Change in Tariff Classification (CTC) — Determination Method and Practical Application
Interlink編集部What Is the Change in Tariff Classification (CTC)?
The Change in Tariff Classification (CTC) is a rule of origin standard used to verify whether the classification under the HS codes has changed at or above the level specified by the agreement between non-originating materials and the finished product.
CTC, an abbreviation for Change in Tariff Classification, is a commonly applied method in preferential rules of origin under EPAs, FTAs, CPTPP, RCEP, and others. Under origin rules, merely performing processing in a contracting party country does not qualify the product as originating. When non-originating materials are used, whether the materials have been transformed through processing into a product with a different classification is checked to determine if substantial processing has occurred.
CTC is a practical standard because it does not require cost calculations like the Regional Value Content (RVC) method. However, if the HS classification is incorrect, the entire determination could be wrong, so accurate HS classification of the finished product and materials is essential.
In practice, it is necessary to confirm the HS codes of the finished product and non-originating materials, Product-Specific Rules of Origin, the level of CC, CTH, or CTSH, de minimis provisions, the availability of alternatives with RVC or processing criteria, minor processing rules, and the supporting documentation as an integrated whole.
Scope Covered in This Article
This article addresses the practical aspects of the Change in Tariff Classification (CTC) rule, which is one of the origin criteria. It organizes the reasons for using CTC, differences among CC, CTH, and CTSH, why HS codes are the basis, the relationship with the de minimis rule, the choice between RVC and processing criteria, checks under CPTPP and RCEP, required documents, and the scope of freight forwarder involvement.
This article mainly focuses on practical confirmation of CTC. For a broader overview of origin criteria, value-added criteria, processing criteria, de minimis rules, Product-Specific Rules of Origin, CPTPP, RCEP, and other detailed issues, those points are kept as overview points here. Actual origin determinations must be individually verified based on the relevant agreement, target products, HS codes, material composition, manufacturing processes, and certification methods.
| Item | Content Covered in This Article | Detailed Points Kept as Overview in This Article |
|---|---|---|
| Basics of CTC | Explains the concept of confirming origin by a change in tariff classification between non-originating materials and finished goods under HS codes. | Overall origin criteria, preferential origin rules, and the origin certification system. |
| CC, CTH, CTSH | Clarifies which HS code level—2-digit, 4-digit, or 6-digit—is used to confirm classification change. | HS codes, tariff classification, tariff schedules, and detailed product classification. |
| Product-Specific Rules of Origin | Confirms which of CTC, RVC, or processing criteria is required for each target product. | How to read Product-Specific Rules of Origin, agreement-specific rules, and detailed product determinations. |
| HS Code Confirmation | Organizes the need to retain classification basis for both finished products and non-originating materials. | Advance rulings, classification justification documents, and detailed product classification checks. |
| Relationship with De Minimis Rules | Considers the possibility of exceptions allowing non-compliance with CTC for certain materials. | De minimis rules, special provisions for textiles, and value or weight criteria details. |
| Relationship with RVC and Processing Criteria | Organizes the approach of considering alternative criteria when CTC alone cannot explain origin. | Regional Value Content, processing criteria, cost data, and process management documentation. |
| CTC Verification under CPTPP | Summarizes Product-Specific Rules of Origin, self-declaration, de minimis, and document retention when using CTC under CPTPP. | CPTPP origin rules, self-declaration system, textile rules, and certification methods. |
| CTC Verification under RCEP | Organizes confirmation of cumulation rules, classification of originating materials, and certification methods when using CTC under RCEP. | RCEP, cumulation rules, consecutive certificates of origin, and identification of RCEP country of origin. |
| Scope of Freight Forwarder Involvement | Differentiates between document coordination support a freight forwarder can provide and CTC determinations that should not be conclusively made by them. | Responsibility division among customs brokers, importers, exporters, producers, and freight forwarders. |
Purpose and Background of the System
The reason for using CTC is to verify whether processing of third-country materials or parts results in a substantial change within the territory of the agreement signatories. If non-originating materials are processed into a finished product and the HS code classification changes to the level required by the agreement, this may serve as a basis for recognizing origin.
CTC does not directly evaluate the processing content itself, but serves as a criterion to check whether the HS code changes as a result of the processing. Therefore, even without detailed manufacturing cost information, judgment can sometimes be made by comparing the HS codes of the materials and the finished product.
However, a change in HS code does not automatically mean the product is originating. It is necessary to also confirm Product-Specific Rules of Origin, minor processing provisions, de minimis rules, cumulation rules, shipment criteria, certification methods, and record-keeping requirements.
