TPP and the EU VN FTA march 2016

“…Article 3.2: Originating Goods Except as otherwise provided in this Chapter, each Party shall provide that a good is originating if it is: a wholly obtained or produced entirely

The long-awaited full text of the Trans-Pacific Partnership Agreement (“TPP”) was published on the website of the Office of the U.S Trade Representative (“USTR”) and sites of TPP countries on November 5, 2015

“Full text” does not mean “final text” as, the following disclaimer appears at the top of pages of the text, with an additional caution about the extremely important Annexes containing the complex Product-Specific Rules of Origin (“PSR”) to Chapter 3 (Rules of Origin and Origin Procedures) and Chapter

4 (Textiles and Garments):

“…Subject to Legal Review in English, Spanish and French

for Accuracy, Clarity and Consistency Subject to Authentication of English, Spanish and French Versions

The product-specific rules of origin (PSR) Annex and its Appendix are subject

to transposition and legal verification by the Parties The only authentic PSR are those that are set out in the PSR Annex and Appendix that accompany the

final, signed Agreement.”

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Despite the qualification, the TPP is a very big, very complex, very technical and, very comprehensive agreement As predicted in our July newsletter, it’s trade in goods provisions and origin procedures are based

on the North American Free Trade Agreement (“NAFTA”) model in its most recent version, the Korea-US FTA, with the exception of provisions for trade

in textiles and garments that more closely resemble the U.S Central America – Dominican Republic Free Trade Agreement (“CAFTA-DR”) Companies and professionals with experience of these agreements will recognize its structure, however, the TPP reflects years of hard negotiations

by many countries and contains many new provisions, Chapters, intertwining rules, numerous exceptions and differences from previous agreements It is not possible to summarize the many parts of this agreement in general terms in any single document As a result, this newsletter will introduce key elements concerning practical topics that are most important to companies and traders, for strategic planning, implementation and compliance purposes Subsequently, future newsletters will be devoted to more detailed analyses of specific Chapters and new rules, as a continuing series

As predicted by many, Vietnam negotiated special allowances in the TPP by winning important concessions with respect to “Non-Conforming Measures” involving periods of transition that will allow for the many changes

it must make with respect to laws, regulations, practices and trade facilitation reforms More importantly, Vietnam not only gained very important benefits

in terms of tariff elimination for Vietnam’s exports - it even received a special

“Earned Import Allowance” program from the United States with respect to textile products, providing an encouragement to make use of imported U.S textile materials

Companies already operating in Vietnam and those planning trade operations involving goods from Vietnam should begin their detailed

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analyses and strategic planning for how to benefit from TPP now It will take time, effort, specialist expertise and resources for companies and traders to successfully implement the benefits of TPP with respect to their goods

TPP: Relationship to Other Agreements

Some commentators have written that TPP will supersede or “take the place of” other trade agreements – it does not Article 1.2 (1) of Chapter 1 (Relations to Other Agreements) provides:

“Article 1.2: Relations to Other Agreements

… 1 Recognizing the Parties’ intention for this Agreement to coexist with their existing international agreements, each Party affirms,

(a) in relation to existing international agreements to which all Parties are party, including the WTO Agreement, its existing rights and obligations with respect to each other; and

(b) in relation to existing international agreements to which that Party and at least one other Party are party, its existing rights and obligations with respect to such other Party or Parties, as the case may be…”

For companies and traders, this means that goods exported to other countries continue to be eligible for preferential treatment under existing

FTA’s, multilateral or bilateral trade agreements, if they independently fulfill

the origin eligibility rules of such other agreements Because the rules of origin of other FTA’s involve different standards for Regional Value Content (“RVC”) percentages and different rules for calculation of these, as well as, different “exceptions” or additional rules, it is often the case that a good may qualify for preferential treatment under one such agreement and not others

Scope of TPP Customs Duty Tariff Benefits

The most significant benefits of TPP are found in the Tariff Elimination Schedules that each member country has negotiated and filed with the

agreement These list by all of the Harmonized System’s (“HS”) customs

tariff classifications the schedule of duty rates in effect for goods imported into each TPP member country, along with codes that indicate the timing or

“staging” of reductions of such duties from the time the agreement enters into force These are found in Annex 2-D of Chapter 2 of TPP (National Treatment and Market Access for Goods) and may be reviewed at the website of USTR at: https://ustr.gov/trade-agreements/free-trade-agreements/trans-pacific-partnership/tpp-full-text

