Third-country reinvoicing may make strong rules under FTA

To determine the origin of a product and hence the customs-duty privileges, a preferential rules of origin specifically used in FTA member countries and a certificate of origin must be presented.

Certificates of origin differ between FTAs; for example, form D (for the Asean FTA, or Afta), form India-Thailand, form Tafta (for Thailand-Australia), form Jtepa (for Thailand-Japan) and form E (for Asean-China).

Competition in the world market has become more aggressive than ever, giving more importance to rules-of-origin ideology. The production process has evolved from a single country's manufacturing base to a process between countries. Countries in which products are produced will only benefit if they are exported under their nationalities.

To identify and reconfirm the correct nationality of the goods, substantial transformation rules, commonly used by FTA member governments, are introduced. Some examples include rules for minimum local content and changes in tariff classification. A manufacturing- or processing-operation rule calculates the value-added content throughout the manufacturing process in each country.

Furthermore, a third-country reinvoicing option is allowed: an importing FTA member country can accept certificates of origin issued by an exporter even in the event that a sales invoice is issued by a third-country company.

As for Thailand, this option has been made available for the first time under Afta. For example, company A from Thailand imports products from Malaysia using a certificate of origin - form D - issued by Malaysia but receives a sale invoice issued by Singapore, a third-country seller that is usually the agent or country responsible in determining the prices of the products.

In this case, the Thai importer can submit cost, insurance and freight invoice obtained from the seller in Singapore (invoice II) and to Thai customs for import-duty purposes during importation.

Government agencies in Afta member countries are eligible to accept form D in the event the sales invoice is issued by any country within or outside Asean, given that the imported product meets the required rules of origin and the importer and exporter are Afta members.

Since last month, a reinvoicing option has been allowed for the following FTAs: Afta, Tafta, Thailand-New Zealand, Jtepa and India-Thailand.

In the event an invoice is issued by a third country, the "Third-Country Invoice" box should be ticked under "Certificates of Origin", and such information as name and country of the company issuing the invoice should be indicated.

For the Asean-China FTA, the reinvoicing option is not yet available. Products imported from mainland China into Thailand with payment made via popular third countries or territories, such as Hong Kong, Taiwan and Singapore, cannot yet receive any benefit from the Asean-China FTA. Thai importers and exporters are therefore not able to receive the maximum benefit of this FTA.

Thai customs has already brought this issue up for negotiation with other Asean members and China.

SITTHICHAI PROMSUWON works with Deloitte Touche Tohmatsu Jaiyos's customs and international-trade services. For more information on third-country reinvoicing and rules of origin, e-mail him at spromsuwon@deloitte.com.