Situations Where CTC Applies
CTC becomes especially important in manufacturing transactions using non-originating materials. However, whether CTC can be applied and what level of classification change is required depends on the agreement and the Product-Specific Rules of Origin.
| Application Situation | Common Issues | Documents to Verify | Practical Measures |
|---|---|---|---|
| Manufacturing finished products using non-originating materials | The issue is whether the non-originating materials, after processing into the finished product, meet the classification change required by the agreement. | Finished product HS code, non-originating material HS code, bill of materials, Product-Specific Rules of Origin | Compare the finished product and non-originating materials by each material item. |
| Confirming the levels of CC, CTH, CTSH | Incorrectly determining the required classification change level at the 2-digit, 4-digit, or 6-digit level may lead to an overall incorrect judgment. | Product-Specific Rules of Origin, HS code comparison table | Check the required level specified in the Product-Specific Rules of Origin of the relevant agreement. |
| When some materials do not meet the CTC | If only some non-originating materials fail to satisfy the classification change, the origin status of the entire finished product becomes problematic. | List of non-compliant materials, value data, weight data, de minimis data | Confirm whether de minimis, RVC, or processing criteria can be applied. |
| When there is an option to choose between RVC and CTC | Even if CTC is not met, there may be a possibility to justify origin using RVC. | Product-Specific Rules of Origin, FOB price, non-originating material value, RVC calculation data | Compare which criterion is easier to apply. |
| When processing criteria are applied in combination | Some products require not only classification change but also specific processing steps to be performed. | Process charts, production records, outsourced processing documents | Confirm which processes were conducted in which countries. |
| When using CTC under CPTPP | Under CPTPP, CTC is linked to a self-declaration system, making the retention of supporting documents important. | Origin declaration, bill of materials, HS comparison table, Product-Specific Rules of Origin verification materials | Keep a complete set of declaration documents and CTC supporting materials. |
| When using CTC under RCEP | Cumulation rules, classification of originating materials, and country of origin identification affect CTC determination. | Origin data of materials, supplier declarations, RCEP certification documents | Avoid automatically treating materials from RCEP member countries as originating materials. |
| When post-clearance verification by customs is expected | Failure to submit documents evidencing CTC determination will prevent explaining origin. | Determination tables, bill of materials, HS classification rationale, supplier documents | Prepare and maintain supporting documents from the time of declaration. |
Common Misconceptions
With CTC, there is a tendency to focus only on whether the HS code has changed, leading to overlooking the Product-Specific Rules of Origin, required thresholds, non-compliant materials, and exception provisions.
| Misconception | Actual Concept | Potential Issues |
|---|---|---|
| Changing the HS code means the CTC is satisfied | The required level of change is specified in the Product-Specific Rules of Origin. | One may mistakenly believe the criteria for CTH or CC are met when it is only a change under CTSH. |
| If most materials satisfy the CTC, the finished product qualifies as originating | In principle, classification changes must be confirmed for each applicable non-originating material. | Overlooking non-compliance in some materials may result in inability to explain this during customs review. |
| CTC requirements are the same for all agreements | Even for the same product, chosen criteria such as CC, CTH, CTSH, or RVC may differ depending on the agreement. | Misusing rules of origin from other agreements may cause incorrect judgment. |
| CTC confirmation is complete as long as the HS classification is correct | In addition to HS classification, de minimis rules, minor processing, cumulation rules, and supporting documents also need to be confirmed. | Formal classification changes may exist, but the processing might not be recognized as substantive. |
| If there is a material that does not meet the CTC, EPA tariff rates cannot be used | Some Product-Specific Rules of Origin allow options such as RVC, or the use of de minimis provisions. | Failing to consider alternative applicable criteria may lead to abandoning preferential tariff rates unnecessarily. |
| Originating materials are also subject to CTC assessment | CTC generally applies to confirming classification changes between non-originating materials and the finished product. | Including originating materials in the assessment might cause unnecessary non-compliance conclusions. |
| Even minor processing is sufficient if classification changes | Depending on the agreement, minor processing such as packaging, labeling, or simple sorting alone may not confer originating status. | Submitting declarations based solely on formal classification changes risks rejection upon post-clearance verification. |
| The freight forwarder will determine the CTC | Freight forwarders can assist with document consistency and transport documentation, but are not responsible for CTC determination. | If the required material list and HS classification evidence are not prepared by the shipper, declaration basis may be insufficient. |
Types of CTC
In CTC, the level at which an HS code change is required is defined by the Product-Specific Rules of Origin. The main types are CC, CTH, and CTSH.
