ASEAN Rules of Origin (RoOs) have often been branded as an example of simplicity, including by ASEAN's own leaders. However a number of reports and the increased calls by the same leaders to further simplify the ASEAN RoOs tell a different story.

In reality, the RoOs contained in the AFTA implementing the Common Effective Preferential Tariff (CEPT) Scheme have been systematically revisited for more than two decades by the ASEAN negotiating machinery in a perpetual quest to improve them. The results have been less than meager. Such failure is the result from, on the one hand, a consistent allergy to drawing from the lessons learned in ASEAN and in other regions, and, on the other hand, lack of capacity or simple inability to draft predictable and transparent legal texts on RoOs. All of this has been complicated by the “ASEAN Way” of consensus and non-confrontation; the “ASEAN Way” prevents problems from being raised or addressed.

In the face of its domestic failures, ASEAN has tried to export its model of RoOs when negotiating bilateral or plurilateral FTAs with, again, meager results. So far, the FTAs with China and India still reflect the shortcomings of the ASEAN RoOs, while the other FTAs negotiated by ASEAN with Japan, Korea and Australia/New Zealand reflect the RoOs models of these respective ASEAN partners.

There are more than thirty RTAs in force involving East Asia, and many are led by ASEAN. Among the various methodologies for determining the origin of a good, ASEAN has followed its tradition as in many other trade issues: the ASEAN way. For more than two decades ASEAN used a percentage criterion of 40 percent. The drafting of the ASEAN legal texts concerning the calculation methodology of the 40 percent were far from clear and predictable, allowing for different methods used by different ASEAN countries. Recent reforms have introduced the concept of an RVC and the CTC as alternative criteria. An increasing number of products of PSROs are now being given the option to apply CTC as an alternative criterion to the 40 percent calculated as RVC.

The jury is still out on whether the addition of these alternative rules has resulted in a substantial increase of the utilization of ASEAN FTAs, today’s ATIGA. Table 1.1 in Chapter 1 indicates that much remains to be done to increase utilization rates.

The consolidation efforts made in the ATIGA made some improvements but they fall short; in sum, they are simply too little too late. An overall overhaul and rejuvenation of the ATIGA RoOs is necessary.

This monograph is published within the context of a wide-ranging research project entitled, Integration Through Law: The Role of Law and the Rule of Law in ASEAN Integration (ITL), undertaken by the Centre for International Law at the National University of Singapore and directed by J. H. H. Weiler, Michael Ewing-Chow and Tan Hsien-Li.

The Preamble to the ASEAN Charter concludes with a single decision: “We, the Peoples of the Member States of the Association of Southeast Asian Nations … [h]ereby decide to establish, through this Charter, the legal and institutional framework for ASEAN.” For the first time in its history of over four decades, the Legal and the Institutional were brought to the forefront of ASEAN discourse.

The gravitas of the medium, a Charter: the substantive ambition of its content, the creation of three interlocking Communities, and the turn to law and institutions as instruments for realization provide ample justification for this wideranging project, to which this monograph is one contribution, examining ASEAN in a comparative context.

That same substantive and, indeed, political ambition means that any single study, illuminating as it may be, will cover but a fraction of the phenomena. Our modus operandi in this project was to create teams of researchers from Asia and elsewhere who would contribute individual monographs within an overall framework which we had designed.

Form D over SUBSTANCE

The “Form D” CO is the documentary foundation of the ATIGA and AFTA. Companies wishing to claim the zero tariff rate applicable under the ATIGA must demonstrate that their goods qualify as ASEAN origin either by achieving 40 percent value added from ASEAN inputs and processing, or by a CTC at the four-digit harmonized tariff system level through processing in ASEAN (there are some special product-specific rules for automotive, steel, chemical and other products as discussed earlier).

The Form D is issued – on application by the exporter – by designated authorities in ASEAN Member States on the basis of pre-export examination of the goods in question and submission of relevant documents by the exporter for each and every export consignment. The procedure includes pre-export examination of the relevant records (including sourcing and cost accounting) and – where relevant – production processes. A 2009 ERIA paper reviewed the relevant processes in two ASEAN Member States and concluded that compliance with the rules can be “costly and administratively burdensome.” However, the situation differs from country to country between full manual and personal treatment to a high degree of computerization.

The Form D process would probably score relatively high on reliability, but much less highly (and in some cases quite poorly) on simplicity and cost effectiveness, for both ASEAN Member States and exporters. This could be a major contributing factor to the severe underutilization of the ATIGA duty preferences.

The rules of origin (RoOs) constitute a fundamental foundation for any preferential trade agreement (PTA) involving trade in goods. RoOs are similar to nationality and citizenship rules for natural persons in a nation-state, in that both sets of rules establish the rights and privileges applicable to qualifying persons or goods. Nationality and citizenship rules determine who may enjoy the benefits of citizenship, such as freedom of movement, permanent residency and the like. Similarly, RoOs determine the applicable duty rate and other treatment for goods in the PTA.

RoOs generally fall into three types:

1. RoOs based on the “wholly originating” principle apply to goods which are naturally occurring (such as minerals) or grown/harvested (such as agricultural products). Human involvement in the production of such goods is limited to extracting, cultivating and/or harvesting the goods. In such circumstances, the country of origin is where the extraction, cultivation or harvest has taken place, i.e., the product “wholly originates” in that country.

