4.1 QUALIFYING GOODS UNDER RULES OF ORIGIN REQUIREMENTS

The first two steps require the exporter to prove that the goods originate or were processed in the TAFTA region. Unless the goods satisfy this test, they are deemed to be non-qualifying goods and consequently no preferential treatment is afforded to them and no further action can be taken.

If the goods qualify, the exporter needs to be able to substantiate this claim by appropriate documentation. Such documentation will form the basis for the CO issue and, pursuant to Article 411, the exporter must maintain records associated with a CO for five years from the issue of such a Certificate. Australian Customs Notice 2005/01[FN12] outlines the prescriptive record keeping obligations for traders pursuant to the Customs Amendment Regulation 2004 (No. 7) which amended the Customs Regulations 1926, by adding regulations 105D (for exporters who are not manufacturers) and 105E (for producers, whether or not exporters). Counsel advising client should stress the importance of the keeping of such records for the specified period, in order to avoid penalties and sanctions that may accrue under TAFTA.

The determination of origin is subject to the provisions of Article 402. Qualifying goods are those produced or wholly obtained in the TAFTA area. Non-originating materials are those materials or components that would not qualify as originating under TAFTA's Rules of Origin. Counsel should advise client that any material of unknown or unconfirmed origin is to be treated as non-originating material. [FN13] Where mixed goods are concerned, the determination of origin would normally follow the traditional classification principles, that is, the Transformation Test, as outlined in Annex 4.1. This test essentially requires the final item to be transformed in such a way that it is classified, for customs purposes, with a different number to that of its inputs. The place of transformation is regarded as the place of origin. Mixed goods that fail the transformation test will be considered as qualifying goods provided the value of non-originating materials does not exceed 10 per cent of the FOB value of the goods and that the goods meet all other criteria of Article 402. This commonly referred to as the De Minimis rule. An example of how this rule is applied is provided below. [FN14]

A Thai company produces wristwatches (Harmonised Classification 9102) for export to Australia. It produces the watches from textile watchstraps made in China (Harmonised Classification 9113) combined with Thai originating watch movements of Harmonised Classification 9111. Such movement and cases are originating materials. The value of a strap is $6 while the customs value of the finished watch is $100. The product specific rule for tariff headings 9102 states:

         • change to heading 9102 from any other chapter; or
         • change to heading 9102 from heading 9114, whether or not there is also a change from any other     
         • chapter provided there is a regional value content of not less than 45 per cent.

Only the non-originating materials need to satisfy the change in tariff classification requirement -- in this case the textile watchstraps. The straps do not satisfy either of the indicated changes in tariff classification. The value of all non-originating materials used to produce the watches is $6, and this represents 6% of the customs value of the finished good. Therefore the De Minimis rule can be applied to the non-originating watchstraps to determine them to be originating.

The result is that the watches are now considered to be made from 100% Thai originating materials, i.e:

       • Thailand watch movements;
       • Thailand watch cases; and
       • watchstraps ex China = Thailand originating de minimis rule, therefore the watch is considered to be a Thai originating good.

Counsel advising clients should point out that the provisions of Article 402 mean that a trader will need to know the classification of a good and the classification of any non-originating material, before proper determination as to origin can be made.

Article 407 outlines the disqualification of goods from the provision of TAFTA where they undergo a subsequent production or other operation outside the TAFTA territory, unless such an action was necessary to preserve the goods.

For specific goods, such as clothing, textile, footwear and some manufactures, there is an additional requirement before the goods can qualify as originating. This is the Regional Value Content ('RVC') requiring that a certain percentage of the value of the goods originate in either Thailand or Australia. A variation of the Build-Down method is used to calculate the RVC under TAFTA, [FN15] in accordance with the formula provided in Article 403, that is:

 
        FOB - VNM       

RVC  =  ----------  x 100

           FOB          

 
Where:
      • 'RVC' is the regional value content between the parties, expressed as a percentage
      • 'FOB' is the FOB value of the goods (as defined in Article 404). [FN16] This is also referred to as the Adjusted Value (AV) for customs purposes.
      • 'VNM' is the CIF (as defined in Article 404) [FN17] value of all non-originating materials that are imported either by the producer of the good or by an Australian or Thai producer of materials supplied by the producer of the good.