plant and plant goods, including fruit, flowers, vegetables, trees, seaweed, fungi, algae, and live plants grown and harvested, picked, or gathered there.
- live animals born and raised there.
- goods obtained from live animals born and raised there.
- goods obtained by hunting, trapping, fishing, aquaculture, gathering, or capturing there.
- minerals and other naturally occurring substances extracted or taken from the soil or waters, seabed, or subsoil beneath the seabed there.
- fish, shellfish, and other marine life extracted or taken from the sea, seabed, or subsoil beyond the outer limits of the territories of each Party.
- goods produced on board a factory ship registered, listed, or recorded with a Party and entitled to fly the flag of that Party from the goods referred to in subparagraphs
- goods other than fish, shellfish and other marine life extracted or taken from the seabed or subsoil beneath the seabed outside the territorial sea of a Party,
- waste and scrap derived from production or consumption and
- goods produced from products referred to in subparagraphs (a) to (i) or from their derivatives.
II. Accumulation of Originating Goods
As per the ECTA, when exclusively originating goods in one Party's territory are incorporated for goods production in another Party's territory, that shall be deemed as originating in the other territory.
III. Minimal Operations to Confirm Originating Status of Goods
If the non-originating materials go through the following operations to produce a good, those would be insufficient to entitle the goods to get originating status. As per the agreement, those operations are:
- preserving operations to keep goods in good condition for transport or storage.
- packaging or presenting goods.
- simple processes, like screening, sorting, classifying, sharpening, cutting, slitting, grinding, bending, coiling, or uncoiling.
- attaching accessory articles such as straps, beads, cords, rings and eyelets; ironing or pressing of textiles.
- affixing or printing of marks, labels, logos, or other distinguishing signs on goods or their packaging.
- mere dilution with soluble substance without altering the characteristics of the good.
- disassembly of products.
- slaughtering of animals.
- simple painting and polishing.
- simple peeling, stoning, or shelling.
- simple mixing of goods.
IV. Fungible Goods
Fungible goods or materials have identical properties, and these are used interchangeably for commercial purposes. While determining originating goods, it is also important to look if fungible goods come under the same umbrella.
Fungible goods will be treated as originating goods if:
- goods or materials are physically separated; or
- any generally accepted inventory management system is used which must confirm that no extra goods or materials get originating status not derivable from physically segregating the fungible goods.
V. Treatment of Packaging Materials and Containers
Since the status of originating goods is clear from above, it is also important to know how packaging materials are treated. Treatment differs for retail sales and transportation shipment.
Retail sale: The ECTA states that if the materials and containers are classified with the goods, then it would not be a determining factor of whether goods are wholly produced or obtained. If the goods are subjected to QVC, then the value of the packaging materials will be considered for evaluating the value of originating goods.
Transportation and shipment: Containers would not be considered for evaluating whether goods are originating or not.
VI. Certificate of Origin
After determining the originating status of goods, it is also pertinent for the exporters to be aware of the certificate of origin and its related obligations. A Certificate of Origin (CO) is an important international trade document which certifies that goods in a particular export shipment are wholly obtained, produced, manufactured, or processed in a particular country.
The Ind-Aus agreement states:
- The issuing authority of an exporting Party shall issue a Certificate of Origin after the approval of the exporter's application.
- It shall bear an authorised signature and official seal of the issuing body or authority.
A Certificate of Origin shall:
- be in writing or electronic format.
- be in the English language.
- specify that the good is originating and meets the requirements of this Chapter.
- contain minimum information requirements.
- remain valid for 12 months from the date on which it is completed or issued.
- apply to single importation of one or multiple goods provided that each good qualifies as an originating good separately in its own right; and
- bear a unique number, affixed by the issuing body.
Certificate of Origin may indicate two or more invoices issued for single importation.
VII. Procedure of Certification
The following is necessary when following the certification procedure:
- The Certificate of Origin shall be forwarded by the exporter or producer to the importer.
- The Certificate shall be issued within 5 working days of the date of exportation. When it is not issued within 5 days, it may be issued retrospectively no later than 12 months from the date of shipment.
- In cases of theft, loss or accidental destruction of a Certificate, the exporter may make a written request to the issuing body or authority to re-issue the certificate.
A Party shall not need a Certificate of Origin if the importing Party has scraped the need for any such regulation as per their national laws.
VIII. Obligations of the Exporter or Producer Regarding Certification
The exporter or producer shall submit the minimum information requirements, for the issuance of a Certificate of Origin. If any exporter or producer misrepresents any material information, they may get penalised according to the laws of exporting Party. They shall keep the minimum required information, and supporting documents for 5 years, starting from the end of the year of issue of the Certificate of Origin.
If the exporter or producer has reason to believe that the Certificate of Origin is based on incorrect information affecting its accuracy or validity, it shall be their obligation to immediately notify the importer.
IX. Verification of Origin
To determine the originating status of goods, the customs administration of the importing Party may conduct a verification process in the following sequence.
- a written request to be submitted for information from the importers.
- a written request for additional information from the competent authority of the exporting Party to verify the following subjects.
The Custom authority might visit the premises of an exporter or a producer or may follow any other procedures as agreed by the parties.
X. Release of Goods Verification
During verification, the importing Party shall release the goods, subject to payment of any duties or provision of any security.
If the importing Party determines that the good is an originating good, it shall grant preferential tariff treatment to the good and refund any excess duties paid or release any security provided.
XI. Procedure for Verification
For verification, the customs administration needs to follow the steps stated below when the customs administration of the importing Party requests information,
- the issuing body or authority of the exporting Party shall provide the following information within 90 days.
- If the request is on the grounds of suspicion of the accuracy of the determination of the origin of the good, this period can be extended for no more than 60 days.
- if the importing Party is not satisfied with the verification undertaken, it may request the exporter or producer for a verification visit.
- The importing Party shall obtain the written consent of the exporter or producer whose premises are to be visited. If the written consent from the exporter is not received within 30 days, the importing Party may deny preferential treatment on goods.
The exporter or producer shall identify two or more independent witnesses to be present during the verification visit.
The above-mentioned verification visit process including the actual visit and notification of the written determination of the origin of the good shall be completed within a maximum period of six months from the date when the verification visit was conducted.
The ECTA strengthens India's position in the Asia-Pacific Economic Cooperation (APEC) membership and also supports the trilateral Supply Chain Resilience Initiative arrangement to which India and Australia are the parties. Generally, different governments follow a wide variety of rules regarding the rules of origin and the ECTA is no different. Following global trade practices, it is quite necessary to understand the rules of origin because non-compliance with the rules can result in civil, administrative, and criminal sanctions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.