3 WHERE? 3: ChAFTA preferential rules of origin (ROO) are agreed criteria used to ensure that only goods originating in either China or Australia enjoy the benefits of the Agreement. These rules prevent goods from a third party being transshipped through either China or Australia to take advantage of the FTA to access lower, preferential import tariffs. Any imports into China or Australia that do not comply with the ROO as set out in and (Product Specific Rules of Origin) will be subject to the general (MFN) rate of duty, instead of the preferential rates available under ChAFTA. A good will be considered ‘originating’ if it is: ‘wholly obtained’ or produced from wholly obtained goods in China or Australia; or produced entirely in China or Australia, or both, from materials classified as ‘originating’ in either country under the ROO; or produced in China or Australia, or both, using inputs from other countries, while meeting the Product Specific Rule (PSR) applicable to that good, as set out in . Wholly Obtained Goods Wholly obtained goods are goods which are exclusively derived from one country. Typically these are agricultural goods and natural resources. The table on page 12 sets out the categories of goods which ChAFTA treats as wholly obtained. ChAFTA also treats goods that are made exclusively from wholly obtained goods as being wholly obtained (). Goods produced entirely in Australia or China Goods produced entirely in either China or Australia, or both, from materials classified as ‘wholly obtained’ or ‘originating’ under the Rules of Origin (ROO), will qualify as ‘originating’ under ChAFTA and qualify for preferential tariff treatment. Goods containing inputs from outside China or Australia Goods made from inputs sourced from outside China or Australia may still qualify as originating, as long as the inputs have undergone a substantial transformation in the process of production in China or Australia, or both. Product Specific Rules (PSRs) set out in ChAFTA Chapter Three- , provide rules by which Chinese and Australian customs authorities will determine whether a good has undergone a substantial transformation. If your good contains inputs from outside Australia or China, you will need to check the applicable PSR to determine whether your good qualifies as originating.
Other Approaches Some PSRs allow for a good to become originating if the non-originating materials undergo a specific manufacturing or production process, for example: processes that involve chemicals undergoing various chemical reactions may grant origin on the resulting new chemicals; for some agricultural products, smoking of non-originating fresh produce may grant origin; and for some textile products, fully finishing non-originating raw fabric may grant origin. Note It is important to remember that ROO requirements do not replace any other import requirements such as import licences and biosecurity approvals. Other Important ROOs There are other important factors to take into account when determining whether your good qualifies as originating. De Minimis Where a good contains only a small amount of imported inputs, but those inputs fail to achieve the necessary CTC once incorporated in the final good, the product may still qualify as originating. If the value of all materials does not exceed 10 per cent of the value of the good, the product will qualify under the de minimis rule. The goods seeking de minimis classification must comply with any other applicable requirements of the ROOs. Further information can be found in ChAFTA . Box 3 on page 13 provides details on calculating a good’s value. Cumulation The rule of cumulation provides that goods which are in one Party are considered in the other Party for the purposes of ChAFTA. This means that if Australian-originating inputs were incorporated into a product made in China, that input would be treated as if it originated in China. Fungible materials Fungible materials are those which are identical or interchangeable, because they are of the same kind of commercial quality, possess the same technical and physical characteristics, and, once mixed, cannot be readily distinguished. Examples include natural gas, grain, or simple parts (e.g. rivets). Specific accounting rules apply to exporters wishing to demonstrate that fungible goods are originating under ChAFTA. More information is available in . Minimal operations or processes Goods will not qualify as originating if they have only undergone a simple process such as packaging, simple grinding or washing. A full list of processes that will not confer origin is available in . Neutral elements Materials which are used in the production of a good, but are not physically incorporated into the end product, are not counted in determining whether a product is originating. Examples include fuel and energy, tools, moulds, catalysts and solvents. A full list is available in .