Readers are advised to review these schedules with great care and conduct due diligence with qualified professional experts before relying upon these schedules, with respect to application to their own goods or products This is because accurate HS customs tariff classification codes for goods

involve the very technical rules of the Harmonized System as implemented

in each TPP member country’s customs law and, differing applications of

these frequently result in disputes, customs rulings and court cases in a number of countries Readers should also carefully review the General Notes of each TPP member country that will appear in each country’s customs tariff – these explain the timing or “staging” of tariff elimination and

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may contain additional individual country Notes which can contain exceptions that can result in a different HS classification for a good, than that used in the exporter’s country TPP provides that producers and exporters will be able to seek advance customs rulings from the customs authorities in TPP countries to avoid such issues and, it will be prudent to

do so in certain circumstances

The timing or “staging” of tariff elimination involves codes such as “EIF” which means that customs duties will be eliminatedimmediately upon entry into force of the TPP A code such as “B2” indicates that customs duties will

be eliminated in two equal installments divided between the year of entry into force and on January 1 of the second year “B3” provides for duty elimination in three equal installments over a three-year period, and so on Vietnam’s staging schedule provides for items that will stage down over sixteen years, while still other categories exist with a staging schedule that differs in terms of when reductions occur

What customs duties will be eliminated? Article 1.3 (General Definitions) makes this clear:

“Article 1.3: General Definitions

…customs duty includes any duty or charge of any kind imposed on or in

connection with the importation of a good, and any surtax or surcharge imposed

in connection with such importation, but does not include any:

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This means that, while duties and taxes on imports will be eliminated, domestic national taxes such as VAT will not be eliminated Customs user fees will also not be affected (with the exception of the Merchandise Processing Fee method used by the United States) and, antidumping and countervailing duties are not included The TPP does not change the statuses of either the Agreement on Implementation of Article VI of GATT

1994 (WTO Antidumping Agreement) nor, the Agreement on Subsidies and Countervailing Measures of GATT 1994, both of which continue to be applicable to trade in goods by WTO members under TPP

Rules of Origin – Goods Eligible for Preferential Treatment

Only goods that can be certified to “originate” in TPP countries will qualify for the preferential treatment of TPP, when imported into TPP countries from other TPP countries The rules for qualifying goods are found

in Article 3.2 of Chapter 3 (Rules of Origin and Origin Procedures) of TPP

“…Article 3.2: Originating Goods

Except as otherwise provided in this Chapter, each Party shall provide that

a good is originating if it is:

(a) wholly obtained or produced entirely in the territory of one or more

of the Parties as established in Article 3.3 (Wholly Obtained or Produced Goods);

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The first two of these rules (Article 3.2(a) and Article 3.2(b)) are called

“general rules of origin” by practitioners These involve only goods that are either the agricultural, animal, sea products and mineral commodities, as

well as, scrap, listed in Article 3.3 or, to goods produced exclusively from

originating materials in TPP countries There can be no non-originating

materials used to produce goods that are to qualify under these rules and,

the producer or exporter must have supporting documentation to prove these facts in the event of a customs verification (audit) of a certification

Because the majority of manufactured goods in global trade involve intermediate goods or finished goods, the number of such goods or products

that are produced with no non-originating materials or components is

limited As a result, the majority of traded goods will instead either qualify for

eligibility under the Product-Specific Rules of Origin contained in Annex 3-D

of Chapter 3 of the agreement and, in the case of automotive goods, the additional rules contained in Appendix 1 to this Annex In the case of textile and apparel goods, the requirements of Chapter 4 of the agreement and the

Product-Specific Rules of Origin contained in Annex 4-A of Chapter 4, as

well as, the Appendix to the Annex that provides for certain exceptions to these for non-originating materials in a “Short Supply List of Products” involving such goods

The technical complexities of the Product-Specific Rules of Origin

require the application of professional expertise and experience with the rules of the Harmonized System of customs tariff classification to both finished goods and to all non-originating materials used to produce these,

as well as, application of Customs Valuation rules for determination of Regional Value Content percentages under one of several specified methods of calculation that are subject to specified definitions of the values

to be used for such calculations These are far beyond the scope of any newsletter and, it is strongly recommended that a qualified professional be

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engaged to assist producers, exporters or importers with determinations of the rules applicable to specific goods or products and, with origin certification procedures and related compliance requirements

Origin Procedures and Compliance

Certification of Origin Procedures and related compliance processes are extremely important for companies to understand and prepare for Selected provisions concerning these are reproduced below to make it easier for readers to find these, with highlights and notes added for emphasis

