By - Jidesh Kumar on April 29, 2022
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:
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:
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:
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:
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:
A Certificate of Origin shall:
(a) be in writing or electronic format.
(b) be in the English language.
(c) specify that the good is originating and meets the requirements of this Chapter.
(d) contain minimum information requirements.
(e) remain valid for 12 months from the date on which it is completed or issued.
(f) apply to single importation of one or multiple goods provided that each good qualifies as an originating good separately in its own right; and
(g) 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:
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.
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 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.
Contributed by Jidesh Kumar (email@example.com) & Prapti Bhattacharya