Unlocking the Benefits: CPTPP - Rules of Origin

Sep 18, 2024

8 min read

We will break down all the relevant provisions of the Free Trade Agreement. Today, we will focus on Rules of Origin.

What is the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (CPTPP)?

The Indo-Pacific region has become the leading hub of economic growth, providing vast opportunities for trade and expansion. Eligible businesses can leverage the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) to stay ahead of the global competition. This free trade agreement between Canada and 10 other countries in the Indo-Pacific region, including Australia, Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam and the UK. It can help businesses to tap into a broader market and grow their business.

1. What are the Rules of origin and origin procedures in CPTPP?

Rules of origin and origin procedures under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) Rules of origin and origin procedures are a crucial component of any free trade agreement (FTA). They help traders and participating countries determine whether a particular good qualifies for preferential tariff treatment under the Agreement.

Top Tip: Watch Our Videocast On Rules Of Origin To Get Started With Rules of Origin. Part 1 https://www.customsmanager.info/post/demystifying-rules-of-origin-a-videocast-guide-part-1

The rules of origin in the CPTPP ensure that only goods meeting the production standards within the free trade area qualify for preferential tariff treatment. Goods that don't meet these rules are considered non-originating and therefore ineligible for preferential tariffs under the CPTPP.

The CPTPP countries have worked together to establish clear and simple rules of origin that leave little room for administrative discretion. These rules are also designed to reflect CPTPP country supply chains and production processes, allowing for the fullest extent of eligibility for preferential tariff treatment while promoting each party's respective sectoral interests.

To ensure compliance with these rules, origin procedures have been put in place, which include obligations for importers, exporters, and producers, and common approaches for certification of origin, record keeping, and origin verification.

2. Key provisions—Section A: Rules of origin under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)

2.1 Originating goods

The originating goods article sets out three basic rules for determining whether a good is originating. For goods to be considered originating, they must

either be wholly obtained - grown, raised, caught, or extracted - within a CPTPP country;
produced entirely in a CPTPP country using originating materials;
or made in a CPTPP country from non-originating materials that have undergone production in a CPTPP country, satisfying the applicable product-specific rule of origin (PSRO) as outlined in Annex 3-D.

2.2. General rules of origin

2.2.1 Absorption Principle

The articles clarify that materials that qualify as originating will be considered as originating when they are utilized in the production of another good in a CPTPP party.

2.2.2 Accumulation

If a material is produced in any CPTPP country, then it will be considered as originating when it is used to produce a good in another CPTPP country. Moreover, any production carried out in a CPTPP country on a non-originating material can be counted towards the originating status of the goods that are subsequently produced using that material.

2.2.3 De minimis

A good that does not qualify as originating is to be treated as originating if the value of the non-originating materials used in production is less than 10% of the value of the good.

2.2.4 Fungible goods or materials

If there are materials that cannot be distinguished for origin purposes, such as oil or grains, the Agreement allows producers to store them together. However, in order to determine the originating status of the goods made using such materials, an inventory management system can be used to determine the proportion of materials that are originating. Similarly, for goods that have been stored in a way that led to the commingling of originating and non-originating goods, an inventory management system can be used to demonstrate that certain goods are originating.

2.2.5.Transit and transshipment

Goods that qualify as originating under the CPTPP rules of origin may be transited through a non-party under the transit and transhipment article. However, they must not undergo any production outside a CPTPP country except for unloading, reloading, or operations necessary to preserve them or transport them to the other party. Additionally, goods that transit through a non-party or are stored outside a CPTPP party must be under customs control at all times to retain their originating status.

2.2.6. Other provisions

Materials such as accessories, spare parts, tools and instructional materials, packaging materials, and packing materials are disregarded for origin purposes if the good is subject to a tariff shift PSRO. However, if a good is subject to a PSRO with a value requirement, the value of these materials, if non-originating, is taken into account in determining whether the good is originating.

2.3. Product-specific rules of origin

In order for a produced good to be considered originating, as per the CPTPP PSROs mentioned in Annex 3-D, all non-originating materials must undergo changes. The PSRO offers two options for many goods.

The first option requires a change to the tariff classification of the good but excludes the use of certain non-originating materials.
The second option allows for the use of excluded non-originating materials if a regional value content (RVC) requirement is met.

The Agreement provides four calculation methodologies for determining if a good satisfies an RVC requirement:

Build-down method: based on the value of all non-originating materials used in production, relative to the value of the good
Focused value method: based on the value of certain non-originating materials used in production, relative to the value of the good
Build-up method: based on the value of originating materials used in production, relative to the value of the good
Net cost method: based on the cost of all non-originating materials used in production, relative to the total cost of the good. Net cost only applies to certain automotive goods.

