The Potential for Tariff Reduction Using FTAs
An import company in Country A is attempting to import shoes from Cambodia, a contracting party of an FTA. These shoes are manufactured in Cambodia using various raw materials sourced both domestically within Cambodia and from non-contracting countries. Will such shoes, produced under these conditions, qualify for reduced tariffs under the FTA’s rules of origin?
Date of Ruling Issuance
May 8, 2024
Product Name
Shoes
HS code
6402.99-
Rules of Origin for the Final Product
Product-specific rule: “CC”
List of Raw Materials
| Raw Material Name | HS code | Representative Item | Origin Certification |
|---|---|---|---|
| Upper Material | Chapter 39 | Plastics | Non-Contracting Country |
| Upper Material | Chapter 54 | Man-made filaments | Non-Contracting Country |
| Upper Material | Chapter 59 | Coated textile fabrics | Non-Contracting Country |
| Midsole Material | Chapter 39 | Plastics | Non-Contracting Country |
| Midsole Material | Chapter 48 | Paper and paperboard | Non-Contracting Country |
| Outsole Material | Chapter 39 | Plastics | Non-Contracting Country |
| Insole Material | Chapter 39 | Plastics | Non-Contracting Country |
| Adhesives, etc. | Chapter 35 | Glues | Non-Contracting Country |
Manufacturing Process
| Description |
|---|
| Cutting of raw materials |
| Sewing of raw materials |
| Assembly of the product |
Reason for Certification
The HS code for the shoes is 6402.99-. Therefore, the product-specific rule of origin is ‘CC’, which is the applicable rule of origin in this case. Upon reviewing the details of the raw materials, the non-originating materials meet the criteria set by the product-specific rule of origin. Hence, the product qualifies as an FTA originating product.
*“CC” stands for Change in Chapter, which requires that non-originating materials used in a product must undergo a change at the 2-digit HS code level during the final production process.
Summary
In this case, importing shoes manufactured in Cambodia not only achieved tariff reductions through the application of preferential tariffs but also successfully reduced overall costs. This was accomplished by sourcing raw materials, which are the components of the shoes, from third countries at lower prices. The materials were then processed, including cutting and sewing, in Cambodia.
While determining whether the components meet the FTA’s rules of origin can be complex due to the variety of materials involved, establishing such a system allows for long-term benefits from tariff reductions. Customs specialists play a crucial role in navigating these complexities and ensuring compliance with the FTA’s rules of origin.
FTAs provide significant opportunities for reducing tariffs and enhancing competitiveness by leveraging preferential tariff rates. By understanding and applying the FTA rules, customs specialists can help companies optimize their import processes, leading to substantial cost savings. This case exemplifies how strategic sourcing and compliance with FTA regulations can lead to sustainable economic advantages and improved competitiveness in the global market.
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