“…Article 3.19: Application of Origin Procedures

Except as otherwise provided in Annex 3-A (Other Arrangements), each Party shall apply the procedures in this Section

Article 3.20: Claims for Preferential Treatment

1 Except as otherwise provided in Annex 3-A (Other Arrangements), each Party shall provide that an importer may make a claim for preferential tariff treatment, based on a certification of origin completed by the exporter, producer or importer 2 3

_

2 Nothing in this Chapter shall prevent a Party from requiring an importer, exporter or producer in its territory that completes a certification of origin to demonstrate that it is able to support that certification

3 For Brunei Darussalam, Malaysia, Mexico, Peru and Viet Nam, implementation of paragraph 1 with respect

to a certification of origin by the importer shall be no later than five years after their respective dates of entry into force of this Agreement. ”

Please note that Vietnam will not allow importers to make claims for TPP preferential treatment of goods based upon a certification of origin

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completed by an importer in Vietnam, for a period of up to five years after TPP enters into force with respect to Vietnam

“Article 3.20: Claims for Preferential Treatment (Continued)

2 An importing Party may:

(a) require that an importer who completes a certification of origin provide documents or other information to support the certification;

(b) establish in its law conditions that an importer shall meet to complete

a certification of origin;

(c) if an importer fails to meet or no longer meets the conditions established under subparagraph (b), prohibit that importer from providing its own certification as the basis of a claim for preferential tariff treatment; or

(d) if a claim for preferential tariff treatment is based on a certification of origin completed by an importer, prohibit that importer from making

a subsequent claim for preferential tariff treatment for the same importation based on a certification of origin completed by the exporter or producer

3 Each Party shall provide that a certification of origin:

(a) need not follow a prescribed format;

(b) be in writing, including electronic format;

(c) specifies that the good is both originating and meets the requirements

of this Chapter; and

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(d) contains a set of minimum data requirements as set out in Annex 3-B (Minimum Data Requirements)

4 Each Party shall provide that a certification of origin may apply to:

(a) a single shipment of a good into the territory of a Party; or

(b) multiple shipments of identical goods within any period specified in the certification of origin, but not exceeding 12 months

5 Each Party shall provide that a certification of origin is valid for one year after the date that it was issued or for such longer period specified by the laws and regulations of the importing Party

6 Each Party shall allow an importer to submit a certification of origin in English If the certification of origin is not in English, the importing Party may require the importer to submit a translation in the language of the importing Party

Article 3.21: Basis of a Certification of Origin

1 Each Party shall provide that if a producer certifies the origin of a good, the certification of origin is completed on the basis of the producer having information that the good is originating

2 Each Party shall provide that if the exporter is not the producer of the good,

a certification of origin may be completed by the exporter of the good on the basis of:

(a) the exporter having information that the good is originating; or (b) reasonable reliance on the producer’s information that the good is originating

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3 Each Party shall provide that a certification of origin may be completed by the importer of the good on the basis of:

(a) the importer having documentation that the good is originating; or

(b) reasonable reliance on supporting documentation provided by the exporter or producer that the good is originating

4 For greater certainty, nothing in paragraph 1 or 2 shall be construed to allow

a Party to require an exporter or producer to complete a certification of origin

or provide a certification of origin to another person.”

In practice, very few exporters or importers will be in a position certify origin eligibility of goods on the basis of “having information that the good is originating.” This is typically only possible for very large multinational manufacturers who have in-house professional compliance staffs who have implemented sophisticated global trade management IT databases and procedures and, who primarily trade with related subsidiaries of the company group involved which use the same IT systems and, whose staffs have been trained in compliance procedures

“Having information that the good is originating” really means maintaining records in document or electronic form to demonstrate to Customs officers that the goods truly fulfill the rules of origin, either upon request or, in the course of a verification audit Such records must be maintained for a period of five years from the date of the certification of origin issued and used for a claim for preferential treatment

Companies experienced with NAFTA-model FTA’s find it prudent to

“reasonably rely” upon producer’s certificates of origin before filing claims for preferential treatment Such certifications of origin must be in the

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importer’s possession at the time of filing claims for preferential treatment with customs declarations

Minimum Data Requirements for a TPP Certification of Origin

For ease of reference for the reader, selected text of Annex 3-B of Chapter 3 of the TPP is reproduced below Readers are cautioned that there are many obligations, rules and requirements relating to certification of origin that have not been reproduced and, should rely upon their own or their advisor’s reviews of the full texts of TPP Chapters, Annexes and Appendices