Article 3.9 provides additional information and definitions concerning the net cost method. There are three articles which outline the requirements for PSROs that have value requirements.

These articles cover the materials used in production, the value of materials used in production, and further adjustments to the value of materials.

To note: The CPTPP PSRO annexe includes an additional section that outlines rules of origin for passenger cars, light trucks, and their parts. The annexe also provides an appendix that sets out specific manufacturing operations for certain parts to obtain originating status. For instance, an engine may acquire originating status if it undergoes a complex assembly operation in a CPTPP party, and a body panel may attain originating status if it gets stamped in a party. The appendix also imposes limits on the value of materials that can be included in the RVC of a vehicle based on these operations.

3. Key provisions—Section B: Origin procedures under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)

3.1. Certification of origin

To certify that a good meets the rules of origin, a proof of origin is required, which is called a certification of origin. This certification includes a set of minimum data requirements that are listed in an annex of the origin procedures. The certification of origin can be added to any document, including an invoice, and it doesn't need to follow a specific format.

In contrast to other FTAs, the CPTPP allows the importer, exporter, or producer to complete the certification of origin. The parties must accept electronic certification of origin provided that it contains the minimum data requirements mentioned in the origin procedures. A single certification of origin can also be used for multiple shipments of identical goods for up to one year.

The requirement for the certification of origin is waived if the value of the goods is below US$1,000 or the equivalent in the importing country's currency. In Canada, the prescribed certification of origin is waived for commercial goods valued at Can$1,600 or less. However, the importer must have a commercial invoice with a statement that the good is originating. The requirement for the certification of origin may also be waived or not required by the importing party. Usually, Customs does not require the certification of origin to be presented at the time of importation. Even the requirement for a certification of origin for casual goods (non-commercial goods acquired in a CPTPP country not intended for resale) may be waived, depending on national requirements.

3.2. Importer obligations

Importers who wish to claim preferential tariff treatment upon importation must declare that they possess the required certification of origin. Upon request, they must also provide a copy of said certification. If the importer becomes aware of incorrect information in the certification of origin that affects the originating status of the good, they must immediately notify the customs authority. This correction should be made by updating the import declaration and payment of any duties owed. Importers will not be penalized for making an invalid claim for preferential tariff treatment if they voluntarily correct the claim and pay any applicable duty.

3.3. Exporter obligations

When an exporter or producer completes a certification of origin, they must be able to provide it if the exporting party requests it. Additionally, the exporter or producer has a responsibility to inform every person or party who received the certification of origin of any changes that could affect its accuracy or validity, as soon as they become aware of any incorrect information in the certification of origin. It is important to note that if the exporter or producer provides false information in the certification of origin, they will face similar legal consequences as an importer who provides false information.

3.4. Record keeping

In order to prove the originating status of the good and claim preferential tariff treatment under the CPTPP, specific documentation and records need to be established and maintained by the exporter, producer, or importer. These records should include information about the type of documentation needed, the duration of time for which they must be maintained, and the acceptable medium for their storage. The records can be kept in any medium, but they must be easily retrievable upon request.

3.5. Origin verification

The procedures for determining the origin of goods include a process for the importing party to verify if the good meets the rules of origin and qualifies for preferential tariff treatment. This verification process involves direct communication with the importer and the certifier of the origin of the good through written requests for information or verification visits to the premises of the exporter or producer. The CPTPP also provides alternative verification procedures for textiles and apparel goods under Chapter 4.

The verification procedures specify the information required in the request for information or the notice for a verification visit. It includes the identification of the issuing government authority, the purpose of the request, and in case of a verification visit, a request for consent from the exporter or producer whose premises the government authority wishes to visit.

After the verification of origin is completed, the importing party is required to communicate the results to the importer, exporter, or producer who provided the information or certified the origin of the good. If the importing party intends to deny preferential tariff treatment, it must provide a minimum of 30 days to those who provided information to submit additional information related to the origin of the goods before issuing a written determination.

Refunds: An importer may apply for a refund of excess duties paid after importation if the importer did not claim preferential tariff treatment at the time of importation. In order to apply for a refund, the importer must make a claim for preferential tariff treatment and provide a copy of the certification of origin and if required other documents related to the importation of the good no later than one year after the date of importation. Canada will go beyond that minimum requirement and allow four years from the date of accounting for importers to claim a refund.