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Korean FTAs in Effect

The Effectuation of the Korea–ASEAN FTA

Essential Checklist for the Korea–ASEAN FTA

To maximize the effectiveness of FTA, it is required to pay a full attention not only to basic matters including the country of origin criteria, but also to the special matters set forth in the provisions of the Korea–ASEAN FTA (e.g., back-to-back certificate of origin).


Because of the nature of the Agreement text, special matters have complex contents and a separate referential commentary for small- and medium-sized companies (SMEs) is not currently available. Therefore, please be fully advised of the following six precautions that are prepared with specific examples for an easy understanding of SMEs.

Background

To receive preferential tariff benefits in accordance with the FTA, it is required to meet 1) the origin determination criteria and 2) the principles of direct transport between the parties (countries). If a good that meets the origin criteria is transported via a third country other than the contracting country or shipped in a third country, the contracting country is not admitted as the origin of the good.

Korea–ASEAN FTA

  • It is set forth in the Agreement that a preferential tariff is applicable only to directly transported goods between the exporting party and the importing party (under certain conditions, exceptions are admitted).
    (Article 9 of Annex 3 of the Korea–ASEAN FTA)

Other FTAs

  • • Direct transportation is stipulated as the basic principle.
    (The Korea–US and the Korea–Chile FTAs do not require direct transportation but have separate provisions concerned with a transshipment in a third country.)

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Precautions

In case a good is transported to an importing country via a third country to make the trade recognized as an exception in the principle of direct transportation, the burden of proof lies with the importer seeking a preferential tariff. The importer must prove that the transportation via the third country is intended only for geographical reasons or for facilitating transportation and that no further processing is done in the third country.


Through the B/L issued by the exporting country, the original copy of the origin certificate, and other supporting documents issued by the customs authorities of transit countries are accepted as supporting documentary evidence. However, as it may be difficult to obtain these documents after the transportation, special attention needs to be paid on preparing the documents at the time when the goods are transported via a third country.

Background

In principle, to be entitled to the preferential tariff agreed upon between the FTA parties, a certificate of origin issued by the exporting country must be submitted. However, the Korea–ASEAN FTA admits a “back-to-back certificate of origin.” A “Back-to-back certificate of origin” refers to a certificate of origin issued by an intermediate exporting country based on the certificate of origin issued by the first exporting country. It can be issued when a good is transported from the first exporting country and transshipped in another contracting country or when a good that passed the customs in another contracting country is transported to the importing country.

Korea–ASEAN FTA

  • It is stipulated in the Agreement that the issuing authorities of an intermediate country may issue a back-to-back certificate of origin while a good passes through the country’s territory, upon the request of the producer or the exporter.
    (Article 7 of Appendix 1 of Annex 3 of the Korea–ASEAN FTA)

Other FTAs

  • Other FTAs (except the US) do not have specific regulations on back-to-back certificate of origin.

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Precautions

As a back-to-back certificate of origin has the same effect with a certificate of origin issued by the first exporter, a preferential tariff is applicable to it. However, for the issuance of a back-to-back certificate, all of the following criteria should be met: 1) the producer/exporter must apply to the issuing authorities of the intermediate country, 2) an original copy of the first origin certificate must be submitted and 3) the party importing the goods into the intermediate country must be identical with the party exporting from the intermediate country.


If an intermediate country is not a contracting party of the Korea-ASEAN FTA (e.g., China), a back-to-back certificate of origin shall not be issued and “Back-to-back C/O” in the No. 13 field of Form AK, which is the form of the certificate of origin used in the Korea–ASEAN FTA, must be marked (√).

Background

In international trade, there are various transaction types including merchandising trade and intermediary trade. Even if the exporter of the goods (the country of origin) and the country issuing the commercial invoice are different, the transaction may be recognized as a normal trade practice.


FTAs stipulate that the contracting party grants preferential tariff benefits to another contracting party in terms of the goods exported by exporters in the country of origin. Therefore, whether a good is exported from the country of origin is a major consideration. However, the Korea–ASEAN FTA and the Korea–India CEPA exceptionally provide for the admission of an invoice issued by a third country (under the condition of meeting certain requirements) to respect trade practices.