| Type | Required Change Level | Main Points of Verification | Typical Usage | Notes |
|---|---|---|---|---|
| CC | Chapter change at the 2-digit level. | Check if the HS codes of the finished product and non-originating materials differ at the chapter level. | Used when a major classification change is required. | Often treated as a relatively strict criterion among CTC standards. |
| CTH | Heading change at the 4-digit level. | Check if the HS codes of the finished product and non-originating materials differ at the heading level. | A representative criterion commonly used in many Product-Specific Rules of Origin. | If the first 4 digits are the same, even if the 6 digits differ, CTH is not satisfied. |
| CTSH | Subheading change at the 6-digit level. | Check if the HS codes of the finished product and non-originating materials differ at the subheading level. | Applied for products where a more detailed classification change is sufficient. | Depending on the agreement or product, CTSH may sometimes be insufficient. |
CC: Chapter Change
CC stands for Change in Chapter, requiring a change in classification at the chapter level of the HS code. For example, if non-originating materials are classified under Chapter 72, and the finished product falls under Chapter 73, this constitutes a chapter change.
Generally, CC is treated as a criterion demanding a significant classification change among CTC standards.
CTH: Heading Change
CTH stands for Change in Tariff Heading, requiring a change in classification at the heading level of the HS code. It involves comparing the finished product’s and non-originating materials’ HS codes at the 4-digit level to verify that the change required by the agreement has occurred.
CTH is the representative CTC criterion used in many Product-Specific Rules of Origin.
CTSH: Subheading Change
CTSH stands for Change in Tariff Subheading, requiring a change in classification at the subheading level of the HS code. This criterion involves a more detailed classification than CC or CTH to determine if the required change has occurred at the 6-digit level.
Depending on the product, CTSH may be sufficient; however, in some cases, CTH or CC may be required.
Why HS Codes Are the Basis
Since CTC uses changes in HS codes as the criterion, the accuracy of HS classification is fundamental. It is necessary to verify not only the HS code of the finished product but also those of the non-originating materials and components used.
If the HS code of the finished product is incorrect, the Product-Specific Rules of Origin that need to be checked will change. Likewise, incorrect HS codes for materials or components could lead to wrong judgments about whether the CTC is satisfied.
Therefore, when applying CTC, it is important to be able to explain the basis on which the HS codes were classified for the finished product, major components, and non-originating materials.
The Relationship Between CTC and Minor Processing
With CTC, changes in HS code classification are important, but it is not sufficient to consider only formal classification changes. Depending on the agreement, minor processing alone may not be recognized as processing that grants origin.
For example, packaging, labeling, simple sorting, repackaging, and basic assembly may not be regarded as substantial processing. Even if these processes appear to satisfy CTC, it is necessary to check the agreement’s provisions regarding minor processing or exclusions.
When verifying CTC, it is important to consider not only HS code changes but also whether the actual processing performed is recognized as conferring origin.
The Relationship Between CTC and De Minimis Rules
An important consideration when verifying CTC is its relationship with the de minimis rules. The de minimis rules are a system that exceptionally allows certain non-originating materials, which do not meet the origin criteria, to be tolerated within a specified range defined by the agreement.
Under CTC, as a general rule, all non-originating materials involved must satisfy the required tariff classification change specified by the agreement. However, even if some non-originating materials do not meet the CTC requirement, if their value or weight falls within the limits permitted by the agreement, the de minimis rules may allow the finished product to be treated as originating.
That said, de minimis is not an unconditional allowance. It is necessary to check the applicable percentage, target products, value and weight thresholds, and special provisions for textile products according to each agreement.
When Some Materials Do Not Meet CTC
Under CTC, each non-originating material used in the finished product is checked to ensure it meets the classification change requirements specified by the agreement. Therefore, if some non-originating materials do not fulfill the CTC requirements, the overall origin of the finished product may become an issue.
In such cases, rather than immediately deciding that the product is not compliant due to CTC failure, it is recommended to verify in the following order: HS classification, Product-Specific Rules of Origin, non-compliant materials, de minimis, RVC, and processing criteria.
