Question 4 Notes – Product Specific Rules (PSR):

To determine whether goods qualify under this criteria, you must first find / define the good under the Harmonised System (HS) as per Annex 5 of the NZ – China Free Trade Agreement or by using the tariff finder. Both are located at http://chinafta.govt.nz

For each good there is a product specific rule which must be satisfied in order for it to qualify as originating. There are several rules which may be one or a combination of the following:

Change to Tariff Classification (CTC):

The basis for this rule is that any non-originating materials added to the good must be sufficiently modified or processed. For example:

• Wheat imported from Australia and processed into flour in New Zealand will qualify.
• Flour imported in bulk from Australia then bagged in New Zealand for sale to China, does not qualify.

If we want to export New Zealand manufactured wheat flour, which is listed under HS code 1101 (Chapter 11 Heading 01), the rule is “Change to heading 1101 from any other chapter”.

This means that any non-originating materials used to make the wheat flour, must be listed in a different Chapter to 11.

For example, we imported wheat from Australia then processed it into wheat flour in New Zealand. Wheat is listed under HS code 1001, Chapter 10 Heading 01 therefore the rule has been satisfied. We have taken a material (wheat) from another chapter and turned it into wheat flour.

Regional Value Content (RVC):
In some cases the product specific rules may stipulate that RVC must be determined:

• Instead of a CTC
• Supplementary to a CTC
• As an alternative to a CTC

To calculate the RVC you must know:

• The Free on Board (FOB) value of your good (value of the good inclusive of the cost of transport to the port or site of final shipment abroad)
• Total Value of Non-Originating Materials (VNM) as per Article 22 Point 2 of the NZ-China FTA.

Once these values are known you can apply the following formula to determine the RVC% of your good:

RVC = FOB - VNM x 100
FOB

If the FOB value of the good is $10,000 and the value of non-originating materials is $6,000 the RVC calculation would be as follows:

RVC = 10000 - 6000 x 100
10000

RVC = 40%

 

Example: We have a tractor produced in New Zealand to be exported to China under the FTA:

• HS code for the good is 8701
• The rule for the good is “Change to heading 8701 from any other heading provided there is a regional value content of not less than 45 percent”.

All non-originating materials in the tractor must first satisfy the CTC rule. For example if the tyres are from Australia they qualify under the CTC rule as they are a material changed into a tractor from another heading (New pneumatic tyre HS code is 4011).

If the tyres are the only non-originating material, we will also need to determine the Regional Value Content. If at time of import the value of the tyres (including insurance and freight up to point of entry to NZ) was $3000 and the FOB value of the tractor was $22,000 the RVC value equals:

RVC = 22000 - 3000 x 100
22000

RVC = 86.4%

The RVC value of the good easily exceeds the minimum of 45% and the CTC rule for non-originating materials has also been met. The good qualifies for a Certificate of Origin.

To process an application where RVC is applied, supporting documentation detailing the FOB value of the good and CIF values of non-originating materials (such as a valuation, purchase or import documents, bill of lading etc) must also be provided.

Clothing and Apparel
Some items of clothing or apparel have a CTC requirement and an additional process rule. For example a knitted jersey (HS code 6110) has the product specific rule “Change to heading 6110 from any other chapter, provided that the good is both cut (or knit to shape) and sewn or otherwise assembled in the territory of one or both of the Parties.

If we purchased knitted fabric (HS code in Chapter 60) from Australia and cut to shape then sewed a jersey together in New Zealand, it qualifies for a Certificate of Origin.

Goods from Chapters 27-40
Some goods in these chapters can have an alternative rule applied to prove origin rather than the CTC method such as a chemical reaction, distillation, purification etc. The final reaction / process must occur in New Zealand.
For example a chemical has been produced for export to China under the FTA using third party materials. The materials used to form the chemical must satisfy any applicable CTC, product specific rule, or where relevant, a chemical reaction, purification, distillation etc rule may be applied instead.

Where an alternative rule has been applied, please provide additional documentation detailing the process and how the specific rule has been met along with any other applicable supporting information.

Back to Question 4

 

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