1. July 1st, 2014 Riki TAMAKI Customs and Tariff Bureau Ministry of Finance Preferential Origin Rules and Procedures to Secure Revenue -the role of Customs in regional integration- 1Japan Customs

2. Bahamas Haiti USA Canada Uruguay Paraguay ArgentinaBrazil Chile BoliviaEcuador Peru Venezuela Colombia Panama Nicaragua Costa Rica El Salvador Guatemala Honduras Dominican Republic Dominica, Suriname, Jamaica, St. Lucia, Belize, St. Kitts & Nevis, Grenada, Barbados, Guyana, St. Vincent & the Grenadines, Antigua & Barbuda, Trinidad & Tobago Korea Philippines New Zealand Indonesia Australia Brunei Darussalam Chinese Taipei Malaysia People’s Rep. of China Hong Kong, China India Russia Singapore Thailand Bangladesh Papua New Guinea Laos Fed. States of Micronesia, Marshall Islands, Kiribati, Palau, W. Samoa,Tonga, Vanuatu, E. Timor, Cook Islands, Nauru, Niue, Tuvalu Bhutan, Maldives, Nepal, Pakistan Mexico Viet Nam Fiji, Solomon Islands, Vanuatu Myanmar Cambodia Sri Lanka ASIA AMERICAS FTAs Under Negotiations Japan (source) APEC WORKSHOP ON BEST PRACTICES IN TRADE POLICY FOR RTAs/FTAs: PRACTICAL LESSONS AND EXPERIENCES FOR DEVLOPING ECONOMIES February 2006, Ha Noi, Viet Nam “Spaghetti Bowl” Effects 2

3. Three pillars to decide customs duty amounts （ Tariff classification, Customs Valuation, Rules of Origin ） Duty amount = Customs Value × tariff rate Tariff classification decide item Quantity or Value Rules of origin decides which rate shall be apply to the goods More than 9000 items FTA rate Japan Customs3

4. Three Major Elements of ROO Product Specific Rules Rules of origin Origin criteria Consignment criteria Procedural provisions Wholly obtained or produced goods Goods satisfying substantial transformation criteria Goods produced exclusively from originating materials Certificate of origin Transportation documents Specific manufacturing or processing operation criterion Value-added criterion Change in tariff classification criterion Exceptions to the substantial transformation criteria Accumulation De minimis Non-qualifying operations Major Elements of ROO Japan Customs4

5. Part A: Origin Criteria Japan Customs5

6. Types of Substantial Transformation (1) Change-in-tariff-classification criterion (CTC rule) (2) Value-added criterion (VA rule) (3) Specific manufacturing or processing operation criterion (Process rule) 3 types of Substantial Transformation (Big Change) Japan Customs6

7. Change-in-tariff-classification Criterion (CTC rule) Under CTC rule, the originating status of goods are determined based on the change in tariff classification (HS code). For some goods, change-in-tariff-classification criterion cannot be adopted because of the structure of HS. In addition, interpretation of HS is closely implicated in the originating status of goods. Therefore, HS is extremely important in establishing and applying Rules of Origin. To assure proper and smooth trading, it is essential for HS and Rules of Origin to cooperate with in the future. The possible challenges ・ Lowering of user-friendliness of FTA associated with HS revision ・ Limited subdivision of HS code (ex.) components of machinery Japan Customs7

8. Complete or finished articles (machinery) Major components Minor components Individual components Individual heading or subheading may included in a single heading or subheading Change in tariff classification criterion cannot be adopted. Cases where “Change in tariff classification” criterion CANNOT be adopted Japan Customs8

9. Supporting Instruments and Tools on Interpretation HS classifications - Explanatory Notes - Classification Opinions Customs Valuation ROO 9Japan Customs - Advisory Opinions - Commentaries ?

10. Part B: Origin Procedure 財務省関税局 10

11. Competent Authority Certification Approved Exporter Self-Certification - Importer proves with certificate of origin issued by government of exporting Party or the designated authority - Importer proves with certificate of origin by exporter - Importer proves with origin declaration by exporter approved by exporting Party Government of Exporting Party involved in certification process Types of Certification procedures in the World -Importer proves with ① certificate of origin by importer, exporter or producer OR ② Importer's Knowledge ASEAN, Japan, China EU, Switzerland Canada, Mexico, Chile, Australia, NZ USA ※ Japan adopt this type in FTA with Switzerland, Peru, Mexico Some ASEAN countries are now implementing a pilot project of approved exporter self-certification under ATIGA. EU decided to introduce registered exporter self-certification from 2017 and to abolish competent authority certification. Importer-based self certification was introduced in US’s FTAs after NAFTA. (Ex. US-Korea, US-Chile) Original CO for each importation is required (copy and electronic media are normally unaccepted) Multi CO which covers multiple importation is accepted (copy and electronic media are accepted) Government of Exporting Party uninvolved in certification process Exporter Self-Certification Importer-based Self Certification Multi CO which covers multiple importation is accepted (copy and electronic media are accepted) Japan Customs11

12. G to G Verification by the Importing Customs through the Government of Exporting Party G to B Verification by the Importing Customs Exporter, Producer Importer(Claimer for preferential treatment) Types of FTA Verification procedures in the World ASEAN, Japan, Korea, China, EUCanada, Mexico, Latin America USA, NZ, Australia, (Japan, Korea) USA/AU/NZ verifies to importer as a rule Japan/Korea verifies to importers firstly, and use other systems as a cover. ○The list of all parts ○The flow chart of manufacturing process ○The written oath ○The document of instruction of production ○The invoice/book of raw materials and so on ○The contract( between producer/exporter) ○The recording documents of input of each parts and materials etc 【 Examples of supporting documents need to be submitted under verification process 】 ※ Exporter/Producer is the verifier, and Exporter/Producer can submit explanation documents to the Customs of importing country directly if they contain confidential information. 12 Government of Exporting Party involved in verification process Government of Exporting Party uninvolved in verification process Japan Customs

13. G to B Verification towards exporters or producers Importer ExporterProducer 13 Informa tion Exporting Country Importing Country 【 Information Provider 】 【 Verifier 】【 Claimer for Preferential treatment 】 Customs of Importing Country Customs of Importing Country Verification （ Analyzing of risk ） Verification （ Analyzing of risk ） Japan Customs

14. G to G verification by customs mutual assistance Importer ExporterProducer 14 Informa tion Exporting Country Importing Country 【 Information Provider 】 【 Verifier 】【 Claimer for Preferential treatment 】 Customs of Exporting Country Customs of Exporting Country Verification （ Analyzing of risk ） Verification （ Analyzing of risk ） Customs of Importing Country Customs of Importing Country Japan Customs

15.  For Customs, it is burden to ask questions / require supporting documents from exporters/ producers in other countries.  For Exporters or producers, it is burden to be asked by foreign customs. 15  Allow importers to certify origin, as we do in valuation or HS.  Verifying to importers in their country is efficient for customs.  Customs cooperation on ROO is important to supplement verification to importers. Japan Customs Key points for better ROO procedures