“Annex B: Minimum Data Requirements

A certification of origin that is the basis for a claim for preferential tariff treatment under this Agreement shall include the following elements:

1 Importer, Exporter or Producer Certification of Origin

Indicate whether the certifier is the exporter, producer or importer in accordance with Article 3.20 (Claims for Preferential Treatment)

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4 Producer

Provide the producer’s name, address (including country), e-mail address and telephone number, if different from the certifier or exporter or, if there are multiple producers, state “Various” or provide a list of producers A person that wishes for this information to remain confidential may state

“Available upon request by the importing authorities” The address of a producer shall be the place of production of the good in a TPP country

5 Importer

Provide, if known, the importer’s name, address, e-mail address and telephone number The address of the importer shall be in a TPP country

6 Description and HS Tariff Classification of the Good

(a) Provide a description of the good and the HS tariff classification of the good to the 6-digit level The description should be sufficient to relate

it to the good covered by the certification; and

(b) If the certification of origin covers a single shipment of a good, indicate, if known, the invoice number related to the exportation

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9 Authorized Signature and Date:

The certification must be signed and dated by the certifier and accompanied

by the following statement:

I certify that the goods described in this document qualify as originating and the information contained in this document is true and accurate I assume responsibility for proving such representations and agree to maintain and present upon request or to make available during a verification visit, documentation necessary to support this certification.”

Conclusion

This newsletter is the first in a series of TPP materials that will be provided These will cover key topics in these and other Chapters of the agreement on an individual basis, to provide practical and useful information

of interest to companies and traders concerning TPP It is strongly recommended that companies and traders who wish to enjoy the trade benefits of TPP start their preparations at this time, regardless of when ratification and entry into force of the agreement will occur This recommendation is based upon the actual experience of a very large multinational consumer products company that implemented NAFTA for hundreds of products involving thousands of materials The development of corporate compliance procedures, databases, expert analyses, supplier solicitations of certifications of origins of materials and components involved dedicated efforts and resources for a period of one year As a result, it was the first such company program to receive 100% compliance verification by the customs services of Canada and the United States

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Disclaimer

All information provided is of a general nature and is not intended to address the circumstances of any particular individual or entity Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future

No one should act upon such information without appropriate professional advice after a thorough examination of the facts of their particular situation Liability claims regarding damage caused by the use or disuse of any information provided, including any kind of information which

is incomplete or incorrect, will therefore be rejected, if not generated deliberately or grossly negligent

To receive future issues of our newsletter, please click on the link below to

add your e-mail address to our mailing list:

As reported in our November newsletter (“TPP - Trade in Goods Chapters Part I”), the full text of the Trans-Pacific Partnership Agreement (“TPP”) was published on the website of the Office of the U.S Trade Representative and sites of TPP countries on November 5, 2015 This newsletter will continue our focus upon key elements of TPP on practical topics that are important to companies and traders, for strategic planning, implementation and compliance purposes Future newsletters in our series

on TPP will continue to provide more detailed analyses of the numerous new rules that are intertwined with equally numerous “exceptions” in various Chapters and Annexes of TPP

Companies already operating in TPP countries and those planning trade operations involving trade benefits in TPP countries, should begin their detailed reviews and strategic planning for how to benefit from TPP now It will take time, effort, specialist expertise and dedicated resources for companies and traders to successfully implement the benefits of TPP with respect to their goods Why should companies begin detailed analysis and strategic planning now and, why will a series of newsletters be necessary?

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The answers to these questions will become apparent with a single image that saves many words of explanation

Below is an image of the printed full text of the agreement on the desk

of U.S Senator Jeff Sessions of Alabama – the printed version of TPP is almost a meter high and consists of 5,544 pages that weigh approximately

In reality, even the 5,544 pages of TPP are insufficient to convey its

comprehensiveness and technical complexity This is because the Specific Rules of Origin of TPP embed additional hundreds of pages of rules

Product-of the Harmonized System Product-of customs tariff classification, as well as, the rules of the Customs Valuation Agreement of GATT 1994 These must also

be referred to, understood and, accurately applied to a company’s specific goods and factual situation Readers are cautioned that there are very many

