“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

Rules of origin generally consists of origin criteria and origin procedures.
Origin criteria stipulate conditions or requirement for a good to be
considered as ‘originating’.

Origin procedures provide for the course of action to be followed when
applying the preferential Customs Duty rates.

Three major parts of Origin Criteria

In general, originating goods are either:
“Wholly obtained goods(WO)”,
“Goods produced exclusively from originating materials(PE)”, or
“Goods satisfying the product-specific rules (PSR)”.

Please note that the rules of origin of each FTA reflect the result of negotiations
with the partner countries, thus there are slight differences from one agreement
to another.

Wholly obtained goods(WO)

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

(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 

Goods produced exclusively from originating materials(PE)

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.

Goods satisfying the product-specific rules (PSR)

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.

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 Rroduct-Specific Rules (PSR).

PSR is generally provided as an annex to each FTA.
The methods used to measure the substantial transformation are:

1.“Change in Tariff Classification(CTC)”,
2.“Qualifying/Regional Value Content(QVC or RVC)”,
3.“Specific manufacturing or Processing(SP)”, or a combination of these.

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”.

Change in Tariff Classification(CTC)

Qualifying/Regional Value Content(QVC or RVC)

Goods are considered as originating if a certain value (%) is added through
the production is undertaken in the territory of a party/country,
and the value-added exceeds the prescribed threshold (%).

(Example)
PSR for a passenger vehicle of heading 87.03 under Japan-Australia EPA:
the value added in the country of manufacture (Qualifying Value Content) is
not less than 40% and the last process of production has been performed in
the exporting party.

Specific manufacturing or Processing(SP)

Goods are considered as originating if the goods undergo specific manufacturing or
processing such as chemical reaction, distillation, purification, etc. in the territory of
a party/country.

(Example)
PSR for glycerol of subheading 2905.45 under Japan-Australia EPA:
the good has undergone a chemical reaction in the area of a party.
Chemical reaction is defined as a process which results in a molecule
with a newstructure.

Images retrieved from:Outline of Rules of Origin for EPA in Japan

Rules of Origin (ROOs) help to determine the “Nationality” of goods in
order to reduce Customs Duty.

Lower tariff rate (Preferential Customs Duty rate on FTA) is applied to
originating goods of the exporting Party .

Types of Rules of Origin

Rules of origin are categorized into

preferential rules of origin
and
non-preferential rules of origin.

Preferential rules of origin include the rules for the application of the Preferential
Customs Duty rates under Economic Partnership Agreements(EPA) or FTA
and the rules for the application of the preferential Customs Duty rates under the
Generalized System of Preferences (GSP).

Non-preferential rules of origin are applied to determine the country of origin for
the purposes other than granting of preferential Customs Duty treatment
(such as the application of WTO tariff rates, trade statistics, etc.).

ROOs for Preferential treatment

It establishes the goods’ eligibility for preferential treatment under a
Free Trade Agreement (FTA).

Goods that satisfy the ROOs under an FTA may be considered as an originating
good and be allowed to pay lower or no import Customs Duty when imported into a
Party under the FTA.

ROOs vary from FTAs to FTAs. As such, a good which qualify for a FTA may not
be able to qualify as an originating good in other FTAs

Wait wait !!

Any goods imported from the countries concluded FTA or EPA  can not always
apply the preferential tariff rate on FTA for your trade.

Why can’t we enjoy the lower tariff rate on FTA for all imported goods
from countries concluded FTA？

Let’s consider the example of “wine” for our understanding!

Example of Wine’s Rules of origin

Case 1

A bottle of wine through all processes above in Thailand makes us think that
this wine is an originating good of Thailand.

Case 2

A bottle of wine through processes above may make us think that
this wine is not an originating good of Thailand.

Case 3

How about this case?
People have lots of different opinions in this case.

IMPORTER A:
I think the wine is originating good of Thailand because thinking the wine is
originating good of Thailand because fermentation decides the taste of wine.

IMPORTER B:
I know that. But the quality of grape also decides the taste of wine,
so I doubt the wine is originating good of Thailand.

Satisfy the origin criteria stipulated in ROO

A rule is necessary to decide which process should be a bottled wine of a Party under FTA.

If only one country is involved in the production of a good,
it is fairly straightforward to determine the country of origin

On the other hand, if more than one country is involved in the production,
there must be a rule to determine which country is the origin of the good.

Rules of origin also play a role in ensuring that the preferential customs duty rates
are applied only to the originating goods of the eligible countries
(i.e. anti-circumvention).

This rule is called “Origin Criteria” and a good which satisfies the
origin criteria is called as “an originating good of a Party”.

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

If you want to use preferential Customs Duty rate on FTA for goods,
the goods should satisfy the origin criteria to apply such Customs Duty rate.

Images retrieved from:
Outline of Rules of Origin for EPA in Japan

Handbook on Rules of Origin for Preferential Certificates of Origin