Goods that are produced using non-originating materials will have to undergo
substantial transformation in a country for the good to be qualified as originating.
The methods “product-specific rules (PSR)” used to measure the transformation are:

a) “Change in tariff classification criterion(CTC)”,
b) “Value-added criterion (VA,RVC)”, or
c) “Specific manufacturing or processing operation criterion (SP)”.

These 3 methods can be used in combination or standalone, depending on the origin criteria(on) for the good in a Free Trade Agreement (FTA).
The origin of these goods would be dependent on the country where the last substantial transformation is performed.

Retrieved from: Outline of Rules of Origin for EPA in Japan

 

PSR is stipulated in an annex to each FTA

Even if the materials from third countries (non-originating materials) are used in the
production, goods are considered as originating when the goods satisfy the
requirement set out in the product-specific rules(PSR).

PSR is generally provided as an annex to each FTA.

Here is an example of Product-Specific Rules (PSR) stipulated in an annex to
Japan-Thailand EPA

Here is an example of Product-Specific Rules (PSR) stipulated in an annex to
Japan-Vietnam EPA

 

 

 

Require “Big change” to be considered as an originating good

 

Retrieved from: Outline of Rules of Origin for EPA in Japan

 

This “Big change” is named as “substantial transformation” and a Party in which such a big change happened is considered as an origin of the Party.
Goods underwent big change are named as “Goods satisfied substantial transformation criterion”.

3 types of Substantial Transformation (Big Change)

(1) Change-in-tariff-classification Criterion (CTC rule)

When the HS code of a good differs from all HS codes of non-originating materials,
the good is qualified as an originating good.
For more details see What is “Change in tariff classification criterion(CTC)”

(2) Value-added criterion (VA rule)

When the value added to a good through its production in a Party satisfies some value content
the good is qualified as a Party satisfies some value content, the good is qualified as an
originating good.
For more details see What is “Value-added criterion”

(3) Specific manufacturing or processing operation  (SP rule)

When specific manufacturing or processing operation is applied to all non-originating materials,
the good is qualified as an originating good.
For more details see What is “Specific manufacturing or processing operation criterion (SP)”

Example of PSR

PSR for subheading 3904.10(Polyvinyl Chloride) under Japan-Thailand EPA

PSR for a good classified in subheading 3904.10 is composed of 3 criteria and
there is no priority order among these criteria (Co-equal rule) If one of these
criteria is met it satisfies PSR.

“Goods produced exclusively from originating materials” are the goods whose
production is completed in one country, however, they actually include non-originating materials.

 

Retrieved from: Outline of Rules of Origin for EPA in Japan

Goods produced exclusively from originating materials are the goods produced using originating materials only.
Because all the materials used in the production are originating materials,
the production is seemingly completed in one country.

However, there is a case where materials from a third country
(i.e. Non-originating materials) are used in the production of the originating materials.

 

Example 1 “Olive soap”

In this case “Olive” is secondary material and “Olive oil” is the primary material.

Retrieved from: OUTLINE OF RULES OF ORIGIN

Example 2 “Cup noodle”

In this case “Flour” is secondary material and “Noodle” is the primary material.

Retrieved from: Outline of Rules of Origin for EPA in Japan

In both cases, it looks like primary materials are Wholly obtained products,
but they contain non-originating materials as “Secondary material”

Therefore “Secondary material”  has to satisfy the origin criteria to be considered as
contracting country’s originating materials.

“Wholly obtained goods” are the goods whose production is completed in one country.

Retrieved from: Outline of Rules of Origin for EPA in Japan

“Wholly obtained goods” is Three Major Elements of Origin criteria.

A good is considered to be Wholly Obtained (WO) if it occurs naturally; is a plant that is
grown and harvested, or is an animal that is born and raised, or it is a waste that is derived
from production in the country of export.

Examples of “Wholly obtained goods”

(a)live animals born and raised in the Party (Livestock, etc.)

 

(b)animals obtained by hunting, trapping, fishing,
gathering or capturing in the Party (Captured wild animals, etc.)

(c) goods obtained from live animals in the Party (Milk, egg, etc.)

(d)plants and plant products harvested, picked or gathered in the Party
(Cut flowers, etc.)

(e)minerals and other naturally occurring substances, not included
in subparagraphs (a) through (d) above, extracted or taken in the Party

(f) goods of sea-fishing and other goods taken by vessels of the Party
from the sea outside the territorial seas of the Partied

(l) goods obtained or produced in the Party exclusively from the goods
are referred to in subparagraphs (a) through (f) above
(Meat produced from slaughtered cattle, etc.）

Retrieved from: Outline of Rules of Origin for EPA in Japan

Images of “Wholly obtained goods”

Those are a typical example of “Wholly obtained goods”

 

In the case below all components used are originating in Turkey.
Therefore the product is wholly obtained in Turkey.

Retrieved from:CHAMBRE DE COMMERCE ET D’INDUSTRIE DU LUXEMBOURG BELGE 

 

 

A good is considered to be originating if it meets the origin criteria stipulated
in the Rules of Origin (ROO) chapter of an Free Trade Agreement (FTA).

What is an originating good?

An originating good in an exporting Party can be broadly classified under
3 categories

a) A good that is Wholly Obtained  i.e. wholly grown or produced;
b) Goods produced exclusively from originating materials; or
c) A good that is manufactured using non-originating materials.

What is an Non-originating good?

Non-originating materials are materials/components –

a) Imported from a country that is not a Party to the Free Trade Agreement (FTA);
b) Produced in one of the Parties to the FTA but are not able to meet the
Rules of Origin under the FTA; or
c) The origin of goods cannot be determined.

 

Here is an example of a Laptop.
The monitor is imported from some country and Origin is unknown.
The keyboard part is imported from a country that is not a Party to the FTA.

With this condition, this Laptop may not be considered as originating goods,
even if it has been manufactured in a Party to the FTA.

From Non-originating to originating

Goods that are produced using non-originating materials will have to undergo
substantial transformation in a country for the good to be qualified as originating.
The methods used to measure the transformation change are:

a)Change in Tariff Classification(CTC)
b)Qualifying/Regional Value Content(QVC or RVC)
c)Specific manufacturing or Processing(SP)

These 3 methods can be used in combination or standalone, depending on the origin
criteria(on) for the good in a Free Trade Agreement (FTA). The origin of these goods would
be dependent on the country where the last substantial transformation is performed.

More details on the origin criteria are provided in “What is Origin Criteria”.

Images retrieved from:Handbook on Rules of Origin for Preferential Certificates of Origin