Free Trade Agreement between Hong Kong, China and Australia Exporting Goods Originating in Hong Kong to Australia

24-hour hotline : 23 922 922

e-mail address : enquiry@tid.gov.hk

Ref: TRA CR 1340/5

18 December 2019

Dear Sirs,

Hong Kong and Australia have signed the Free Trade Agreement between Hong Kong, China and Australia ("Agreement"). It is scheduled that the Agreement will enter into force on 17 January 2020.

2.Under the Agreement, Hong Kong-origin exports which comply with the applicable preferential rules of origin (ROOs) and fulfill the relevant requirements set out in Chapter 3 (Rules of Origin and Origin Procedures) of the Agreement can enjoy preferential tariff treatment provided by Australia. This Circular outlines the ROOs, documentary requirements, record keeping requirements and other relevant issues for exporting Hong Kong-origin goods to Australia under the Agreement.

3.The full text and other details of the Agreement are available on the Trade and Industry Department (TID)'s webpage <https://www.tid.gov.hk/en/our_work/trade_and_investment_agreements/ftas/australia/agreement.html>. Traders are advised to read the relevant provisions of the Agreement and its Annexes, other relevant Circulars issued by TID as well as updated information posted on TID's website from time to time, in conjunction with this Circular.

4.Under the Agreement, Australia has agreed to eliminate all customs duties on Hong Kong-origin goods, subject to the relevant ROOs being met and the relevant operational procedures being complied with.

5.The ROOs for the purpose of preferential tariff treatment under the Agreement are set out in Chapter 3 and its Annexes. According to the Agreement, a good is an originating good if it is:

1. wholly obtained or produced entirely in the Area^{Note 1} of one or both of the Parties^{Note 2} by one or more producers as established in Article 3.3 (Wholly Obtained or Produced Goods) of the Agreement (please refer to Appendix A (pdf format));
2. produced entirely in the Area of one or both of the Parties by one or more producers, exclusively from originating materials^{Note 3}; or
3. produced entirely in the Area of one or both of the Parties by one or more producers using non-originating materials provided the good satisfies all applicable requirements of Annex 3-B (Product-Specific Rules of Origin) of the Agreement, available at TID's webpage <https://www.tid.gov.hk/en/our_work/trade_and_investment_agreements/ftas/australia/files/AUHKFTA_Chapter_3_Annex_3-B.pdf>,

and the good satisfies all applicable requirements of Chapter 3 of the Agreement.

6.In relation to the regional value content (RVC) requirement to determine whether a good is an originating good, it is to be calculated as follows:

Build-down Method: Based on Value of Non-Originating Materials

RVC

=

Adjusted Value - Value of Non-Originating Materials (VNM)

/

Adjusted Value

x

100%

where:

• RVC is the regional value content of a good, expressed as a percentage;
• VNM is the value of non-originating materials^{Note 4}, including materials of undetermined origin, used in the production of the good; and
• Adjusted Value is
  1. the FOB value as defined in Article 3.1 (Definitions) of the Agreement (i.e. the value of the good free on board inclusive of the cost of transport to the port or site of final shipment abroad. The valuation shall be calculated in accordance with the Customs Valuation Agreement^{Note 5}); or
  2. if there is no FOB value or it is unknown or cannot be ascertained, the "customs value of imported goods" determined in accordance with the Customs Valuation Agreement.

7.All costs should be recorded and maintained in conformity with the generally accepted accounting principles applicable in Hong Kong.

8.If a non-originating material undergoes further production such that it satisfies the requirements of Chapter 3 of the Agreement, the material is treated as an originating material when determining the originating status of the subsequently produced good, regardless of whether that material was produced by the producer of the good.

9.If a non-originating material is used in the production of a good, the following may be excluded from VNM for the purpose of determining whether the good meets a RVC requirement:

1. the value of processing of the non-originating material undertaken in the Area of one or both of the Parties; and
2. the value of any originating material, including any indirect material, used in the production of the non-originating material undertaken in the Area of one or both of the Parties.

10.The value of a material is:

1. for a material imported by the producer of the good, the transaction value of the material at the time of importation, including the costs incurred in the international shipment of the good;
2. for a material acquired in the Area where the good is produced:
   1. the price paid or payable by the producer in the Party where the producer is located;
   2. the value as determined for an imported material in paragraph 10(a) above; or
   3. the earliest ascertainable price paid or payable in the Area of the Party.

