In third-party invoicing trade where a Chinese exporter issues a Certificate of Origin, where is the invoice issuer recorded and how is direct consignment proven? Released

Third-party invoice trade transactions are a common form of international trade that has become even more prevalent as global supply chains grow increasingly complex. This type of transaction requires special attention in terms of origin management. Most FTA agreements, including the Korea-China Free Trade Agreement (FTA), allow the application of preferential tariffs for originating goods only when certain requirements are met. Below is a detailed explanation regarding the issuance of a Certificate of Origin (C/O) in third-party invoice trade.

1. Applicant for Issuance of the Certificate of Origin

The Korea-China FTA does not restrict the issuance of third-party invoices. However, as specified in Article 3.21 (Certificate of Origin) and Annex 3-C (Instructions for the Issuance of Certificates of Origin) of the agreement, the exporter located in China, who is the exporter of the originating goods, must apply for the issuance of the Certificate of Origin. This is a core principle of the rules of origin because the responsibility to ultimately prove the origin of the goods for which preferential tariffs are sought lies with the exporter in the party country (in this case, China) that exports the goods. Therefore, even if the commercial seller is an entity in a third country, you must clearly understand that the exporter (applicant for issuance) on the Certificate of Origin must be the exporter within China.

2. How to Record the Third-Party Invoice Issuer (Non-Party Operator)

When a third-party invoice is issued, the relevant information must be recorded in the Certificate of Origin form so that customs authorities can clearly identify the link between the commercial invoice and the Certificate of Origin. The Korea-China FTA Certificate of Origin stipulates that the Legal Name and Country of the Non-Party Operator must be entered in Box 5 (Remarks). By providing this information, it clarifies that the origin of the goods is China and transparently represents the flow of the commercial transaction, even though the exporter on the Certificate of Origin and the entity that issued the actual commercial invoice are different. This entry plays an important role in increasing the reliability of the Certificate of Origin and facilitating the inspection by the customs of the importing country.

3. Methods to Prove Direct Consignment Requirements

One of the important requirements for applying FTA preferential tariffs is the 'Direct Consignment Rule.' This principle dictates that originating goods must be transported directly from the exporting country to the importing country. The Korea-China FTA also follows this principle, and it applies without exception to third-party invoice trade transactions. To prove that the direct consignment requirements have been met, the following transport documents must be prepared:

• Bill of Lading (B/L) or Air Waybill (AWB): This is the most essential evidentiary document. The transport document must clearly state that the goods were loaded at a port or airport in China and transported directly to a port or airport in Korea. It must clearly show that the place of departure and the destination are parties to the FTA.

• Multimodal Transport Document: In cases where multimodal transport (such as sea-land or air-land) occurs, direct consignment can also be proven with a multimodal transport document.

• Supporting Documents for Transit (if necessary): Even if the goods were inevitably transported via a third country, you may need to submit additional documents (e.g., a Non-Manipulation Certificate) proving that no additional processing took place in that third country other than simple unloading, reloading, or operations to preserve the goods in good condition, and that they remained under the control of the customs authorities of that third country. However, in general, direct transport from China to Korea is the simplest and clearest method of proof.

4. Additional Considerations and Recommendations

To stably apply FTA benefits in third-party invoice trade, it is important to consider the following points:

• Maintain Consistency Between Documents: The product name, quantity, weight, and information on the consignor and consignee (including the third-party invoice issuer recorded in the specific box) must be consistently recorded across all trade documents, such as the Certificate of Origin, commercial invoice, packing list, and transport documents. Inconsistencies between documents may lead to customs clearance delays or the denial of preferential tariff applications.

• Prior Verification and Consultation: There should be sufficient prior consultation between the Chinese exporter and the third-party invoice issuer regarding the issuance of the Certificate of Origin. In particular, cooperation is needed to ensure the Chinese exporter can secure the documents required to prove the origin (e.g., Cost of Production Statement, Declaration of Originating Materials, etc.).

• Preparation for Origin Verification: Even after import clearance, customs authorities may review the appropriateness of the FTA preferential tariff application through post-clearance verification. Since they may request not only all supporting documents related to the Certificate of Origin but also materials related to the third-party invoice and transport documents, you must keep the relevant data thoroughly and prepare in advance. Insufficient documentation or improper substantiation of origin can lead to the collection of back taxes and additional penalties.

As such, third-party invoice trade is more complex than general trade transactions, so it is important to accurately understand the relevant regulations and prepare thoroughly. If you have any questions, we recommend that you consult with a customs expert at any time to minimize risk.