Text of the Korea–ASEAN FTA

  • It is stipulated in the Agreement that even if a commercial invoice is issued by a company located in a third country or an exporter in the calculation of the company, the customs authority of the importing country may accept a certificate of origin.
    (Article 21 of Appendix 1 of Annex 3 of the Korea–ASEAN FTA)

Korea–Chile FTA and 
Korea–India CEPA

  • It is stipulated in the Agreements that a third-country invoice may be accepted.

Other FTAs

  • Other FTAs do not have specific regulations on third-county invoice.
    (It is required to check the case-specific regulations.)

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Precautions

Third-country invoicing is a system established to respect the trade practices in transactions occurring in accordance with FTAs. However, if the company information of a commercial invoice issued by a third country is not filled in on the certificate of origin, customs authorities may demand to complement the invoice or the application for a preferential tariff may be dismissed or the trade may be subject to origin verification. Moreover, please be advised that even when a third-country invoice is accepted, FTA principles including the origin determination criteria and direct transportation rules must be met.


“Third-country Invoicing” in the No. 13 field of Form AK, which is the form of certificate of origin used in the Korea–ASEAN FTA, must be marked (√).

Background

In accordance with the concession type agreed upon by the FTA contracting parties, tariffs are eliminated or gradually reduced upon the agreement going into effect. The liberalization scheme of the Korea–ASEAN FTA is designed in a more complicated manner than those of other FTAs, and it reduces tariffs not by equal cuts per year but by applying a fixed tax rate over a certain period.

Korea–ASEAN FTA

  • It is stipulated that the goods covered by the Agreement are divided into goods in normal track and goods in sensitive track, and the tariff elimination and reduction for each track will be implemented in line with their respective schedules.

Other FTA

  • The final tariff rate can be predicted as the Agreements commonly use the manner of equal cuts per year in accordance with concession type.

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Precautions

The Korea–ASEAN FTA involves 10 ASEAN member countries as contracting parties, but each of the 10 countries has its own status of contracting party of FTA, with respective tariff elimination and reduction schedules. Please confirm the liberalization scheme of each ASEAN country.


Complete tariff elimination will be implemented on goods in normal track at some point in the future, whereas a certain percentage of tariff will be reduced on goods in sensitive track over a certain period. Hence, as the tariff elimination schedule for sensitive track is not confirmed as of now, it is necessary to check it consistently.

Background

“Reciprocal tariff rate” refers to a system where if an FTA contracting party exports a good on which it maintains a high tariff to protect its own industries (goods in sensitive track, excluding those in the tariff concession category) to another contracting party, the importing country may not apply a preferential tariff on the good even though it is entitled to tariff elimination (goods in normal track) under the Agreement.


If the tariff rate on an export that is not entitled to conventional duties is less than 10%, the importing country may apply the same rate on the good (reciprocal tariff rate).

Korea–ASEAN FTA

  • It is stipulated in the Agreement that if an FTA contracting party exports a good in sensitive track, with an exception to those in the tariff concession category, to another contracting party, the importing country may not apply a preferential tariff on the good even though it is a good in normal track and entitled to tariff elimination under the Agreement.
    (Article 7 of Annex 2 of the Korea–ASEAN FTA)

Other FTAs

  • Other FTAs do not have specific regulations on reciprocal tariff rate.

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Precautions

If a good included in sensitive track in Korea is classified as one in normal track by an importing country of ASEAN, the importing country may not apply preferential tariff on the good in question. Conventional duties may not be applied on. Therefore, if a good to be exported is included in sensitive track in Korea, it is necessary to check in advance if, in an importing country, the tariff on the good will be eliminated according to the tariff elimination schedule for goods in normal track or if conventional duties will not applied.

The information above is provided only as a reference for users and we are not legally liable for the errors in the content or the consequences of use of the information.
Please use the information above for reference purposes only and confirm the final information with relevant domestic law or administrative agencies.

The information above is provided by the Korea International Trade Association.

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