11.For a non-originating material or material of undetermined origin, the following expenses may be deducted from the value of the material:

1. the costs of freight, insurance, packing and all other costs incurred in transporting the material within the Area of the Parties to the location of the producer of the good;
2. duties, taxes and customs brokerage fees on the material paid in the Area of one or both of the Parties, other than duties and taxes that are waived, refunded, refundable or otherwise recoverable, which include credit against duty or tax paid or payable; and
3. the cost of waste and spoilage resulting from the use of the material in the production of the good, less the value of reusable scrap or by-product.

12.If any expense listed in paragraph 11 above is unknown or documentary evidence of the amount of the adjustment is not available, then no adjustment is allowed for that particular expense.

13.If an originating good of Australia is used in the production of a good in Hong Kong, it should be treated as an originating material in Hong Kong.

14.Production that occurs in Hong Kong or Australia by one or more producers shall contribute to the originating content in the origin determination of a good regardless of whether that production was sufficient to confer originating status on the material used in the production of that good.

15.A good that contains non-originating material that does not satisfy the applicable change in tariff classification (CTC) requirement specified in Annex 3-B (Product-Specific Rules of Origin) of the Agreement for the good is nonetheless an originating good if:

1. the value of all these non-originating materials does not exceed 10 per cent of the Adjusted Value, as calculated in accordance with paragraphs 6 and 7 above, and the good meets all the other applicable requirements of Chapter 3 of the Agreement; or
2. for a good classified in Chapters 50 through 63 of the Harmonized System (HS), the total weight of all such materials does not exceed 10 per cent of the total weight of the good, or the total value of all such materials does not exceed 10 per cent of the Adjusted Value.

16.Paragraph 15 applies only when using a non-originating material in the production of another good.

17.A fungible good or material is treated as an originating good or an originating material based on the:

1. physical segregation of each fungible good or material; or
2. use of any inventory management method recognised in the generally accepted accounting principles if the fungible good or material is commingled.

18.A good's accessories, spare parts, tools or instructional or other information materials should have the originating status of the good with which they are delivered if:

1. the accessories, spare parts, tools, and instructional or other information materials are classified with, delivered with but not invoiced separately from the good; and
2. the types, quantities, and value of the accessories, spare parts, tools, and instructional or other information materials are customary for that good.

19.In determining whether a good is wholly obtained or produced entirely from originating materials, or satisfies a process or CTC requirement as set out in Annex 3-B (Product-Specific Rules of Origin) of the Agreement, accessories, spare parts, tools or instructional or other information materials described in paragraph 18 above are to be disregarded.

20.In determining whether a good meets a RVC requirement, the value of the accessories, spare parts, tools or instructional or other information materials described in paragraph 18 above are to be taken into account as originating or non-originating materials, as the case may be, in calculating the RVC of the good.

21.Packaging materials and containers in which a good is packaged for retail sale, if classified with the good, are disregarded in determining whether all the non-originating materials used in the production of the good have satisfied the applicable process or CTC requirement set out in Annex 3-B (Product-Specific Rules of Origin) of the Agreement or whether the good is wholly obtained or produced or whether the good is produced entirely from originating materials.

22.If a good is subject to a RVC requirement, the value of the packaging materials and containers in which the good is packaged for retail sale, if classified with the good, are taken into account as originating materials or non-originating materials, as the case may be, in calculating the RVC of the good.

23.Packing materials and containers for shipment are disregarded in determining whether a good is an originating good.

24.An indirect material is considered to be an originating material without regard to where it is produced. Please refer to Appendix B (pdf format) for the list of indirect materials.

25.A Hong Kong-origin good retains its originating status if the good has been transported to Australia without passing through the territory of a non-Party. If an originating good from Hong Kong is transported through the territory of one or more non-Parties, the good retains its originating status provided that it does not undergo any operation outside the Area of the Parties other than unloading, reloading, separation from a bulk shipment, repacking, storing, labelling or marking required by Australia, or any other operation necessary to preserve it in good condition or to transport the good to the Area of Australia.

26.An importer in Australia may make a claim for preferential tariff treatment, based on a declaration of origin completed by the exporter, producer or the importer or an authorised representative of the exporter, producer or importer. While the declaration of origin needs not follow a prescribed format, it should:

1. be in writing, including electronic format;
2. be in English;
3. specify that the good is both an originating good and meets the requirements of Chapter 3 of the Agreement; and
4. contain a set of minimum data requirements as set out in Annex 3-A (Data Requirements) of the Agreement. Please refer to Appendix C (pdf format) for the data requirements.