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obligations, rules, exceptions and requirements relating to TPP that have

not been reproduced in the basic primer that follows and, should instead rely

upon their own or their advisor’s detailed reviews of the full texts of relevant

TPP Chapters, Annexes and Appendices

Rules of Origin – Goods Eligible for Preferential Treatment

Only goods that can be certified to “originate” in TPP countries will

qualify for the preferential treatment of TPP, when imported into TPP

countries from other TPP countries What are goods that “originate” for

purposes of this and similar free trade agreements? Very simply, a good that

fulfills the applicable Rule of Origin of TPP will be considered to “originate”

in a TPP country and, as a result, will be eligible for preferential trade

benefits This is subject to an important proviso that, (i) compliance with all

other requirements for TPP certification of origin, (ii) record-keeping and (iii)

trade procedures are fulfilled in the countries of export and import of the

goods

Goods that are assembled or produced in a TPP country may well

routinely be reported with that country being the “country of origin” of the

good for many other trade purposes This may include reporting upon export

documents, certificates of origin for other trade purposes, product labeling,

statistics reporting and other similar requirements However, this does not

mean that such goods will automatically be considered to “originate” for

TPP purposes and qualify for TPP benefits Eligibility for TPP trade benefits

occurs if, and only if, a good that is produced and exported fulfills the

applicable Rule of Origin of TPP and, all other trade procedures and TPP

certification of origin compliance requirements are fulfilled

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Rules of Origin – “General Rules”

The rules for qualifying goods are found in Article 3.2 of Chapter 3 (Rules of Origin and Origin Procedures) of TPP Selected provisions for

“Wholly Obtained or Produced” goods are reproduced below for ease of reference by readers

“…Article 3.2: Originating Goods

Except as otherwise provided in this Chapter, each Party shall provide that

a good is originating if it is:

(a) wholly obtained or produced entirely in the territory of one or more

of the Parties as established in Article 3.3 (Wholly Obtained or Produced Goods);

The first two of these rules (Article 3.2(a) and Article 3.2(b)) are informally called “general rules of origin” by practitioners These involve only goods that are either the agricultural, animal, sea products and mineral

commodities, as well as, scrap, listed in Article 3.3 or, to goods produced

exclusively from originating materials derived from these in TPP countries

There can be no non-originating materials used to produce goods that are

to qualify under these rules and, the producer or exporter must have

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supporting documentation to prove these facts in the event of a customs verification (audit) of a certification

“…Article 3.3: Wholly Obtained or Produced Goods

Each Party shall provide that for the purposes of Article 3.2 (Originating Goods), a good is wholly obtained or produced entirely in the territory of one or more of the Parties if it is:

(a) a plant or plant good, grown, cultivated, harvested, picked or gathered there;

(b) a live animal born and raised there;

(c) a good obtained from a live animal there;

(d) an animal obtained by hunting, trapping, fishing, gathering or capturing there;

(e) a good obtained from aquaculture there;

(f) a mineral or other naturally occurring substance, not included in subparagraphs (a) through (e), extracted or taken from there;

(g) fish, shellfish and other marine life taken from the sea, seabed or subsoil outside the territories of the Parties and, in accordance with international law, outside the territorial sea of non-Parties by vessels that are registered, listed or recorded with a Party and entitled to fly the flag of that Party;

(h) a good produced from goods referred to in subparagraph (g) on board

a factory ship that is registered, listed or recorded with a Party and entitled to fly the flag of that Party;

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(i) a good other than fish, shellfish and other marine life taken by a Party

or a person of a Party from the seabed or subsoil outside the

territories of the Parties, and beyond areas over which non-Parties

exercise jurisdiction provided that Party or person of that Party has

the right to exploit that seabed or subsoil in accordance with

international law;

(j) a good that is:

(i) waste or scrap derived from production there; or

(ii) waste or scrap derived from used goods collected there, provided

that those goods are fit only for the recovery of raw materials;

and

(k) a good produced there, exclusively from goods referred to in

subparagraphs (a) through (j), or from their derivatives

Very careful attention to details is necessary to accurately apply these

rules to a company’s or trader’s situation and goods For example, the rules

in Article 3.3 (j)(ii) and (k) that deal with waste or scrap provide one of

numerous “exceptions” to be alert to, when dealing with the TPP ROO

Used goods collected in a TPP country may well have originated in a

non-TPP country and, are then recycled in the non-TPP country for recovery of

valuable raw materials The valuable raw materials extracted from the scrap

goods are next used to produce a new product or good in a TPP country In

such a case, the good may well qualify for TPP treatment under the “wholly

obtained” ROO, despite the fact that it may be derived from scrap goods of

a non-TPP origin providing, all other requirements are met

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Rules of Origin – Advance Rulings

