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Decoding rules of origin (ROO) in free trade agreements

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Free Trade Agreements (FTAs) are pivotal in shaping economic interactions between countries all over the world. For businesses in Singapore, it means more opportunities to expand to a broader market globally and enjoy the benefits of tariff concessions, simplified trade procedures, and intellectual property protection. 

According to ASEAN Briefing, Singapore's dynamic economy is currently supported by a comprehensive network of 27 implemented FTAs with diverse partners. The list of free trade agreements consists of 15 bilateral agreements (between Singapore and a single trading partner) and 12 regional agreements (signed between Singapore and a group of trading partners). 

However, to maximise the advantages of these FTAs, Singaporean businesses must be well-versed in the overseas export process, especially with regard to the rules of origin. Knowledge in this area not only ensures compliance but also enables businesses to fully leverage the preferential benefits offered under Singapore’s free trade agreements.

What are rules of origin (ROO)?

By definition, the rules of origin pertain to the criteria used in determining the product’s country of origin. This is important in determining whether goods entering a specific country are eligible for preferential treatment under FTAs, such as reduced tariffs or duty exemptions. As such, it’s essential for exporters to understand ROOs so that they can benefit from lowered trading costs and enhanced market access.

What is an originating good?

A good qualifies as originating if it conforms to the origin criteria outlined in the rules of origin chapter of a free trade agreement. Originating goods in an exporting party generally fall into two broad categories:

1. Goods that are Wholly Obtained (WO)

A good is classified as Wholly Obtained (WO) if it is naturally occurring, is a plant grown and harvested, or an animal born and raised, or if it originates from production waste in the country of export. Additionally, goods made entirely from originating materials are also considered WO. 

2. Goods that are manufactured using non-originating materials.

Goods produced using non-originating materials must undergo significant transformation in a country to be recognized as originating. The criteria for determining this transformation include:

  • Change in Tariff Classification (CTC): This involves the change in the Harmonized System (HS) Code of the non-originating materials during the manufacturing process.
  • Regional Value Content (RVC): This requires that a certain percentage of the value of the final product must be attributable to production processes carried out within the FTA member countries. 
  • Process rule: This rule specifies particular manufacturing or processing operations that must occur for a good to be considered originating. These operations should be substantial enough to result in a new or fundamentally altered product.

These methods may be employed individually or in combination, depending on the specific origin criteria set forth in the free trade agreement. The origin of these goods is determined by the country where the last significant transformation takes place.

What are non-originating materials?

Non-originating materials refer to materials or components that:

  • Are imported from a country that is not a member of the free trade agreement
  • Are produced within a member country of the free trade agreement but do not meet the specified rules of origin under the agreement
  • Have an undetermined origin

What do businesses need to prove the origin of goods?

Under the rules of origin, it’s essential for businesses to apply for a Certificate of Origin (CO) to attest to the origin of goods. This certificate will be issued by the Singapore Customs and other authorised organisations, like the Singapore Manufacturing Federation. There are two types of COs that can be issued: an ordinary CO and a preferential CO. 

An ordinary CO, also called non-preferential CO, is a trade document that identifies the origin of the good. On the other hand, a preferential CO allows buyers from another country to pay lower or no customs duty when they export their goods under a free trade agreement or schemes of preferences. 

How does cumulation affect the rules of origin?

Also referred to as accumulation, cumulation is a provision that permits goods obtained in one FTA member country or processing that occurs there to be considered as originating in another. This is a crucial aspect of trade agreements, facilitating shared production across the FTA territory. 

As such, cumulation offers producers increased flexibility in sourcing inputs and parts. This provision allows them to use components from suppliers within FTA partner countries and treat these as originating when determining the origin of the final product.

Navigating rules of origin in free trade agreements

Each of Singapore’s free trade agreements with other countries has varying rules of origin. For instance, as per ASEAN Briefing, companies looking to expand into the UK market can benefit from the UK-Singapore FTA, which offers preferential tariffs and reduces non-tariff barriers in vital sectors such as pharmaceuticals and electronics. On the other hand, the GCC-Singapore FTA allows for duty-free access between Singapore and the member states of the Gulf Cooperation Council (GCC), which includes countries like Saudi Arabia, the UAE, and Qatar. This agreement opens doors for Singaporean businesses in diverse fields such as finance, oil and gas, and construction, providing a tariff-free pathway to some of the richest markets in the Middle East.

By leveraging these specific rules of origin, Singaporean businesses could have strategic advantages in pricing and market entry. This mastery can significantly affect a company’s bottom line by qualifying products for lower tariffs and accessing new markets under favourable conditions. Additionally, for businesses engaged in manufacturing and distribution, these rules can dictate decisions about where to source raw materials or locate production facilities to maximise FTA benefits. Continuous education on updates and changes to these agreements is essential, as the international trade landscape is dynamic, with frequent negotiations and updates to existing agreements.

Practical steps for businesses to manage compliance with rules of origin

To help guide you through the complexities of rules of origin in free trade agreements, here are some practical steps:

  • Documentation and compliance: Maintain rigorous documentation to prove the origin of goods. This often involves detailed records of the manufacturing process, supply chain sources, and compliance with specific manufacturing or processing requirements.
  • Leverage technology: Implement technology solutions that can help track and manage supply chain operations to ensure compliance with specific rules of origin criteria. Systems that provide real-time data on the sourcing and movement of goods can be particularly beneficial.
  • Engage with experts: Trade experts and legal advisors who specialise in international trade law can offer their expertise on the complex rules of origin landscape. They can help with interpreting FTA provisions and advising on compliance strategies.
  • Training and development: Regular training sessions for teams involved in international trade operations are essential. Understanding the latest FTA developments and rules of origin requirements ensures that businesses remain compliant and can fully leverage FTA benefits.
  • Strategic sourcing: Evaluate and possibly restructure sourcing strategies to take advantage of FTAs. This may involve shifting sourcing to partner countries within an FTA to ensure that products qualify for preferential treatment.

Partnering with DHL Express for leveraging Singapore free trade agreements

If you’re looking for a trusted logistics and supply chain management partner who can help you export goods to free trade partner countries, DHL Express can help you. 

As a leader in global logistics, DHL Express offers solutions tailored to meet the demands of international shipping and maximise the benefits of Singapore's free trade agreements. Our experts can help in navigating the complexities of the rules of origin in various countries, ensuring that your shipments are compliant with FTA regulations and reducing risks and delays during the customs clearance process

Furthermore, our extensive network and advanced shipping solutions facilitate smooth and efficient cross-border transactions, making us an ideal logistics partner for businesses aiming to expand their reach in global markets. Open a business account with us today to experience the convenience of working with DHL Express.