Taichi Kawazoe

Here is a case study of Change in classification(CTC) method.

Company A manufactures Wheels for toy tricycles (HS Heading 9503)

 

Wheels for toy tricycles of Heading 9503 are manufactured from
the following non-originating materials:

Item name	HS code
Iron plate	7209
Steel strip	7212
Bushing	3926
Solid tyres	4012
Varnish	3208

The list rule(PSR) for heading 9503 requires the following working or processing to
be carried out on non-originating material:

“Manufacture from materials of any heading, except that of the product”.

The wheels are classified in heading 95.03 and none of the materials used are
classified in heading 95.03.
Therefore, the conditions to acquire originating status are fulfilled and the
products can be regarded as originating.

Another way of saying: “Change of Tariff Heading” (CTH)
A product is considered to be sufficiently worked or processed when it is classified in a
4-digit level of the Harmonized System, i.e. heading, which is different from those in
which all the non-originating materials used in its manufacture are classified.

Here is a case study of Change in classification method.

Company A manufactures ”Iron nails”(HS heading 7317)

from Non-originating iron wire (HS heading 7217).

Non-originating iron wires are imported from country B where
is not a  Party of the FTA;

Example PSR for goods of heading 7317(Iron nails) is:

“Manufacture from materials of any heading, except that of the product”.

Iron wire is classified in heading 72.17 which is a heading other than that of iron
nails (heading 73.17). Therefore, the conditions to acquire originating status are
fulfilled.

The nails can be regarded as originating products.

Here is a case study of Value Added method.

Company A manufactures Table lamps (HS SubHeading 9405.20)

Table lamps of SubHeading 9405.20 are manufactured from the following
non-originating materials:

Tubes of brass	€ 3.00
Plates of brass	€ 2.00
Switch	€ 1.00
Cable:	€ 0.30
Contact	€ 0.20
Steel wire	€ 0.15
Plastics components	€ 0.25
Textile fabrics	€1.20
Light bulb	€ 0.30
Lamp holder:	€ 0.50
Screws	€0.05
Varnish:	€ 0.03
Various materials	€0.40
Total value	€ 9.38

 

The lamps are sold at an ex-works price of € 20.-

 

The list rule for heading 94.05 requires the following working or processing to
be carried out on non-originating material:

“Manufacture in which the value of all the materials used does not exceed 50 %
of the ex-works price of the product”.

The total value of the non-originating materials used in the manufacture of one
lamp (€ 9.38) is less than 50 % of the ex-works price of one lamp (€ 20.-).

The origin requirements are fulfilled and the lamps can be regarded as
originating products.

Here is a case study of Value Added method.

Company A manufactures Plastic Boxes (HS heading 3923)

from Non-originating granules of plastics (heading 3901).

Non-originating granules of plastics are imported from country B where
is not a  Party of the FTA;

 

The unit price of a single Plastic Boxes is priced as:
Ex-works price of the boxes: € 10.- per box.
Value of granules used: € 4.- per box.

 

Example PSR for goods of subheading 3923 is:

“Manufacture in which the value of all the materials used does not exceed
50 % of the ex-works price of the product”.

As the value of the granules needed for the manufacture of one box (€ 4.-) is less
than 50 % of the value of the final box (€ 10.-), the condition to acquire originating
status is fulfilled.

Therefore, the boxes can be regarded as originating products.

But when the price of the granules soars to (€ 6.-), it’s price becomes more than
50% of the ex-works price of one box (€ 10.-).

In this situation, the condition to acquire originating status is not fulfilled.
The boxes, therefore, cannot be regarded as originating products.

Personally I do not recommend to adopt the VA method because foreseeing the
future price of the material is almost impossible.

If it’s possible, I would recommend adopting the CTC method rather than The
VA method.