Shipping from China to Thailand: three places FTA preference fails

01Made in China and originating in China are two different things

A lot of people treat "the goods were made in China" and "the goods get the preferential rate under the China–ASEAN agreement" as the same statement. Between the two sits a whole set of rules of origin: how cumulation is calculated, whether the regional value content is high enough, whether a product-specific rule applies. Where the goods were physically produced is the starting point of the assessment, not the conclusion.

There is also the question of which certificate. Goods originating in China go under the China–ASEAN agreement; goods originating inside ASEAN — produced in Malaysia, say — go under the ASEAN trade in goods agreement. The two are not interchangeable. Pick the certificate by origin before the goods leave.

02Failure point one: the origin criterion itself does not hold

The typical case looks like this. Key components come in from a third country, assembly is done in China, but the value added or the depth of processing does not reach what that tariff line requires. Even with a certificate issued, customs may decline the preference when it verifies the claim.

The way to handle it is to check at the ordering stage, not to remember it the week before shipment: confirm the tariff line for the goods, the rules of origin that apply to that line, and whether your actual production can satisfy them. Your supplier does not necessarily know this better than you do, particularly a supplier exporting to Thailand for the first time.

03Failure point two: the documents do not agree with each other

A certificate of origin is not a standalone piece of paper. It has to form a consistent chain of evidence with the commercial invoice, the bill of lading, the packing list and the customs declaration. The usual mismatches:

• the description, specification or quantity on the certificate does not match the invoice;
• the shipper or the consignee does not match the bill of lading;
• the certificate number and issue date do not match what was declared;
• the relationship between the date the certificate was issued and the date of shipment does not meet the requirement.

What marks this class of problem out is the cost curve: found before shipment it is a document amendment; found after arrival it is demurrage and duty payable. So the discipline of pre-checking the draft and shipping only after it is confirmed applies to preference cargo just as much as to anything else.

04Failure point three: treating preference as exemption

This is the most common miscalculation on the finance side. The preference reduces customs duty. It does not remove import VAT, and if the goods fall into an excisable category, excise is payable as well. Costing your landed cost on the basis that a Form E means nothing to pay will come out visibly too low.

If you also hold promoted status, there is one more layer to work through. Importing under the duty exemption entitlement and importing under the agreement preference are two separate channels, and each shipment can take only one of them. Equipment on the approved list goes under the exemption entitlement; equipment that is not on the list, or where approval will not come through in time, is then assessed against the agreement preference. Decide shipment by shipment and keep the reasoning on file rather than applying one blanket rule. See whether a BOI company still pays duty on imported equipment and the window for duty-free equipment imports.

05How to keep this under control

Four habits keep this from going wrong.

• Settle the tariff line before you place the order. The tariff line decides which set of rules of origin applies, decides the gap between the normal rate and the preferential rate, and therefore decides whether this shipment is even worth the effort of obtaining a certificate.
• Give the supplier a written list of document requirements, setting out what the certificate has to show, which fields must match the other documents, and the timing requirement for issue. Do not assume the other side understands what the Thai side asks for.
• Keep a record for every shipment: which channel it went under, on what reasoning, and who decided. When the question comes up later, having the record and not having it are very different positions.
• Agreement rates get adjusted, and the tariff reduction arrangements differ from line to line. For long-run cost projections, work from the announcements in force, and watch whether the tariff line itself has changed.

Which tariff line your goods actually fall under, whether they can meet the origin criteria, and which channel works out better all have to be judged shipment by shipment against the composition of the goods, the production process and the real sailing dates. That check is better run before the purchase contract is signed than after the goods are sitting at the port.