27.A declaration of origin is valid for one year after the date that it was issued or for such longer period specified by the laws and regulations of Australia. It may apply to a single shipment of a good into the Area of Australia or multiple shipments of an identical good within any period specified in the declaration of origin, from or after the date of issuance but not exceeding the period of validity of the declaration.

28.If a producer declares the origin of a good, the declaration of origin is completed on the basis of the producer having information that the good is an originating good.

29.If the exporter is not the producer of the good, a declaration of origin may be completed by the exporter on the basis of:

1. the exporter having information that the good is an originating good; or
2. reasonable reliance on the producer's information that the good is an originating good, which may include a written or electronic declaration or statement, by the producer, that the good is an originating good.

30.A declaration of origin may be completed by the importer on the basis of:

1. the importer having documentation that the good is an originating good; or
2. reasonable reliance on supporting documentation provided by the exporter or producer that the good is an originating good, which may include a written or electronic declaration or statement, by the exporter or producer, that the good is an originating good.

31.A declaration of origin may be completed by an authorised representative of the exporter, producer or importer of the good on the basis of reasonable reliance on supporting documentation provided by the exporter, producer or importer that the good is an originating good, which may include a written or electronic declaration or statement, by the importer, exporter or producer, that the good is an originating good.

32.A declaration of origin is not required if:

1. the customs value of the importation does not exceed 1,000 Australian dollars or any higher amount as Australia may establish; or
2. an importation of a good for which Australia has waived the requirement for a declaration of origin,

provided that the importation does not form part of a series of importations carried out or planned for the purpose of evading compliance with the laws of Australia governing claims for preferential tariff treatment under the Agreement.

33.For the purpose of claiming preferential tariff treatment for a good imported into the Area of Australia, the importer shall:

1. make a declaration that the good qualifies as an originating good;
2. have a valid declaration of origin in its possession at the time the declaration referred to paragraph 33(a) above is made; and
3. provide a copy of the declaration of origin to Australia if so required.

34.If the importer has reason to believe that the declaration of origin is based on incorrect information that could affect the accuracy or validity of the declaration of origin, the importer shall correct the importation document and pay any customs duty and, if applicable, penalties owed.

35.An importer should not be subject to a penalty for making an invalid claim for preferential tariff treatment if the importer, on becoming aware that such a claim is not valid and prior to discovery of the error by Australia, voluntarily corrects the claim and pays any applicable customs duty under the circumstances provided for in the laws of Australia.

36.An importer claiming preferential tariff treatment for a good shall maintain, for a period of no less than five years from the date of importation of the good, the documentation related to the importation (including the declaration of origin that served as the basis for the claim), and all records necessary to demonstrate that the good is an originating good and qualified for preferential tariff treatment if the claim was based on a declaration of origin completed by the importer.

37.A producer or exporter that provides a declaration of origin shall maintain, for a period of no less than five years from the date of importation, all records necessary to demonstrate that a good for which the exporter or producer provided a declaration of origin is an originating good.

38.An importer, exporter or producer may choose to maintain the records specified in paragraphs 36 and 37 above in any medium that allows for prompt retrieval, including electronic, optical, magnetic or written form in accordance with the laws of the Party concerned.

39.For the purposes of determining whether a good imported into Australia from Hong Kong qualifies as an originating good, the customs administration of Australia may conduct a verification process in sequence by means of:

1. written requests for information from the importer;
2. written requests for information from the exporter or producer of Hong Kong;
3. requests that the Customs and Excise Department of Hong Kong to assist in verifying the origin of the good; or
4. verification visits, according to procedures jointly decided by the customs administrations of both sides, to the premises of the exporter or the producer in Hong Kong to observe the facilities and the production processes of the good and to review relevant records referring to origin. The verification visit shall only be initiated when responses to the requests made under paragraphs 39(a), 39(b) and 39(c) above are not forthcoming, inadequate or contradictory and there are reasonable grounds to doubt the accuracy or authenticity of the originating status of the good or the fulfilment of any other requirement under Chapter 3 of the Agreement.

40.For the purposes of paragraphs 39(a), 39(b) and 39(c) above, the customs administration of Australia shall allow the importer, exporter or producer a period of 30 days from the date of the written request to respond. During this period the importer, exporter or producer may request, in writing, an extension not exceeding 30 days. All the communications will be in English.

41.The customs administration of Australia shall complete any action set out in paragraph 39 above to verify eligibility for preferential tariff treatment within 90 days of receipt of all information necessary to make the determination. Upon completion of the verification action, the customs administration of Australia shall provide written advice to the importer, exporter or producer of its decision as well as the legal basis and findings of fact on which the decision was made.

