General

In international trade, if taxpayers can make full use of the rules of origin of countries related to the supply chain and reasonably arrange and organize raw material procurement, production, processing procedures, logistics and other links, they can enjoy the policy preferences brought by the rules of origin to the maximum extent, reduce operating costs legally and reasonably, and enhance comprehensive competitiveness. Therefore, the certificate of origin is known as "paper gold". However, in order for "paper gold" to play its role, it is necessary to accurately understand and master the rules of origin. Otherwise, it may encounter compliance risks due to incorrect declaration of origin, ranging from administrative penalties by customs to suspected smuggling crimes. In this issue, let's learn the basic knowledge of customs rules of origin together.

The origin and classification of goods, as well as the valuation of goods, are considered the three major technical challenges in international trade related to customs clearance. The difference is that compared to the "explicit" impact of product classification and valuation on corporate interests, the role of origin is more like an "invisible hand". Although invisible, it directly affects the tax benefits that goods can enjoy and the regulatory policies that need to be implemented. In recent years, with the increasing frequency and intensification of trade frictions between countries, this invisible hand has become increasingly powerful, making import and export enterprises have to pay attention to it. In this issue, the author takes you to understand the basic knowledge of China's rules of origin, hoping to be helpful to business partners.

1、 5 questions to help you clarify the basic concepts of rules of origin

1. What is the country of origin?

Origin, colloquially speaking, refers to the economic "nationality" of goods, which refers to the source of goods traded in international trade, that is, the place where products are produced, collected, raised, extracted, processed, and manufactured.

Why do we need to determine the origin of the goods?

In international trade, the origin symbolizes the "specific identity" of goods, serving as a reference for the quality and brand of goods, directly affecting the price, quality, reputation, and trade treatment of goods. When it comes to trade treatment, for example, the implementation of national trade control policies (anti-dumping, quota control, quarantine restrictions, etc.) often relies on the medium of origin.

3. What is a certificate of origin?

The certificate of origin is a necessary certificate for enterprises to enjoy the differential tariff treatment of the importing country for their export products. Exporting enterprises can obtain tariff reduction and exemption from the importing country through the issued certificate of origin, reduce trade costs and improve the competitiveness of goods in overseas markets. Based on the importance of the certificate of origin, some people vividly call the certificate of origin the "gold key" and "paper gold" to open the door to international trade.

4. What are rules of origin?

As the name suggests, rules of origin are universally applicable laws, regulations, and administrative rulings implemented by countries to determine the origin of goods. In short, it is the rules to be followed and applied when determining the origin of goods. China's rules of origin are divided into non preferential rules of origin and preferential rules of origin.

5. What are the legal consequences of incorrect declaration of origin?

The origin of import and export goods is an important basis for customs to determine and implement national preferential tariff policies, most favored nation treatment, anti-dumping and countervailing measures, safeguard measures, origin marking management, country quantity restrictions, tariff quotas and other trade measures, as well as for government procurement, trade statistics and other activities. According to relevant customs laws and regulations, enterprises have the obligation to declare the origin of goods truthfully and accurately. If the declaration of origin is incorrect and is found to be in violation of customs supervision regulations or other violations of the Customs Law after investigation by the customs, the customs will impose penalties in accordance with the provisions of the Customs Law and the Regulations on the Implementation of Customs Administrative Penalties; If a crime is constituted, the company and related personnel will also be held criminally responsible in accordance with the law.

2、 Classification and Legal Basis of Rules of Origin in China

（1） Classification of Rules of Origin in China

China's rules of origin are divided into non preferential rules of origin and preferential rules of origin.

Non preferential rules of origin refer to the rules of origin independently formulated by a country's own legislation based on the implementation of its customs tariffs and other trade measures, hence also known as "autonomous rules of origin". The implementation of non preferential rules of origin must comply with the principle of most favored nation treatment, which must be universally and indiscriminately applied to all imported goods with the origin of the most favored nation.

Preferential rules of origin refer to the origin policies formulated by a country to implement national preferential policies. The specific standards for determining the origin of goods need to comply with corresponding preferential trade agreements. As of now, China has signed 19 free trade agreements with 26 countries and regions. The preferential scope is limited to the import and export products of member countries whose country of origin is the preferential trade agreement signed by China, or the import products of beneficiary countries that China unilaterally grants tariff preferential policies.

（2） Legal basis

The legal basis for the two types of rules of origin varies.

nonpreferential rule of origin

At present, the World Trade Organization's "Non Preferential Rules of Origin" have not been widely circulated, and non preferential rules of origin are still independently formulated by the domestic legislation of each country. Specifically, in China, their legal basis is mainly the "Regulations of the People's Republic of China on the Origin of Import and Export Goods" (hereinafter collectively referred to as the "Regulations of Origin") and the "Regulations of the People's Republic of China Customs on Implementation".

preferential rule of origin

Since the rules of origin are formulated through the implementation of national preferential policies, they are naturally the result of a game between all parties. In terms of rules, it is necessary to consider both the maximization of domestic interests and the interests of other member countries. It goes without saying that the main basis for preferential rules of origin is bilateral or multilateral international agreements, namely preferential trade agreements. For China, relevant preferential trade agreements are often translated into domestic laws for implementation through regulations of the General Administration of Customs, such as the "Order of the General Administration of Customs on Publication and Implementation". In addition, the corresponding domestic legal basis is also the "Regulations of the People's Republic of China on the Administration of Preferential Origin of Import and Export Goods by Customs".

