The origin criterion for the apparel we import is applied as a combination of '2-digit HS code change' and 'cutting/sewing'; if the Certificate of Origin states 'CTC + Specific Processes', can we receive tariff benefits? Released

To explain in more detail, textile products such as apparel often have complex production processes, and the HS codes (Harmonized System codes for product classification in the tariff schedule) of the fabric and the final product often do not change significantly. Therefore, it can be difficult to determine whether the origin criteria are met using only the general Change of Tariff Heading criterion. For this reason, many FTAs apply a combined criterion for textile and apparel items, which combines the 'Change of Tariff Heading criterion' with the 'Processing Operations criterion'.

Understanding the Rules of Origin

• 2-digit Change of Tariff Heading (CTC - Change of Tariff Heading at 2-digit level): This is a criterion that recognizes origin if the first two digits of the HS code of the raw material differ from the first two digits of the HS code of the final product during the production process. For example, if apparel (e.g., Chapter 61) is produced using fabric from a different chapter (2-digit) (e.g., Chapter 52), this criterion is met. This is a representative rule of origin that signifies a substantial degree of processing has occurred.
• Processing by Cutting and Sewing (Specific Processes - Cutting and Sewing): This criterion goes beyond a simple change of tariff heading, meaning that origin is recognized only if key production processes such as 'cutting' and 'sewing' occur within a specific country of origin. This is an important criterion, especially in apparel production, to confirm that the core stages of value creation have taken place in that country.

The combined '2-digit Change of Tariff Heading + Processing by cutting and sewing' criterion provides a stricter and clearer standard for determining the origin of apparel. It not only looks at whether the HS code of the raw material has changed but also verifies whether the main processes that form the actual apparel have occurred in the country of origin.

Importance of Indication on the Certificate of Origin

The indication 'CTC + Specific Processes' on the Certificate of Origin officially proves that the producer in the exporting country accurately understands these combined criteria, has produced accordingly, and has met the relevant standards. This indication intuitively shows that the origin determination criteria in the agreement have been met, thus serving as a legitimate basis for applying preferential tariffs during import customs clearance.

Additional Considerations for Applying Tariff Benefits

• Verification of the Agreement Text: You must verify the origin determination criteria for the relevant item (HS code) in the FTA or agreement you wish to apply. Since detailed criteria may vary by agreement, it is important to reconfirm the origin determination criteria according to the exact HS code of the goods.
• Preparation for Post-Verification: Even if the Certificate of Origin has been properly issued, customs authorities may request post-verification of origin. Therefore, it is advisable to secure and retain in advance documents from the exporter that can prove origin fulfillment, such as cutting evidence, sewing-related production records, and fabric purchase data. Importers are obligated to retain origin certification documents for 5 years from the date of acceptance of the import declaration.
• Verification of Outward Processing: Occasionally, the country of fabric production and the country of cutting/sewing may differ, or additional processing may occur in another country after cutting/sewing. Since these Outward Processing regulations also vary by agreement, it is necessary to carefully examine whether the final product has undergone sufficient processing in the country of origin.

In conclusion, if the origin criteria for apparel are a combination of '2-digit Change of Tariff Heading' and 'cutting/sewing', and it is indicated as 'CTC + Specific Processes' on the Certificate of Origin, preferential tariff application is possible. However, it is wise to thoroughly manage relevant supporting documents in preparation for origin verification that may occur at any time.