Company G specializes in producing vinyl for industrial machinery. It produces various types of vinyl for new cars, including seat covers for automobile seats. It was exporting to Japan, but did not have any personnel dedicated to exporting.
Buyer’s sudden request for a certificate of origin
One day, a company exporting vinyl for industrial machinery to Japan received a request from a client company to issue a certificate of origin for the Regional Comprehensive Economic Partnership Agreement (RCEP).
RCEP is an FTA agreement involving 15 countries, including 10 ASEAN countries, Korea, China, Japan, and Australia and New Zealand, which integrate the Asia-Pacific region into a single free trade zone. It went into effect in Korea on February 1, 2022.
The CEO of Company G was taken aback by the buyer’s sudden request for an RCEP certificate of origin. Since G’s export volume was not large, it had never used FTAs. It also had very little knowledge about FTAs.
Although the Korea Customs Service Electronic Customs Clearance System (UNIPASS) that handles online export and import customs clearance was used to issue export declaration certificates and other documents, issuing certificates of origin was a different matter. Company G had not even received a proper review of the HS code for its finished products.
The consultant who understood Company G’s situation suggested that they participate in ‘OK FTA Consulting.’
OK FTA Consulting is a customized comprehensive consulting service that supports the establishment of an efficient origin management system from product classification to country of origin determination and post-verification for small and medium-sized enterprises to utilize FTAs. It is a system that is of great help to small and medium-sized enterprises that are new to exporting or lack knowledge of the FTA system.
Three things confirmed in the pre-diagnosis
The consulting was systematically conducted for companies that are new to FTA.
The consultant assigned to Company G conducted a pre-diagnosis. And three major areas of improvement were identified. First, there was no experience responding to RCEP certificates of origin, second, there was no experience in FTA education, and third, there was no experience reviewing HS codes.
In order to advance into other countries in the future, as well as Japan, in-depth consulting was needed.
Based on the confirmed issues, the consultant set out to provide customized solutions.
First, the consultant confirmed the tariff benefits based on Company G's explanation that this was their first time responding to the RCEP certificate of origin.
As a result, the current implementation standard is 3.9%, and if RCEP is utilized, it will be 3.2% in the third year (April 1, 2023 to March 31, 2024), confirming a tariff benefit of 0.7%.
As a sequential concession item, the tariff benefits increased to 1.1% in the fourth year (April 1, 2024 to March 31, 2025).
The consultant explained this to Company G and introduced that if they issued the RCEP certificate of origin, they could expect continued transactions with the client.
Second, considering that they had no experience in FTA education, they approached it from the basics.
FTA basic education, education on writing documents proving origin, education on issuing certificates of origin, and post-management education were implemented. It was introduced that the FTA system is an important marketing tool for export companies to open up overseas markets.
Lastly, it was the HS code that must be checked when exporting to FTA agreement countries.
Company G had no experience in reviewing HS codes. It was required to improve the consistency of HS codes by reviewing finished products and raw materials and writing a product classification opinion.
The consultant explained, “Since exports are not a one-time thing, we proceeded in the direction of establishing an origin management system through ‘designating an origin specialist’ and ‘providing a common manual’ so that FTA can be continuously utilized even after the current origin specialist leaves the company.”
Support for opening up new markets for the future
The consulting was not limited to the Japanese market. This is because it is easier to discover new export markets if the FTA system is utilized well.
In particular, the fact that the Japanese market, which has high entry barriers, was developed means that there is sufficient potential for export to other countries.
We conducted work to confirm the tariff benefits of seat covers for RCEP agreement countries and major FTA countries.
As a result, it was confirmed that China, Japan, and Thailand were expected to benefit from RCEP, and the US, China, the EU, the UK, Vietnam, Indonesia, Thailand, India, and Vietnam were expected to gain tariff benefits through other FTA systems. It was sufficiently possible to expand export destinations.
The consulting was tailored to enable companies to experience the benefits of utilizing the FTA system.
We sequentially conducted the FTA status and basic requirements for use, the bill of materials (BOM) and manufacturing process diagram as proof of origin, how to write a certificate of origin, criteria for determining origin and determining origin, issuing a certificate of origin, post-management of origin, post-verification procedures and systems for post-verification of origin by agreement type, and guidance on post-verification cases of origin.
We also emphasized that reviewing the HS code is very important.
Based on the HS code of Company G’s finished product, No. 3924.90, and the shape, material, and use of raw materials, the HS code should be reviewed and a product classification opinion should be prepared and provided based on this.
In particular, if the HS code of the finished product is different from that of the importing country, it was explained that all the criteria for determining origin for No. 3924.90 and No. 3926.90 must be met.
Company G’s injection molding machines, manufacturing, printing, and cutting are being carried out domestically, so the process was more than sufficient. The principle of direct transportation to ‘shipping country Korea, destination country Japan’ was met.
However, since the raw materials were produced overseas and did not meet the complete production criteria, it was necessary to confirm whether the product-specific country of origin determination criteria (PSR) were met.
The RCEP agreement product-specific country of origin determination criteria for finished products No. 3924.90 and No. 3926.90 were both CTH or RVC 40%.
Since the HS codes of non-originating support materials and finished products differed by 4 digits, CTH was met. As a result of calculating the internal value added through the deduction method, it was confirmed that the final product was made in Korea since RVC was 40% or higher.
[Product origin determination criteria for items exported to Japan by Company G]
After that, the RCEP country of origin certificate issuance method was introduced. It was explained that the certification method by institutions such as the Korea Customs Service and Chamber of Commerce and Industry and the voluntary certification method through product-specific certified exporter certification were possible.
Company G went through the process of issuing the RCEP country of origin certificate through the Korea Customs Service.
Finally, the certificate of origin, certificate of origin documents, and import country tax numbering data (import country import declaration certificate) had to be stored electronically for 5 years after the issuance of the certificate of origin.
In addition, we helped establish an origin management system by designating and operating a dedicated origin management officer and providing a common manual to enable continuous use of the FTA.
Additional orders continued after the certificate was issued
After responding to the request for RCEP certificate of origin from a Japanese client, transactions continued. Five additional orders were placed after the consulting was conducted in September 2023.
The export amount was approximately $186,000 until March 2024, the following year after the consulting. The amount of tariff savings through exports during this period amounted to approximately $1,526.
From September 2023, immediately after the consulting, to December of the same year, the export amount was approximately $120,000, and the amount of tariff savings during this period was $800. The export amount from January to March 2024 was approximately $66,000, and the tariff reduction amount was approximately $726.
The consultant stated, “After consulting, we saw both quantitative and qualitative effects.” The issuance of RCEP certificates of origin for exported products enabled continuous transactions with the client company.
In particular, Company G’s exports are sequential concession items. The tariff reduction effect will increase every year, which means that Company G’s price competitiveness will increase every year.
The consultant stated, “It was a company that did not utilize the FTA and had no experience in FTA education, but through on-site visits, Company G’s FTA knowledge increased,” and “The company’s satisfaction was high due to the improvement of HS code consistency through the provision of product classification opinions, and in particular, the rapid issuance of RCEP certificates of origin was very satisfying in a situation where the transportation time to Japan was short.”
The consultant is currently providing free FTA consulting and A/S to Company G to ensure its continued use of the FTA.
