Under the Korea-India CEPA, when applying the CTSH+RVC35 origin criterion, should the RVC calculation be based on the FOB price? Can the producer's price not be considered? Released

Under the Korea-India CEPA (Comprehensive Economic Partnership Agreement), if the origin determination criterion is specified as CTSH+RVC35%, the value-added price for calculating the Regional Value Content (RVC) must be determined based on the exporter's (FOB) price. As clearly mentioned in the original response, the Korea-India CEPA stipulates that the Free on Board (FOB) price be used as the basis for RVC calculation. This is the generally accepted method in FTA/CEPA rules of origin and serves as the most reasonable standard for measuring the regional value added of exported goods.

The Free on Board (FOB) price differs from the producer price, which is simply the price at the time of factory release. FOB is the price actually paid or payable by the importer to the exporter, which includes not only the production costs (material costs, labor costs, manufacturing overheads, etc.) but also the exporter's profit and all domestic costs incurred for transporting the goods to the final port or place of shipment (e.g., Busan Port, Incheon Airport), such as domestic transportation, loading and unloading, inspection, and documentation fees. In other words, it is a price that encompasses all domestic costs and profits incurred until the exporter delivers the goods to the export vessel or aircraft. The reason the CEPA uses FOB as the standard is to comprehensively reflect the total value creation occurring within the respective member country.

Therefore, the 'producer price' mentioned in your question cannot be considered the direct standard price for calculating the Regional Value Content (RVC). The producer price is a concept similar to the Ex-Works (EXW) price, meaning the price at the point of leaving the production factory gate, which often excludes domestic transportation costs or the exporter's margin. RVC is calculated in a format such as "(Originating Material Cost + Direct Production Cost) / FOB Price * 100%", where the denominator is the FOB price, representing the final export value of the exporting country. While the producer price may be one of the internal cost elements that make up the FOB price, it cannot itself be the 'export price' used as the basis for RVC calculation.

For an accurate RVC calculation, all cost elements constituting the FOB price must be clearly identified, and calculations must be performed based on objective and verifiable data, such as origin information and input ratios of raw materials, direct labor costs, and manufacturing overheads. This is because these documents serve as critical materials that may be requested by customs authorities during the issuance of a Certificate of Origin or the subsequent verification process. In particular, when CTSH (Change in Tariff Subheading) and RVC (Value-Added Criterion) are applied in combination, both criteria must be met, making it essential to have a clear understanding and perform accurate calculations for each criterion.

In conclusion, when applying the RVC 35% criterion under the Korea-India CEPA, the value-added ratio must be calculated based on the exporter's FOB price, and we emphasize once again that the producer price cannot be used as the direct standard price for RVC calculation. We hope you fully enjoy the benefits of the CEPA through accurate origin management.