Rules of Origin in the Asean Trade in Goods Agreement
In this article, we discuss how the ASEAN ATIGA Rules of Origin (ROO) have been codified in Vietnam. Businesses engaged in import-export trade in the region must meet key ROO thresholds as destination markets increase scrutiny over the misuse of FTA incentives to access wider trade channels.
How the rules of origin apply in Vietnam under ATIGA requirements
At the 55th ASEAN Economic Ministers’ Meeting held in Indonesia in August 2023, ministers dedicated their time to discussing the enhancement of the ASEAN Trade in Goods Agreement (ATIGA) and resolving longstanding implementation issues.
ATIGA holds significant importance in facilitating the trade of commercial goods and has garnered considerable interest among countries within the bloc.
To gain a comprehensive understanding of Vietnam’s implementation of the rules of origin (ROO) within the ATIGA and identify noteworthy changes, Vietnam Briefing breaks down key circulars below.
Circular No. 22/2016/TT-BCT, No. 19/2020/TT-BCT, and No. 10/2022/TT-BCT together serve as a comprehensive guide for the application of rules of origin in Vietnam for managing commercial activities under the ASEAN ATIGA.
These circulars outline the essential procedures, requirements, and documentation needed to determine the origin of goods and claim tax incentives within the ASEAN region. By referring to these circulars, stakeholders can gain a better understanding of Vietnam’s implementation of the ROO and identify any significant changes or updates in the process.
Who does it apply to?
As per the revised Circular No. 19/2020/TT-BCT, this applies to traders engaged in the import and export of goods with other countries that are party to ATIGA, as well as ASEAN member countries that have implemented the ASEAN-wide Self-Certification (AWSC) mechanism.
By including these participants, the circular ensures that the rules of origin are effectively implemented, monitored, and enforced by relevant stakeholders operating within the ASEAN region.
What do firms need to know about this Circular?
What shall be treated as originating goods?
There are two scenarios in which goods can be considered originating goods and therefore eligible for incentives attached to the ATIGA ROO.
Case 1: For wholly obtained or produced goods
The goods must be entirely manufactured or produced in the exporting member state. This means that the goods should be produced, grown, or processed within the borders of the exporting country.
Case 2: For not wholly obtained or produced goods
In this scenario, goods must meet the criterion of having “ASEAN Value Content” or “Regional Value Content (RVC)” of not less than 40 percent.
This requirement ensures that a significant portion of the value added to the goods occurs within the ASEAN region. Specifically, there are two formulas for calculating RVC. These are the direct method and indirect method.
There are six components under the direct method:
- ASEAN material cost: The cost, insurance, and freight value of materials, parts, or goods of originating nature that are either acquired or self-produced with the ASEAN region.
- Direct labor cost: The wages, remuneration, and other employee benefits directly associated with the manufacturing process.
- Direct overhead: This includes electricity, water, and equipment.
- Other costs: Any other costs incurred with the ASEAN region.
- Profit: The amount of money a firm makes off the sale of a product minus its expenses.
- Free on Board (FOB) price: This represents the value of goods at the point of loading onto the ship. It is calculated by combining the costs of materials, production, profit, and other relevant expenses.
Under the direct method, firms need to combine the values of items 1 through 5, then divide that number by the FOB price, and multiply the outcome by 100.
|RVC =||ASEAN material costs||+||Direct labor costs||+||Direct overheads||+||Other costs||+||Profit||X 100%|
The indirect method is made up of two key components. These are
- Value of non-originating materials which includes:
- The cost, insurance, and freight value of non-ASEAN originating goods at the time of importation or proven importation;
- The earliest confirmed price paid for goods of undetermined origin where the working or processing occurs; and
- The FOB price: See above.
Under the indirect method, firms subtract the value of non-originating material from the FOB price and multiply by 100.
|RVC =||FOB Price||–||Value of non-originating materials||X 100%|
How to certify the origin of goods?
Proof of origin
Exporters are required to obtain a document known as a Certificate of Origin (C/O), which serves as proof that the exported goods comply with the ROO outlined in Circular No. 22/2016/TT-BCT. To acquire the C/O, businesses can visit their regional Import-Export Management Offices.
It is crucial for exporters to thoroughly examine the documents before submitting them, ensuring that they meet the following requirements:
- The application for the issuance of C/O and C/O Form D is fully completed and signed by an authorized individual.
- The origin of goods complies with Circular No. 22/2016/TT-BCT.
- The goods are described accurately, including information on quantity, weight, number of packages, and type of packaging.
In certain cases, exporters have the option to provide a declaration regarding the origin of the exported goods on the commercial invoice, instead of using a C/O Form D. If the origin declaration cannot be included on the commercial invoice at the time of export, the certified exporter has the flexibility to include it on alternative documents, such as a billing statement, delivery order, or packing list.
To ensure acceptance by the importing member state, exporters should ensure that their dossier includes the following documents:
1. Detailed information about the exporter, including the self-certification code of origin of goods.
2. Detailed goods description, including:
- Item name;
- HS code at the 6-digit level or ASEAN Harmonized Tariff Nomenclature (AHTN) code;
- Corresponding origin criteria;
- Country of origin;
- Brand (if applicable); and
- FOB price (if the exporter applies RVC).
3. Certification of the person competent to sign the declaration of origin of goods, including:
- Commitment that the goods recorded in the declaration document of origin meet the regulations of the ATIGA Agreement.; and
- Signature and full name of the signatory.
What should exporters take note of?
Exporters should be aware that documents certifying the origin of goods hold a validity period of 12 days. Therefore, it is crucial for exporters to adhere to this timeframe and return these documents to the customs authority of the importing member country within the specified period. Failing to do so may result in complications during the customs clearance process.
Exemption for low-value goods
In terms of documentation requirements, exporters should take note of the exemption granted for goods with a value of less than US$200. This exemption aims to streamline and simplify the export process for low-value goods, reducing the administrative burden and facilitating efficient trade.
The implementation of the ATIGA has incentivized Vietnamese businesses to reach more overseas consumers with tax incentives but poses challenges that require a clear understanding of the circulars and regulations. To fully capitalize on these benefits, businesses must navigate the intricacies of the agreement while also staying informed about evolving trade policies and ensuring compliance. This becomes more important as destination markets also increase scrutiny over potential misuse of ROO-linked incentives to access wider trade channels.
For assistance applying for implementation of Rules of Origins in the ATIGA, contact the tax experts at Dezan Shira and Associates.
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