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China: Rules of origin, updates to ASEAN-China free trade agreement

China: Rules of origin, ASEAN-China free trade

Guidance issued in August 2019 by China’s General Administration of Customs concerns the ASEAN-China free trade agreement and the rules for country of origin of imported and exported goods.

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The guidance (known in English as: Administrative Measures for the Origins of Imported and Exported Goods under the Framework Agreement on Comprehensive Economic Co-operation between the Association of Southeast Asian Nations (ASEAN) and China) is referred to as “Announcement No. 136” and was effective 20 August 2019.

The ASEAN-China free trade agreement entered into force in 2005, and is seen as the largest and most influential free trade agreement signed by China. Negotiations to upgrade the ASEAN-China free trade agreement began in 2014. After several rounds of negotiations, China and the ASEAN countries completed all the necessary domestic procedures for upgrading the agreement, and this process was officially implemented on 20 August 2019. 

Updates in the “upgraded administrative measure for origin”

Announcement No. 136 includes updates to the rules of origin, changes to the “guidelines” for populating Form E, and updated requirements for origin compliance management. Changes include the following:


Rules of origin 

  • The “PE Criterion” was newly introduced for goods produced or obtained by a party within ASEAN or China exclusively from originating material. It is applicable to industrial or processed products. 
  • The coverage of the product specific rules list (PSR list) has expanded from 17 chapters (over 500 six-digit HS codes) to 57 chapters (over 2,000 four-digit or six-digit HS codes).  
  • The change of (the four-digit) tariff heading (CTH)—an origin criterion—was newly introduced. It will apply to goods not included in the PSR list. It is limited to 46 chapters, including mineral products, chemical products, plastic products, leather, textiles, apparel and footwear, steel products, aerospace aircraft, etc. The specific chapters are 25, 26, 28, 29 (29.01 and 29.02 are excluded), 31 (31.05 is excluded), 39 (39.01, 39.02, 39.03, 39.07 and 39.08 are excluded), 42-49, 57-59, 61, 62, 64, 66-71, 73-83, 86, 88, and 91-97. 
  • Other changes to the rules of origin include newly introduced de minimis provisions and updated rules and regulations related to packing materials and containers, accessories, spare parts and tools, and fungible materials.
  • Announcement No.136 also specifies the definition of “neutral elements” and simplifies the description of “accumulation.”

According to the framework for the rules of origin, in order to determine the applicable rules of origin for goods other than WO or PE products, traders must first refer to the PSR list for specific rules. If the goods are not included in the PSR list, then next determine whether the products are applicable to (i.e., listed under the 46 chapters’ HS codes) and satisfy CTH rules or meet the criteria of regional value content (RVC) rules. 


Guidelines for populating Form E

After 31 August 2019, all parties under the ASEAN-China free trade agreement are required to adopt the international standard white-coloured A4 size Form E. The upgraded Form E has been improved and features a simplified process for filling-in information. Major updates to the Form E are as follows: 

  • Prior to the upgrade, only exporters could apply for the Form E. From now on, Chinese manufacturers can apply for the Form E through an agent and fill-in the relevant information.
  • The limitation of 20 items per Form E has been removed. 
  • Following the upgrade, the HS codes for products on the Form E are entered at the six-digit level. Previously, the import countries’ HS codes had to be provided. 
  • Previously, FOB value in box 9 was required to be completed. It will now only be required when rules of origin indicated in box 8 is RVC (including RVC specified in PSR). Additionally, previously only the gross weight of the products could be used for the weight box, but now either gross weight or net weight is acceptable.


Others

  • Announcement No. 136 has relaxed the documentation review requirements under the direct consignment rules. Documents issued or approved by the transit country’s customs are no longer required when goods are transported to China through other countries or regions, as long as the whole-journey transport documents submitted by the consignee or the agent meet the relevant direct consignment provisions.
  • Announcement No. 136 features enhanced requirements with respect to enterprises’ compliance management practices. For example, rules or requirements have been introduced or specified for country of origin verification methods, the 270-day feedback period for country of origin verification, the three-year period for documentation preservation, etc. 

KPMG observation

Announcement No. 136’s rule updates are viewed as having further improved the preferential rules of origin under the ASEAN-China free trade agreement and have enhanced the implementation of the ASEAN-China free trade agreement area.

Under adjustments to the rules of origin, in addition to changes to the framework of the origin rules, a number of changes have been made to other rules and criteria. For example, the WTO valuation agreement’s definition of transaction price has been introduced to determine the prices of materials under the RVC measurement; encapsulation in the electronic industry has been excluded from the minimal operations or processes criteria; simple assembly of products that fall under chapter 27 (mineral products) and chapters 84, 85 and 90 (mechanical and electronic products) has been excluded from originating status; and the definition of “simple” has been clarified in the PSR. Enterprises need to consider the supplementary criteria and the influence that these changes will have on determination of origin.

In addition, changes have been made to the guidelines on filling-in the upgraded Form E. In addition to determining origin based on the appropriate rules of origin, export enterprises need to comply with the Form E guidelines to make sure the products enjoy beneficial treatment in the other country.

Announcement No. 136 also added content related to origin verification. China Customs is increasingly focusing on origin compliance, so enterprises need to give special attention to mitigating the risks posed by country of origin verification. Import and export enterprises need to understand and apply the correct origin rules, focus on the changes in the applicable rules of origin, follow the requirements in filling-in Form E, adhere to the compliance management requirements, and meet other related criteria, to apply correctly the preferential rules of origin and conduct origin management in a compliant manner.


For more information on this topic or to learn more about KPMG’s Trade & Customs Services, contact:

Doug Zuvich
Partner and Global Practice Leader
T: 312-665-1022
E: dzuvich@kpmg.com

John L. McLoughlin
Principal and East Coast Leader
T: 267-256-2614
E: jlmcloughlin@kpmg.com

Andy Siciliano
Partner and National Practice Leader
T: 631-425-6057
E: asiciliano@kpmg.com

Steve Brotherton
Principal and Global Export and Sanctions Leader
T: 415-963-7861
E: sbrotherton@kpmg.com

Luis (Lou) Abad
Principal, Washington National Tax
T: 212-954-3094
E: labad@kpmg.com

Irina Vaysfeld
Principal
T: 212-872-2973
E: ivaysfeld@kpmg.com

Amie Ahanchian
Managing Director
T: 202-533-3247
E: aahanchian@kpmg.com

Robert Waldrop
Principal
T: 212-954-8117
E: rwaldrop@kpmg.com

Gisele Belotto
Managing Director
T: 305-913-2779
E: gbelotto@kpmg.com

Christopher Young
Principal
T: 312-665-3229
E: christopheryoung@kpmg.com

Andy Doornaert
Managing Director
T: 313-230-3080
E: adoornaert@kpmg.com

George Zaharatos
Principal
T: 404-222-3292
E: gzaharatos@kpmg.com

Jessica Libby
Managing Director
T: 612-305-5533
E: jlibby@kpmg.com

 

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