2. RoOs based on qualitative analysis examine the extent to which a good has been further processed into another good, with an emphasis on the processing that has taken place in that country. In the “substantial transformation” standard, the relevant authorities examine the nature of the processing and whether the product has been fundamentally changed into another product. Another approach is the “change in tariff classification,” which examines whether the initial product and the processed products are classified differently under the Harmonized Tariff Schedule (HTS); sufficient deviation in HTS classification confers origin under this type of RoO. Finally, there are special product-specific RoOs that provide for specific processes as conferring origin on the product; these product-specific rules are commonly used for textiles.

3. RoOs based on quantitative analysis examine the value added by the processing in the country. This approach is known as “regional value content,” under which the relevant authorities examine the value of the goods input into the production process, labor, overheads, and other costs. If after processing the resulting product meets a specified criterion, that product will satisfy the RoO.

For the purposes of implementing the Rules of Origin set out in Chapter 3 (hereinafter referred to as “ASEAN ROO”), the following operational procedures on the issuance and verification of the Certificate of Origin (Form D) and other related administrative matters shall be observed.

Rule 1 Definitions

For the purposes of this Annex:

1. back-to-back Certificate of Origin means a Certificate of Origin issued by an intermediate exporting Member State based on the Certificate of Origin issued by the first exporting Member State;

2. exporter means a natural or juridical person located in the territory of a Member State where a good is exported from by such a person;

3. importer means a natural or juridical person located in the territory of a Member State where a good is imported into by such a person;

4. issuing authority means the Government authority of the exporting Member State designated to issue a Certificate of Origin (Form D) and notified to all the other Member States in accordance with this Annex; and

5. producer means a natural or juridical person who carries out production as set out in Article 25 of this Agreement in the territory of a Member State.

Chapter 3 Rules of Origin

Article 1 Definitions

For the purposes of this Chapter:

1. aquaculture means the farming of aquatic organisms including fish, molluscs, crustaceans, other aquatic invertebrates and aquatic plants, from seedstock such as eggs, fry, fingerlings and larvae, by intervention in the rearing or growth processes to enhance production such as regular stocking, feeding, or protection from predators;

2. back-to-back Certificate of Origin means a Certificate of Origin issued by an intermediate exporting Party's Issuing Authority/Body based on the Certificate of Origin issued by the first exporting Party;

3. CIF means the value of the good imported and includes the cost of freight and insurance up to the port or place of entry into the country of importation. The valuation shall be made in accordance with Article VII of GATT 1994 and the Agreement on Customs Valuation;

4. FOB means the free-on-board value of the good, inclusive of the cost of transport to the port or site of final shipment abroad. The valuation shall be made in accordance with Article VII of GATT 1994 and the Agreement on Customs Valuation;

5. generally accepted accounting principles means the recognised consensus or substantial authoritative support in a Party, with respect to the recording of revenues, expenses, costs, assets and liabilities; the disclosure of information; and the preparation of financial statements. These standards may encompass broad guidelines of general application as well as detailed standards, practices and procedures;

6. good means any merchandise, product, article or material;

7. identical and interchangeable materials means materials that are fungible as a result of being of the same kind and commercial quality, possessing the same technical and physical characteristics, and which once they are incorporated into the finished product cannot be distinguished from one another for origin purposes by virtue of any markings or mere visual examination;

8. indirect material means a good used in the production, testing, or inspection of a good but not physically incorporated into the good, or a good used in the maintenance of buildings or the operation of equipment associated with the production of a good, including:

9. material means any matter or substance used or consumed in the production of goods or physically incorporated into a good or subjected to a process in the production of another good;

10. non-originating good or non-originating material means a good or material that does not qualify as originating under this Chapter;

11. originating material means a material that qualifies as originating under this Chapter;

12. producer means a person who grows, mines, raises, harvests, fishes, traps, hunts, farms, captures, gathers, collects, breeds, extracts, manufactures, processes or assembles a good;

13. production means methods of obtaining goods including growing, mining, harvesting, farming, raising, breeding, extracting, gathering, collecting, capturing, fishing, trapping, hunting, manufacturing, producing, processing or assembling a good;

14. Product Specific Rules are rules in Annex 2 (Product Specific Rules) that specify that the materials used to produce a good have undergone a change in tariff classification or a specific manufacturing or processing operation, or satisfy a regional value content criterion or a combination of any of these criteria; and

15. packing materials and containers for transportation means goods used to protect a good during its transportation, different from those containers or materials used for its retail sale.

A. Fibres and Yarns

Working or Processing Carried Out on Non-Originating Materials that Confers Originating Status:

∙ Manufacture through process of fibre-making (polymerisation, polycondensation and extrusion) spinning, twisting, texturizing or braiding from a blend or any of following:

• Silk

• Wool, fine/coarse animal hair

• Cotton fibres

• Vegetable textile fibres

• Synthetic or artificial filaments/man-made filaments

• Synthetic or artificial staple fibres/man-made staple fibres

B. Fabric/Carpets and Other Textile Floor Coverings; Special Yarns, Twine, Cordage and Ropes and Cables and Articles thereof

Working or Processing Carried Out on Non-Originating Materials that Confers Originating Status:

∙ Manufacture from:

• Polymer (non-woven)

• Fibres (non-woven)

• Yarns (fabrics)

• Raw or Unbleached Fabrics (finished fabrics)