Because there may exist “close” (or unclear) circumstances in determining whether a particular producer’s or exporter’s goods will qualify

or not under an ROO or, for an “exception,” producers and exporters in a TPP country are advised to work with a qualified professional to apply for and obtain an Advanced Customs Ruling (see our September newsletter), from the customs authorities in the destination TPP country of import of their goods An advance customs ruling provides the producer and exporter in a TPP country with reliable guidance as to whether their good will qualify or not and, it provides the buyer / importer in the TPP country of import with a written official determination that is binding on customs authorities in the country of import This is very important to avoid the risks of possible retroactive denial of TPP treatment for the goods in the country of import by customs verification officers, who discover errors with application of the ROO in a certification, with possible imposition of unforeseen additional duties and stiff customs penalties

Taking advantage of the guidance and binding effect of advanced rulings is strongly recommended as a best practice for producers, exporters and importers whose strategic business plans are based in part upon the trade benefits of TPP, particularly if they wish to issue or obtain so-called

“blanket” certificates of origin for TPP purposes that cover identical goods for a period of up to one year In such circumstances, the retroactive risks involved with erroneous or false certifications of origin and related claims for preferential TPP treatment by the importer can be very significant and, very damaging to a company’s business and reputation In today’s global supply chain environment, significant buyers and importers in TPP countries will require a high standard of informed compliance from producers and exporters in TPP countries

1 Each Party shall adopt or maintain measures that allow for the imposition

of a penalty by a Party’s customs administration for a breach of its customs laws, regulations or procedural requirements, including those governing tariff classification, customs valuation, country of origin and claims for preferential treatment under this Agreement ”

In practice, this means that TPP countries will subject producers, exporters and other persons who issue TPP certifications of origin that are later determined to be false, to the same customs penalty risks as those faced by importers, who claim preferential treatment with their import declarations In certain cases, these may be required to be significantly increased in order to provide a deterrent to customs and related trade fraud

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under TPP The huge trade benefits and opportunities for economic growth

to be enjoyed by legitimate businesses and traders as a result of agreements like TPP cannot be secured in an environment of rampant trade fraud and, experience in over two decades with NAFTA-model agreements has confirmed that high standards of compliance are necessary to their success

Product-Specific Rules of Origin

Because the majority of manufactured goods in global trade involve intermediate goods or finished goods, the number of such goods or products

that are produced with no non-originating materials or components is quite

limited As a result, the majority of traded goods will instead qualify for

eligibility under the Product-Specific Rules of Origin contained in Annex 3-D

of Chapter 3 of the TPP and, in the case of automotive goods, the additional rules contained in Appendix 1 to this Annex In the case of textile and apparel goods, they must qualify under requirements of Chapter 4 of the TPP and

the Product-Specific Rules of Origin contained in Annex 4-A of Chapter 4,

as well as, the Appendix to the Annex that provides for certain exceptions to these for non-originating materials in a “Short Supply List of Products” involving such goods

The technical complexities of the Product-Specific Rules of Origin

require the application of professional expertise and experience with the rules of the Harmonized System of customs tariff classification to both finished goods and to all non-originating materials used to produce these,

as well as, application of Customs Valuation rules for determination of

Regional Value Content percentages, under one of several specified methods of calculation that are subject to specified definitions of the values

to be used for such calculations

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An example of a Product-Specific Rule of Origin in TPP’s Annex 3-D of Chapter 3 for “Spark-ignition reciprocating or rotary internal combustion piston engines” of the type used in motorbikes and motorcycles reads, as follows:

8407.31 - 8407.32 A change to a good of subheading 8407.31 through

8407.32 from any other heading; or

No change in tariff classification required for a good of

subheading 8407.31 through 8407.32, provided there is a

regional value content of not less than:

(a) 35 per cent under the build-up method; or (b) 35 per cent under the net cost method; or

(c) 45 per cent under the build-down method

In this example, the producer in a TPP country of the motorbike engines which typically have many parts, components or materials that may come

from multiple countries of origin, must know (and be able to prove) the origin

of each such part or component, as well as, accurately determine the HS customs tariff classification of each such part or component to at least the six-digit HS subheading level Once this is determined, the producer’s manufacturing or production process in the TPP country must cause a

change in HS tariff classification for each and every non-originating TPP) part, component or material that is used, from its individual four-digit

(non-level HS tariff heading classification, to the appropriate six-digit (non-level HS subheading classification of the finished motorbike engines

For goods such as motorbike engines that are manufactured or produced through an extensive manufacturing process, the producer may well be able to qualify the engines under this first part of the relevant Product-Specific Rule of Origin However, in the situation where a producer