Labels of Origin in China and Singapore

1. Labels of Origin in China and Singapore Riccardo G. Cajola Partner Caroline Berube Partner Guangzhou Shanghai Singapore Milan www.hjmasiacajola.com

2. Overview of Topics • Concept of Certificate of Origin • Use of Certificate of Origin in Singapore • Use of Certificate of Origin in China • Use of Certificate of Origin in Italy • How to obtain a Preferential Certificate of Origin in Singapore • How to obtain a Preferential Certificate of Origin in China • How to obtain a Preferential Certificate of Origin in Italy • Recap of Rules of Origin in Different Countries • How to go around strict controls and protectionist measures in China • Practical tips • Case study Guangzhou Shanghai Singapore Milan www.hjmasiacajola.com

3. Concept of Certificate of Origin • Label of country origin: Labels, marks, signs, words, sketches and/or relevant certificates indicating the country or region where a product or service originated. • Label of location origin: Labels, marks, signs, words, sketches and/or relevant certificates indicating the geographic name of a country, region or specific location indicating where a product is originated, and the apparent quality of the product is determined by the geographic environment, natural conditions and cultural background. The concept of Certificate of Origin, although slightly different in wording, is approximately the same in Singapore, China and Italy. Guangzhou Shanghai Singapore Milan www.hjmasiacajola.com

4. Use of Certificate of Origin in Singapore Two kinds of Certificate of Origin under Rule of Origin: 1. Non-preferential Certificate of Origin: A document showing that products are wholly obtained, produced or manufactured in Singapore, depending on the Rules of Origin. 2. Preferential Certificate of Origin A document enabling buyers to claim preferential tariff treatment when importing products from Singapore under, for example, China-Singapore Free Trade Agreement (covering products e.g. honey products, clothing and electrical appliance). Guangzhou Shanghai Singapore Milan www.hjmasiacajola.com

5. Use of Certificate of Origin in China • Preferential Certificate of Origin is used where international trade agreement requires such certificate for obtaining preferential tariff. • Lacking any international trade agreement, Non-preferential Certificate is used to determine that a product is originated in China and therefore evidence the quality of the product, but Non-preferential Certificate will not be able to allow tariff reduction. • As a developing country, China benefits from GSP Certificate of Origin. • GSP Certificate of Origin only allows China-made products to receive tariff reduction from developed countries including Italy. E.g. toy, household appliance and textile products. • Italy-made products cannot benefit from GSP Certificate of Origin. Guangzhou Shanghai Singapore Milan www.hjmasiacajola.com

6. Use of Certificate of Origin in Italy • EC law regulates only geographical indications regarding specific products in the agricultural/food sector; • Italian law provides for rules of origin concerning geographical indications in other sectors, no EU law; • Non-preferential Certificate of Origin is used for determining the origin of products subject to all kinds of commercial policy measures (such as anti-dumping measures, quantitative restrictions). It is also used for statistical purposes; • Preferential Certificate of Origin allows a more favorable tariff treatment from the EU under certain international agreements. Guangzhou Shanghai Singapore Milan www.hjmasiacajola.com

7. How to obtain a Preferential Certificate of Origin in Singapore Products qualify as Singapore-made products in either of these cases: • Products are wholly obtained in Singapore i.e. grown or produced solely in Singapore without any imported materials, or • Products are manufactured in Singapore and Singapore is the last country where substantial transformation took place. For a preferential Certificate of Origin, the percentage of the foreign content must not exceed 40% or 50% of its ex-factory price.     Foreign Raw Materials Cost Foreign Content = ----- ------------------------------ X 100 =_____% Ex-factory Price • E.g. Tiger Beer is Singapore-made, although the barley and wheat is mostly imported from other countries, the substantial transformation takes place in Singapore and the cost of barley and wheat does not exceed the ex-factory price of the Tiger Beer. Guangzhou Shanghai Singapore Milan www.hjmasiacajola.com

