What Businesses Need to Know About a Certificate of Origin?
A certificate of origin (COO) serves as a critical document for international trade since it officially indicates the country where the products were manufactured or processed. Think of it as “a birth certificate” for goods you are exporting or importing.
COOs certified by authorized organizations like government agencies, trade groups, or chambers of commerce can roughly be divided into two types:
- Non-Preferential Certificate of Origin: Used for imported goods that need proof of origin for trade or customs but are not eligible for preferential tariff treatment.
- Preferential Certificate of Origin: Based on the free trade agreements (FTAs) like Comprehensive Economic Partnership Agreement (CEPA), India-ASEAN FTA, etc., under this category, the exporter is given the privilege of lower or no tariff while exporting.
Let us dive deep into the details of a certificate of origin.
The Importance of a Certificate of Origin
A certificate of origin is a mandatory document for the following reasons. Have a look.
Industry Specific Experience:
- Possible Preferential Tariffs:
One of the most important utilities of a COO is to obtain favorable tariffs. An Indian exporter has to present a COO to export textiles duty-free to Japan under the India-Japan CEPA. COOs are essential for cost competitiveness since according to the World commerce Organization (WTO), around 75% of international commerce takes place under some kind of preferential arrangement.
- Possible Preferential Tariffs:
- Ensuring Compliance with Trade Agreements:
Products comply with the rules of origin (RoO) much more than any of the over 300 active trade agreements around the world. Such laws set the minimum requirement of local material content or considerable transformation that is necessary in products to have been considered from a specific country.
- Ensuring Compliance with Trade Agreements:
- Customs Simplified:
Customs employs COOs to ascertain the origin of goods and prevent violations of domestic and international laws. A legitimate COO can considerably reduce the risk of shipping delays, disputes, or penalties.
- Customs Simplified:
- Building Credibility in International Markets:
A COO reassures importers about the authenticity of goods and compliance with regional law. This is specifically essential for sectors where acceptance of goods depends on verifying the origin like medicines, textiles, and agriculture.
- Building Credibility in International Markets:
The Role of Certificates of Origin in Preferential Tariffs:
Preferential tariffs are a critical element of economic growth, market access, and trade promotion. Let’s see the role of a COO here.
- Enhancement of Contestability:
Increased international contestability of exporters is made possible through lower or eliminated tariffs facilitated via COOs. For instance, in the EU GSP scheme, tea exported to Europe by India incurs lower tariffs and thus becomes more appealing to buyers in the EU market.
- Enhancement of Contestability:
- Attract Regional Trade:
Regional trade improvements are made possible by COOs; for example, within the SAARC region, COOs are used to boost trade by $23 billion in 2022, as per the SAFTA agreement. .
- Attract Regional Trade:
- Decreasing Non-Tariff Barriers:
Non-tariff trade barriers include import prohibitions, quotas, or technical standards, among many. COO significantly alleviates most of the issues, as it acts as proof of conformity with trade regulations
- Decreasing Non-Tariff Barriers:
Now that you have a fair idea of a COO, see how you can apply and receive the same.
Guidelines for Getting an Origin Certificate
While applying for a COO, exporters follow some guidelines to ensure authenticity and compliance to ensure:
- Be Aware of the Rules of Origin (RoO)
The Rules of Origin set the criteria for goods by which origin can be determined and vary from trade agreement to trade agreement. Generally, these fall into two classes, namely:
1.Wholly Obtained Criteria: Such as minerals or agricultural goods made in one single country.
2.Criteria for Substantial Transformation: Pertains to goods that experience substantial value addition or processing in the exporting country. For instance, processed products must attain 35% regional value to qualify for lower tariffs under the India-ASEAN Free Trade Agreement.
- Documentation Standards
Exporters must provide supporting documentation like:
- Packing list and invoice
- Produced by Bill of Lading
- Origin Declaration
- Production records
- The Application Process
The application subsists in:
- Application submission: Exporters apply with the required documents to an accredited issuing agency.
- Verification: The documents are checked by the issuing authority with the requisite RoO compliance.
- Release: When it is approved, it is released to the COO in standard and prescribed format by the importing country.
In India, exporters can now apply for Certificate of Origin (COOs) online through the Directorate General of Foreign Trade, Common Digital Platform for Issuance of Certificates of Origin.
Difficulties in Utilizing Origin Certificates
Like every other document, COO too has its own set of disadvantages. For instance, they are complex in terms of their rules of origin. Exporters find it quite difficult to comply with these as these fairly differ for trade agreements. Below are a few more challenges.
- High Costs: Smaller and middle-sized business enterprises (SMEs) may face difficulties in terms of high administrative fees and documentation requirements to receive a COO.
- Fraudulent Activities: Cases of misrepresentation or falsified COOs may lead to penalties and loss of access to the market.
- Complex Origin Rules: Exporters might get confused because of the lack of consistency of different RoO with respective trade agreements.
However, the good news is that there are several ways to ease these issues and ensure flawless trade and commerce across the globe. Read on.
What are the Best Practices for Exporters?
Following these will help you get a COO that is extremely necessary for customs authorities to levy duties and tariffs by determining the nationality of the goods.
- Keep Accurate Records: Ensure that documentation supports the claim for the origin.
- Utilize Technology: Use digital platforms for faster and transparent COO applications.
- Seek Professional Assistance: Contact professionals or organizations for assistance with compliance and certification.
Conclusion
Certificates of origin are important documents in international trade to certify the origin of the goods officially. They help design tariffs, ensure compliance with regulations, facilitate trade agreements, and deter fraud. Organizations involved in international trade should understand the different kinds of COs, the authorities that issue them, and the procedure for obtaining them.
So far, we have seen that certificates of origin are vital commercial documents for international trade that serve a variety of purposes to facilitate and smooth out the movement of goods across international borders. Organizations involved in international trade must understand the different types of COs, the authorities that issue them, and the procedure for obtaining them.