3、 Differences between two types of rules of origin

Although both are rules of origin, there are significant differences between preferential and non preferential rules of origin, as can be seen from the definition and legal basis of the two in the second part of this article. For the convenience of understanding, the following author roughly distinguishes the two in the form of a table and provides an introduction one by one.

Table 1: Differences between preferential and non preferential rules of origin

（1） Legal basis

See Article 2 (2).

（2） Applicable Purpose

Non preferential rules of origin: Applicable to non preferential trade measures such as most favored nation treatment, anti-dumping and countervailing measures, safeguard measures, origin marking management, country quantity restrictions, tariff quotas, and government procurement, trade statistics, etc.

Preferential rules of origin: Rules of origin formulated to implement national preferential (tariff) policies, such as those applicable between member countries of free trade agreements.

（3） Specific content of origin standards

Both preferential and non preferential rules of origin can be divided into "fully obtained standards" and "non fully obtained standards" in terms of origin standards. However, there are significant differences in the content and application of specific standards, which require enterprises to judge based on the actual international trade situation and specific origin standards. We will provide a special introduction on the specific content of the origin standards later.

（4） Transportation requirements

The preferential rules of origin do not require transportation, but they require "direct transportation", that is, direct transportation from the exporting member country to the importing member country.

Regarding direct transportation, there are two meanings:

The literal meaning of direct transportation refers to transportation that has not passed through countries or regions outside the member state; Regarded as direct transportation, which means that although the transportation passes through a country or region outside of the member state, it is managed according to the direct transportation because it meets the specific circumstances stipulated by law.

It can be considered as a situation of direct transportation, such as only for geographical reasons or transportation needs, without any value-added processing, without entering the consumption or trade field of the passing country, etc. As for the exact regulations and requirements, it depends on the specific preferential trade agreements applicable. Because under different preferential trade agreements, there are still subtle differences in the situation and management of direct transportation. Although it may be a subtle difference, in practice, it is a mistake that can lead to a thousand miles, and requires accurate application.

（5） Declaration requirements

According to Article 14 of the "Regulations on the Administration of Preferential Origin of Import and Export Goods by the Customs of the People's Republic of China", the preferential rules of origin stipulate: "When declaring the import of goods, the consignee or its agent of the imported goods shall fill out the" Customs Declaration Form of the People's Republic of China for Imported Goods at Sea "in accordance with the customs declaration regulations, declare the applicable treaty tax rate or preferential tax rate, and simultaneously submit the following documents: (1) The original of the valid certificate of origin of the goods, or the declaration of origin specified in the relevant preferential trade agreement... ". It can be seen from the "shall" that it is a mandatory requirement for the consignee or consignor to submit the certificate of origin or declaration document, that is, the import and export goods must submit the certificate of origin or declaration document issued by the designated authority, and apply for the preferential tax rate under the corresponding agreement, otherwise they cannot enjoy the corresponding tax preference.

Non preferential rules of origin According to Article 14 of the Regulations on Origin, "When the customs examines and determines the origin of imported goods, it may require the consignee of the imported goods to submit the certificate of origin of the imported goods for examination; if necessary, it may request the relevant authorities of the country (region) where the goods are exported to verify the origin of the goods." A "may" indicates the discretion during this period, which can be seen from this, When it comes to non preferential rules of origin, the consignee or consignor can only submit the certificate of origin when required by the customs.

In the current management measures, the situation that certificate of origin needs to be submitted under non preferential rules of origin is mainly "two countervailing measures and one safeguard", that is, certificate of origin needs to be submitted for import and export goods in international trade that implement anti-dumping, countervailing and safeguard measures.

According to current international trade and customs laws, the origin of goods is an important basis for whether the goods can enjoy tax benefits under bilateral or multilateral free trade agreements, and whether they need to bear certain trade sanctions. As one of the tax related factors, the country of origin has been a high risk area for compliance and a key regulatory area for customs in recent years.

For enterprises, the compliance risks and costs of incorrect declaration of origin are enormous. Once customs investigate and determine that it constitutes a violation or smuggling behavior, the possible legal consequences usually include administrative penalties, downgrade of enterprise credit rating, cross departmental joint punishment, etc. If suspected of committing a crime, it will also be transferred to the procuratorate for prosecution. Therefore, accurately confirming and declaring the origin is of great significance to enterprises, Based on this note, a brief review of China's rules of origin is provided for reference by enterprises.