8. How to obtain a Preferential Certificate of Origin in China In China, there are two basic tests to obtain a Preferential Certificate of Origin: • The goods are originally obtained only from China without considering the minor processing or treatment for transportation or storage; or • Where the goods are produced in more than one country / region, substantive change is made in China. Guangzhou Shanghai Singapore Milan www.hjmasiacajola.com

9. How to obtain a Preferential Certificate of Origin in Italy • Preferential Certificate of Origin is only conferred to wholly obtained products. • The manufacturing process must only happen in Italy. Guangzhou Shanghai Singapore Milan www.hjmasiacajola.com

10. Recap of Rules of Origin in Different Countries • The purpose of Certificate of Origin is to identify the “nationality” of the products. • Free trade agreement only exists between Singapore and China. • Only China benefits from GSP Certificate of Origin. • In Italy, only wholly obtained products are subject to Preferential Certificate of Origin. Guangzhou Shanghai Singapore Milan www.hjmasiacajola.com

11. Tax duties on Imported Products in Singapore • Singapore is a free port and has relatively few duties on imported products. • Custom duties, at the rate of 0-1%, are only applicable to motor vehicles, tobacco, liquor and petroleum products. • GST is levied on all imported goods at the rate of 7%. • Compared to the tax burden in other countries, tax on imports in Singapore will not significantly increase the cost of imported products. Guangzhou Shanghai Singapore Milan www.hjmasiacajola.com

12. Tax duties on Imported Products in China • Unlike tax duties in Singapore, China imposes heavy tax on imported products. • VAT is levied on all imported goods at the rate of 17% • Import tax varies significantly depending on the nature of the imported goods, ranging from 1% to 100%, or even more in anti-dumping cases. • Luxury goods, petroleum, fireworks and motor vehicles are subject to consumption taxes ranging from 3% to 45%. • As a result, cost of imported products can be significantly increased in China because of the heavy tax burden. Guangzhou Shanghai Singapore Milan www.hjmasiacajola.com

13. How to go around strict controls and protectionist measures in China • It is usually straightforward to get a Certificate of Origin in China. • The only complicating circumstances concern products not wholly produced in China, especially more than two counties involve. • The standard for issuing Certificate of Origin for each type of products is different, and the Chinese governmental officials are usually not flexible. • Therefore, it is always critical to check with the officials about what type and form of application documents are acceptable, which may happen to change at times. Guangzhou Shanghai Singapore Milan www.hjmasiacajola.com

14. Practical Tips The following factors are usually involved in production of products, but do not impact on product origin: • The sale processing (e.g. packing), transportation will not influence the origin of the products. • The origin of products are not influenced by the origin of the tools, machines, and other equipment used during the production; and • The packing materials and accessories (such as the box perfumes are sold in) will have the same origin with the products when they are included with the product for tax purposes. Guangzhou Shanghai Singapore Milan www.hjmasiacajola.com

15. Case Study • Company A designs single bucket excavators (“Products”) in Italy, sources raw materials and produces different part of the Products in several countries/regions and finally assemble the Products in Singapore and sells them to China. • Singapore-made products may enjoy tariff reduction when they are sold to China. • However, if the Products are assembled in Italy and sold respectively to China and Singapore, the Products from Italy are not subject to the benefit of the Preferential Certificate of Origin. Guangzhou Shanghai Singapore Milan www.hjmasiacajola.com

16. Case Study (Cont.) • A twist of the case is that products are produced in China and sold to Italy. As mentioned above, products from China to Italy may benefit from GSP Certificate of Origin, and therefore are entitled to tariff reduction. • However, if products are produced in Singapore and sold to Italy, products cannot benefit from Preferential Certificate of Origin, and therefore are not entitled to tariff reduction. • Hence, a Singapore company may consider having an assembly/manufacture plant in China. By doing so, it will benefit from China’s status for obtaining GSP Certificate of Origin. Guangzhou Shanghai Singapore Milan www.hjmasiacajola.com

17. Questions & Answers Sessions . . .Thanks for your attention Riccardo Cajola / Caroline Berubeinfo@hjmasiacajola.comTel: +8620 8121 6605 ext. 808Fax: +8620 8121 6505 Guangzhou Shanghai Singapore Milan www.hjmasiacajola.com