AK-FTA Origin Determination: Can Domestic Manufacturers Use Exporter’s FOB Price for RVC 40% Criteria? Released

In the determination of FTA origin, the application of the Value Added Criterion is one of the most complex yet critical components. Particularly under agreements like the Korea-ASEAN FTA (AK-FTA), which adopts Regional Value Content (RVC) as a primary origin criterion, the determination of origin often depends on which base price is utilized. Below is a detailed guide for domestic manufacturers on the practical standards and procedures for utilizing an exporter’s price.

1. RVC Calculation Standards and Definition of FOB under AK-FTA

The AK-FTA agreement explicitly stipulates that the base price for calculating Regional Value Content (RVC) must be the Free On Board (FOB) price. This refers not merely to the price at which goods leave the factory, but the total value including all costs incurred until the goods are loaded onto the vessel at the port of export.

Generally, the RVC 40% (RVC40) threshold means that at least 40% of the total FOB price must consist of value created within the region. The formula is as follows:

• Build-down Method: [(FOB Price - Value of Non-Originating Materials) / FOB Price] × 100 ≥ 40%

A crucial point here is that the denominator is the FOB price. If a manufacturer is not the exporter, they typically supply goods at an Ex-Works (EXW) price, which is naturally lower than the final FOB price. Using a smaller denominator increases the relative proportion of non-originating materials, potentially resulting in a lower RVC percentage that fails to meet the origin requirements.

2. Feasibility of Origin Determination Using Exporter-Provided Pricing

In short, if the exporter provides the FOB export price information to the manufacturer, the manufacturer may determine the origin based on that price and issue a Declaration of Origin.

The primary challenge for manufacturers in independent origin determination is that their domestic sales price (EXW) differs from the export price (FOB). Calculating RVC based on domestic transaction prices may lead to a failure to meet the origin criteria. However, during the actual export stage, the final FOB price increases due to the inclusion of inland freight, customs clearance fees, and the exporter’s margin. Re-calculating RVC based on this higher FOB value increases the likelihood of satisfying the 40% threshold.

Therefore, a manufacturer may obtain FOB price information (which includes transport costs to the final port of shipment) from the exporter and use this as the adjusted price (denominator) in the formula. This is a legitimate methodology that aligns with the pricing standards required by the agreement.

3. Practical Considerations and Documentation Management

To apply this method, close information sharing between the manufacturer and exporter is essential, as is ensuring the objectivity of the data. To prepare for future origin verifications by customs authorities, objective supporting evidence must be maintained rather than relying on verbal communication.

• Sharing Price Information: The exporter should provide the manufacturer with unit prices from the commercial invoice or a confirmed FOB price statement.
• Preparation of the Statement of Origin: When preparing the Statement of Origin (Origin Calculation Sheet), the manufacturer should record the FOB price provided by the exporter in the 'Goods Price' column and specify 'Exporter-provided FOB price applied' in the remarks section.
• Data Consistency: Since the RVC percentage on the Declaration of Origin issued by the manufacturer serves as the basis for the final Certificate of Origin (C/O) applied for by the exporter, care must be taken to ensure there are no data discrepancies between the two parties.

In summary, manufacturers are not limited to using their factory-exit prices. By collaborating with exporters to secure FOB pricing, they can proactively verify and meet origin criteria, which is a vital practical technique for maximizing the utilization of the Korea-ASEAN FTA.