Interpretation of substantial transformation
The basic
criteria for determining the country of origin from the perspective of the
country of origin marking are prescribed in Article 61 (1) of the ENFORCEMENT
DECREE OF THE FOREIGN TRADE ACT (대외무역법시행령) as
follows:
-
If the whole imported goods are those gathered
or produced entirely in one particular country ("wholly obtained
goods"), such country shall be the origin of the goods.
-
If two or more countries are involved in the
production, manufacturing, or processing of imported goods, the country in
which activities to finally and substantially transform the goods and give
essential characteristics to the goods ("substantial transformation")
have been performed, shall be the origin of the goods.
-
If two or more countries are involved in the
production, manufacturing, or processing of certain goods imported, the country
in which simple processing works have been carried out shall not be the origin.
As the
interpretation of substantial transformation can be subjective, an objective
rule of determining substantial transformation - change in tariff
classification on the basis of 6-digit customs code is subscribed in its
sub-statute, FOREIGN TRADE MANAGEMENT REGULATION (대외무역관리규정).
Country of
origin of most industrial products can be non-controversially decided by
applying this 6-digit change rule because their manufacturing processes are
generally beyond the simple processing works. But what if the 6-digit HS Code
of a raw material is the same as the final product’s 6-digit HS Code? Should we
consider the raw material’s country of origin as the final product’s country of
origin? In this case, case by case approach is required and it is highly
recommended to file an inquiry with the Korea Customs Service (KCS).
Here are
some examples.
If a manufacturer imported lithium-ion battery cells from Country A and manufactured lithium-ion battery pack out of the battery cells in Country B, what country should be the country of origin of the battery pack? Both lithium-ion battery cell and lithium-ion battery pack are classified in 8507.60.
It is
tricky to determine the country of origin of the battery pack because it
doesn’t satisfy the 6-digit change rule and the battery cells are the core
parts of the battery pack. The KCS deemed that the process of welding and
assembling battery protection circuits was beyond the simple processing works
and substantial transformation occurred in Country B so the country of origin
of the battery pack shall be Country B.
If a
manufacturer imported pipes of cupro-nickel (7411.22) from Country A and
manufactured seamless pipes of cupro-nickel (7411.22) in Country B through
drawing, heat-treatment, expanding, etc., what country should be the country of
origin of the seamless pipes? The KCS determined that substantial
transformation didn’t occur in Country B so the country of origin of the
seamless pipes shall be Country A.
Just as
the examples above, when the 6-digit change rule is not satisfied,
manufacturing processes shall be reviewed case by case to determine the country
of origin. As there is no explicit stipulation of manufacturing processes that
can be recognized as beyond simple processing works, in order to prevent any
issues from being raised, it is necessary to file an inquiry with the KCS in
advance.
County of
origin marking is strictly regulated in Korea under the FOREIGN TRADE ACT (대외무역법). It doesn’t matter whether the
incorrect country of origin is intentionally marked or not. So, we shall be
careful in determining and marking the country of origin.
Comments
Post a Comment
Korea Customs