If the origin criterion for exports is a combination rule requiring both CTSH and Value-Added (BD 45% or BU 30%), what codes should be entered in Box 6 and Box 7 of the Certificate of Origin, respectively? Released

When the origin criterion for exported goods is a composite rule that must satisfy both the Change in Tariff Classification (specifically, Change in Tariff Sub-heading) and the Value Added Content (Deductive Method 45% or Build-up Method 30%), the question of which codes to enter in Boxes 6 and 7 of the Certificate of Origin is a very important matter in FTA practical operations. As a customs broker, I will provide a detailed explanation.

1. Understanding Composite Origin Criteria

The composite criterion you mentioned, which requires 'satisfying both the Change in Tariff Classification (Change in Tariff Sub-heading) and Value Added Content (Deductive Method 45% or Build-up Method 30%),' means that the item must meet conditions from multiple perspectives to be recognized as an originating good through substantial processing 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 Sub-heading' 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 raw materials but also the originating status of the processing stage.

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

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

• Meaning of "B": "B" means the item is not 'Wholly Obtained' but rather 'a good that has undergone sufficient processing or manufacturing within the region to satisfy the Product Specific Rule (PSR).' In other words, it indicates that although produced using non-originating materials, it has acquired originating status by undergoing substantial transformation processes (e.g., change in tariff classification, value addition, etc.) defined in the FTA agreement. Since a composite criterion is considered a form of PSR, it is appropriate to enter "B".

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

Box 7 (Description of Goods) is the section where a detailed description of the goods is provided, and if the origin criterion is a Product Specific Rule (PSR), the specific details of that criterion are additionally recorded. Particularly when a value-added criterion is applied, the calculation method must be clearly indicated.

• Choosing the Value-Added Calculation Method: As suggested in your 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.
  • It is generally calculated as (FOB Price - Price of Non-originating Materials) / FOB Price × 100 ≥ a specific percentage (45% in your question).
  • If you have satisfied the regional value-added criterion of 45% or more using this method, enter "BD" after the goods description in Box 7. This indicates that the value-added criterion was met through 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.
  • It is generally calculated as (Price of Regional Originating Materials + Direct Production Costs incurred in the region, etc.) / FOB Price × 100 ≥ a specific percentage (30% in your question).
  • If you have satisfied the regional value-added criterion of 30% or more using this method, enter "BU" after the goods description in Box 7. This indicates that the value-added criterion was met through the Build-up Method.

4. Additional Explanations and Precautions

• Verify Exact Criteria: The value-added percentages such as 45% and 30% presented above may vary depending on the FTA agreement and the HS code of the goods. You must accurately check the Product Specific Rules of the relevant FTA. Some FTAs may provide separate value-added calculation formulas other than the Deductive and Build-up methods.
• Importance of Substantiating Data: To prepare for post-verification after the issuance of the Certificate of Origin and application of FTA benefits, all documents serving as the basis for the origin determination (raw material purchase specifications, 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 perfectly prepared.
• Choosing a Favorable Calculation Method: Many FTAs allow the exporter to choose the method that is more favorable between the Deductive Method and the Build-up Method. It is important to select the most suitable and advantageous method by considering the internal cost structure and ease of data preparation.
• Accuracy of HS Codes: The HS code classification of not only the final product but also all input materials 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 caution is required.

In conclusion, if the export goods follow a composite criterion that must satisfy both the Change in Tariff Classification and Value Added Content, please enter "B" in Box 6 of the Certificate of Origin, and enter either "BD" (Deductive Method) or "BU" (Build-up Method) in Box 7 after the goods description according to the calculation method used. Be sure to re-verify the exact FTA agreement text and customs procedures, and it is safe to seek help from a professional customs broker if necessary.