July 1st, 2014 Riki TAMAKI Customs and Tariff Bureau Ministry of Finance

1. July 1st, 2014 Riki TAMAKI Customs and Tariff Bureau Ministry of Finance • Preferential Origin Rules and Procedures to Secure Revenue • -the role of Customs in regional integration- Japan Customs

2. FTAs Under Negotiations Dominican Republic Myanmar Cambodia Nicaragua Russia El Salvador Guatemala Honduras Panama Indonesia Costa Rica Bhutan, Maldives, Nepal, Pakistan Brunei Darussalam Viet Nam Laos USA Philippines Malaysia Paraguay Bangladesh Thailand Brazil Argentina India Singapore Uruguay Sri Lanka New Zealand Chile Mexico Japan People’s Rep. of China Peru Colombia Hong Kong, China Korea Canada Bolivia Ecuador Chinese Taipei Australia Venezuela Fiji, Solomon Islands, Vanuatu Papua New Guinea Bahamas Haiti Fed. States of Micronesia, Marshall Islands, Kiribati, Palau, W. Samoa,Tonga, Vanuatu, E. Timor, Cook Islands, Nauru, Niue, Tuvalu Dominica, Suriname, Jamaica, St. Lucia, Belize, St. Kitts & Nevis, Grenada, Barbados, Guyana, St. Vincent & the Grenadines, Antigua & Barbuda, Trinidad & Tobago “Spaghetti Bowl” Effects AMERICAS ASIA (source) APEC WORKSHOP ON BEST PRACTICES IN TRADE POLICY FOR RTAs/FTAs: PRACTICAL LESSONS AND EXPERIENCES FOR DEVLOPING ECONOMIES February 2006, Ha Noi, Viet Nam

3. Three pillars to decide customs duty amounts（Tariff classification, Customs Valuation, Rules of Origin） Quantity or Value Duty amount = Customs Value × tariff rate Rules of origin decides which rate shall be apply to the goods Tariff classification decide item More than 9000 items FTA rate Japan Customs

4. Major Elements of ROO Wholly obtained or produced goods Product Specific Rules Goods produced exclusively from originating materials Origin criteria Change in tariff classification criterion Goods satisfying substantial transformation criteria Rules of origin Value-added criterion Consignment criteria Specific manufacturing or processing operation criterion Procedural provisions Exceptions to the substantial transformation criteria Certificate of origin Transportation documents Accumulation Three Major Elements of ROO De minimis Non-qualifying operations Japan Customs

5. Part A: Origin Criteria Japan Customs

6. Types of Substantial Transformation (1) Change-in-tariff-classification criterion (CTC rule) (2) Value-added criterion (VA rule) (3) Specific manufacturing or processing operation criterion (Process rule) 3 types of Substantial Transformation (Big Change) Japan Customs

7. Change-in-tariff-classificationCriterion (CTC rule) Under CTC rule, the originating status of goods are determined based on the change in tariff classification (HS code). For some goods, change-in-tariff-classification criterion cannot be adopted because of the structure of HS. In addition, interpretation of HS is closely implicated in the originating status of goods. Therefore, HS is extremely important in establishing and applying Rules of Origin. The possible challenges ・Lowering of user-friendliness of FTA associated with HSrevision・Limited subdivision of HS code (ex.) components of machinery To assure proper and smooth trading, it is essential for HS and Rules of Origin to cooperate with in the future. Japan Customs

8. Cases where “Change in tariff classification” criterion CANNOT be adopted Complete or finished articles (machinery) Individual heading or subheading Major components may included in a single heading or subheading Minor components Individual components Change in tariff classification criterion cannot be adopted. Japan Customs

9. Supporting Instruments and Tools on Interpretation • - Advisory Opinions • - Commentaries • ? Japan Customs

10. Part B: Origin Procedure 財務省関税局

11. Types of Certification procedures in the World Government of Exporting Party uninvolved in certification process Government of Exporting Party involved in certification process Importer-based Self Certification Competent Authority Certification Approved Exporter Self-Certification Exporter Self-Certification - Importer proves with origin declaration by exporter approved by exporting Party • Importer proves with • ① certificate of origin by importer, exporter or producer • OR • ②Importer's Knowledge - Importer proves with certificate of origin issued by government of exporting Party or the designated authority - Importer proves with certificate of origin by exporter Original CO for each importation is required (copy and electronic media are normally unaccepted) Original CO for each importation is required (copy and electronic media are normally unaccepted) Multi CO which covers multiple importation is accepted(copy and electronic media are accepted) Multi CO which covers multiple importation is accepted(copy and electronic media are accepted) EU, Switzerland ASEAN, Japan, China Canada, Mexico, Chile, Australia, NZ USA ※ Japan adopt this type in FTA with Switzerland, Peru, Mexico • Some ASEAN countries are now implementing a pilot project of approved exporter self-certification under ATIGA. • EU decided to introduce registered exporter self-certification from 2017 and to abolish competent authority certification. Importer-based self certification was introduced in US’s FTAs after NAFTA. (Ex. US-Korea, US-Chile) Japan Customs

12. Types of FTA Verification procedures in the World Government of Exporting Party uninvolved in verification process Government of Exporting Party involved in verification process G to G Verification by the Importing Customs through the Government of Exporting Party G to B Verification by the Importing Customs G to B Verification by the Importing Customs Exporter, Producer Exporter, Producer Importer(Claimer for preferential treatment) ※Exporter/Producer is the verifier, and Exporter/Producer can submit explanation documents to the Customs of importing country directly if they contain confidential information. USA, NZ, Australia, (Japan, Korea) Canada, Mexico, Latin America ASEAN, Japan, Korea, China, EU USA/AU/NZ verifies to importer as a rule Japan/Korea verifies to importers firstly, and use other systems as a cover. 【Examples of supporting documents need to be submitted under verification process】 ○The list of all parts○The flow chart of manufacturing process ○The written oath ○The document of instruction of production ○The invoice/book of raw materials and so on ○The contract( between producer/exporter) ○The recording documents of input of each parts and materialsetc Japan Customs

13. G to B Verification towards exporters or producers Importing Country Exporting Country 【Verifier】 【Claimer for Preferential treatment】 【Information Provider】 Importer Producer Exporter Information Information Verification （Analyzing of risk） Customs of Importing Country Japan Customs

14. G to G verification by customs mutual assistance Importing Country Exporting Country 【Verifier】 【Claimer for Preferential treatment】 【Information Provider】 Importer Producer Exporter Information Information Verification （Analyzing of risk） Customs of Exporting Country Customs of Importing Country Japan Customs

15. Key points for better ROO procedures • For Customs, it is burden to ask questions / require supporting documents from exporters/ producers in other countries. • For Exporters or producers, it is burden to be asked by foreign customs. • Allow importers to certify origin, as we do in valuation or HS. • Verifying to importers in their country is efficient for customs. • Customs cooperation on ROO is important to supplement verification to importers. Japan Customs