If the origin criteria for exported goods is a combined rule requiring both CTSH and Value Added (Build-down 45% or Build-up 30%), what codes should be entered in Box 6 and Box 7 of the Certificate of Origin respectively? Released

In FTA practical operations, a very important question is which codes should be entered in Box 6 and Box 7 of the Certificate of Origin (CO) when the origin criterion for export goods is a hybrid criterion that must satisfy both the Change in Tariff Classification (Change in Tariff Subheading) and the Value-Added criterion (Deductive Method 45% or Build-up Method 30%). As a customs broker, I will explain this in detail.

1. Understanding Hybrid Origin Criteria

The hybrid criterion mentioned, which requires "satisfying both the Change in Tariff Classification (Change in Tariff Subheading) and the Value-Added criterion (Deductive Method 45% or Build-up Method 30%)," means that the goods must satisfy multiple conditions to be recognized as originating goods through substantial transformation within the region. This is often set as a Product Specific Rule (PSR) in specific Free Trade Agreements (FTAs) and is applied when a single criterion alone is insufficient.

• Change in Tariff Classification (CTH: Change in Tariff Heading): "Change in Tariff Subheading" means that the 4-digit HS Code of the non-originating materials must differ from the 4-digit HS Code of the final product. This is the most common criterion proving that raw materials have undergone a significant manufacturing process beyond simple assembly to become a new product.
• Value Added Content (VAC): This criterion requires that the value added within the region during the production process must be above a certain percentage. This is an important criterion that considers not only the origin of the raw materials but also the origin of the processing operations.

2. How to Fill Box 6 of the Certificate of Origin: "B"

When export goods follow a hybrid criterion that must satisfy both the Change in Tariff Classification and the Value-Added criterion simultaneously, "B" is generally entered in Box 6 (Origin Criterion) of the Certificate of Origin.

• Meaning of "B": "B" signifies that the goods are not 'Wholly Obtained' but are 'goods that have satisfied the Product Specific Rules (PSR) through sufficient processing or manufacturing within the region.' In other words, it indicates that while the goods were produced using non-originating materials, they acquired originating status through substantial transformation processes (e.g., change in tariff heading, value-added, etc.) defined in the FTA. Since a hybrid criterion is considered a form of PSR, it is appropriate to enter "B."

3. How to Fill Box 7 of the Certificate of Origin: "BD" or "BU"

Box 7 (Description of Goods) is for providing a detailed description of the goods and, if the origin criterion is a PSR, for additionally stating the specific details of that criterion. In particular, when a value-added criterion is applied, the calculation method must be clearly indicated.

• Selection of Value-Added Calculation Method: As suggested in the question, the value-added criterion can be applied by choosing either the 'Deductive Method' or the 'Build-up Method.' Each method is defined as follows:
• Deductive Method – Enter "BD":
  • This is a method of calculating regional value added by deducting the value of non-originating materials from the FOB price of the final product when determining origin.
  • Generally calculated as (FOB Price - Value of Non-originating Materials) / FOB Price × 100 ≥ specific percentage (45% in this case).
  • If this method is used to satisfy the regional value-added criterion of 45% or more, "BD" should be entered after the goods description in Box 7. This indicates that the value-added criterion was met via the Deductive Method.
• Build-up Method – Enter "BU":
  • This is a method of calculating regional value added by totaling the originating materials and the direct/indirect costs incurred within the region.
  • Generally calculated as (Value of Originating Materials + Direct Production Costs incurred in the region, etc.) / FOB Price × 100 ≥ specific percentage (30% in this case).
  • If this method is used to satisfy the regional value-added criterion of 30% or more, "BU" should be entered after the goods description in Box 7. This indicates that the value-added criterion was met via the Build-up Method.

4. Additional Commentary and Precautions

• Confirming Exact Criteria: Value-added percentages such as the 45% and 30% mentioned above may vary depending on the FTA and the HS code of the goods. You must verify the exact Product Specific Rules of the relevant FTA. Some FTAs may provide separate value-added calculation formulas other than the Deductive or Build-up methods.
• Importance of Supporting Documents: In preparation for post-verification after the issuance of the CO and application of FTA benefits, all documents serving as the basis for the origin determination (raw material purchase records, production process records, BOM, cost sheets, accounting ledgers, etc.) must be thoroughly maintained. The notation of "BD" or "BU" assumes that supporting documents according to that calculation method are fully prepared.
• Selecting an Advantageous Calculation Method: Many FTAs allow exporters to choose the more advantageous method between the Deductive Method and the Build-up Method. It is important to select the most suitable and beneficial method considering your internal cost structure and ease of document preparation.
• Accuracy of HS Codes: The HS code classification of all input materials, as well as the final product, must be accurate to correctly determine whether the Change in Tariff Classification criterion is met and to calculate the value of non-originating materials. Errors in HS code classification can lead to errors in origin determination, so special attention is required.

In conclusion, if the export goods follow a hybrid criterion requiring both the Change in Tariff Classification and the Value-Added criterion, enter "B" in Box 6 of the Certificate of Origin, and enter "BD" (Deductive Method) or "BU" (Build-up Method) in Box 7 after the goods description according to the calculation method used. It is safe to reconfirm the exact FTA text and customs procedures, and to seek assistance from a professional customs broker if necessary.