42.Prior to conducting a verification visit in accordance with paragraph 39(d) above, the customs administration of Australia shall:

1. make a written request to the exporter or producer to conduct a verification visit of their premises; and
2. obtain the written consent of the exporter or producer whose premises are to be visited.

43.An exporter or producer should provide its written consent to a proposed verification visit within 30 days from the date of receipt of notification in accordance with paragraph 42(a) above.

44.The written request referred to in paragraph 42(a) above shall include:

1. the identity of the customs administration issuing the request;
2. the name of the exporter or producer of the good in Hong Kong to whom the request is addressed;
3. the date the written request is made;
4. the proposed date and place of the visit;
5. the objective and scope of the proposed visit, including specific reference to the good that is the subject of the verification referred to in the declaration of origin; and
6. the names and titles of the officials of the customs administration of Australia who will participate in the visit.

45.Australia may deny a claim for preferential tariff treatment if:

1. it determines that the good does not qualify for preferential treatment;
2. pursuant to a verification under Article 3.23 (Verification of Origin) of the Agreement (please refer to paragraphs 39 to 41 above), it has not received sufficient information to determine that the good qualifies as an originating good;
3. the exporter, producer or importer fails to respond to a written request for information in accordance with Article 3.23 (Verification of Origin) of the Agreement (please refer to paragraphs 39 to 41 above) ;
4. after receipt of a written notification for a verification visit, the exporter or producer does not provide its written consent in accordance with Article 3.24 (Verification Visit) of the Agreement (please refer to paragraphs 42 to 44 above); or
5. the importer, exporter or producer fails to comply with the requirements of Chapter 3 of the Agreement.

Otherwise, a claim for preferential tariff treatment made on or after the date of entry into force of the Agreement (i.e. 17 January 2020) should be granted.

46.If Australia denies a claim for preferential tariff treatment, it shall issue the importer with a written reason for denying the claim.

47.A claim for preferential tariff treatment shall not be rejected for the sole reason that the invoice was issued in a non-Party.

48.A declaration of origin shall not be rejected due to minor transcription errors or discrepancies, provided that the errors or discrepancies do not cast doubt on the origin of the good. For greater certainty, a difference between the HS tariff classification on the declaration of origin and the import declaration would not constitute a minor transcription error or discrepancy.

49.An importer may make a claim for preferential tariff treatment on or after the date of entry into force of the Agreement (i.e. 17 January 2020). An importer may apply for preferential tariff treatment and a refund of any excess duties paid for a good provided that the good would have qualified for preferential tariff treatment when it was imported into the Area of Australia. As a condition for preferential tariff treatment, Australia may require that the importer:

1. has paid the prevailing non-preferential rate of duty on the good;
2. make a claim for preferential tariff treatment;
3. provide a statement that the good was originating at the time of importation;
4. provide a copy of the declaration of origin; and
5. provide such other documentation relating to the importation of the good as Australia may require,

no later than one year after the date of importation or a longer period if specified in the laws of Australia.

50.For enquiries, please contact us through the following channels -

Trade and Industry Department (Factory Registration and Origin Certification Branch)
Address:	14/F, Trade and Industry Tower 3 Concorde Road, Kowloon City Kowloon
Tel:	3403 6432
Fax:	2787 6048
E-mail Address:	cepaco@tid.gov.hk

Yours faithfully,

(Miss Michelle Ngai)
for Director-General of Trade and Industry

Encl.

Note 1:	Area in respect of Australia means the territory of Australia: excluding all external territories other than the Territory of Norfolk Island, the Territory of Christmas Island, the Territory of Cocos (Keeling) Islands, the Territory of Ashmore and Cartier Islands, the Territory of Heard Island and McDonald Islands, and the Coral Sea Islands Territory; and including Australia's territorial sea, contiguous zone, exclusive economic zone and continental shelf over which Australia exercises sovereign rights or jurisdiction in accordance with international law.
Note 2:	The Parties refer to Hong Kong, China (hereinafter referred as Hong Kong) and Australia.
Note 3:	Originating material means a material that qualifies as originating in accordance with Chapter 3 of the Agreement.
Note 4:	Non-originating material means a material that does not qualify as originating in accordance with Chapter 3 of the Agreement.
Note 5:	Customs Valuation Agreement means the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994, set out in Annex 1A to the WTO Agreement.