| Verification Step | Content to Confirm | Reference Documents | Points to Note |
|---|---|---|---|
| 1. Recheck HS Classification | Are the HS codes for the finished product and the non-compliant materials correct? | Specifications, material lists, catalogs, classification rationale documents | Misclassification may cause the materials to appear non-compliant. |
| 2. Recheck Product-Specific Rules of Origin | Which level of requirement applies: CC, CTH, or CTSH? | Document confirming Product-Specific Rules of Origin | Ensure you are not referring to rules from a different agreement or product. |
| 3. Identify Non-Compliant Materials | Which non-originating materials do not meet the CTC requirements? | Material lists, parts lists, origin and non-origin material classification tables | Originating materials may be excluded from the CTC assessment. |
| 4. Applicability of De Minimis | Are the value or weight of non-compliant materials within the allowable limits under the agreement? | Value data, weight data, calculation justification documents | Pay attention to applicable products and special rules for textiles. |
| 5. Possibility of Applying RVC | Is RVC selectable according to the Product-Specific Rules of Origin? | Product-Specific Rules of Origin, FOB price, value of non-originating materials, RVC calculation documents | Cost data is required when using RVC. |
| 6. Check Processing Criteria and Exceptions | Can the issue be explained under specific processes or exception provisions? | Process charts, manufacturing records, contract manufacturing documents | Simple minor processing may not suffice. |
| 7. Determine Ineligibility for Origin | Can the non-compliance not be explained by other criteria or exceptions? | Assessment records, verification notes, internal approval documents | Do not force self-declaration; consider regular tariff rates or alternative systems. |
Application Requirements and Common Exceptions
To use CTC, the relevant EPA or FTA’s Product-Specific Rules of Origin must allow CTC, the HS codes for the finished product and non-originating materials must be identifiable, and the required level of classification change must be met.
| Category | Application Requirements | Common Exceptions / Issues | Practical Measures |
|---|---|---|---|
| Applicable Agreement | CTC must be permitted under the Product-Specific Rules of Origin of the EPA or FTA used. | Judging based on Product-Specific Rules of Origin from a different agreement. | Confirm the applicable agreement and its Product-Specific Rules of Origin. |
| Finished Product HS Code | The finished product must be correctly classified with the proper HS code. | Misclassification of the finished product causing the wrong Product-Specific Rules of Origin to be checked. | Retain classification supporting documents and consider applying for advance rulings if needed. |
| Non-Originating Materials HS Codes | Each non-originating material’s HS code can be confirmed. | Material classification is unclear, preventing preparation of a CTC judgment table. | Obtain material lists, specifications, and supplier documentation. |
| Required Level of Change | Confirm which requirement level—CC, CTH, or CTSH—is specified. | Misunderstanding that CTSH alone suffices and overlooking CTH or CC requirements. | Verify the Product-Specific Rules of Origin notation and clearly specify the required level. |
| Minor Processing | Recognized as more than a classification change; considered substantial processing. | Claiming originating status based only on packaging, sorting, or labeling. | Check minor processing rules and exclusion provisions. |
| Non-Compliance Materials | No non-compliant materials are present, or exceptions can explain their presence. | Overlooking some non-compliant materials and treating the entire finished product as originating. | Verify applicability of de minimis, RVC, and processing criteria. |
| Documentation Retention | Retain HS classification rationale, material lists, CTC judgment tables, and Product-Specific Rules of Origin confirmation documents. | Having certificates without underlying CTC supporting documentation. | Keep a full set of judgment documents to prepare for customs post-clearance verification. |
| Reliance on Freight Forwarder | The cargo owner manages documentation required for CTC determination. | Outsourcing the entire CTC judgment to the freight forwarder. | Instruct the freight forwarder to coordinate documents and transport paperwork; the cargo owner should make the origin determination. |
Relationship with RVC and Processing Criteria
In Product-Specific Rules of Origin, not only CTC but also value-added criteria such as RVC and processing criteria may be set. When the rules use a selection format such as CTC or RVC, consider which criterion is easier to use to demonstrate origin.
Also, for some items, it may be necessary to meet specific processing steps in addition to CTC. Rather than confirming CTC alone, it is necessary to interpret the overall conditions of the Product-Specific Rules of Origin.
| Criterion | Appropriate Situations | Required Documents | Notes |
|---|---|---|---|
| CTC | When the HS codes of the finished product and non-originating materials are clearly different, making classification change easy to explain. | Finished product HS code, material HS codes, materials list, Product-Specific Rules of Origin reference documents | Misclassification of HS codes can lead to incorrect overall determinations. |
| RVC | When CTC is not met but sufficient value has been added within the region. | FOB price, value of non-originating materials, cost data, RVC calculation sheet | A system to preserve and explain cost information is required. |
| Processing Criteria | When specific processing steps are required by the agreement and processing management documents can be explained. | Process charts, manufacturing records, work instructions, subcontracted process documents | Clearly identify which processes were performed in which country. |
| CTC and Processing Criteria | Items requiring not only classification change but also specific manufacturing processes. | HS classification materials, materials list, process charts, manufacturing records | Meeting only one of the criteria may be insufficient. |
| CTC or RVC | Items allowing choice of whichever criterion is easier to explain. | Documents corresponding to the chosen criterion | The favorable criterion may be chosen, but it assumes the supporting documents can be preserved. |
Application Process Flow
When confirming CTC, check the relevant agreement, finished product HS code, Product-Specific Rules of Origin, required criterion level, non-originating materials, HS comparison, shortfall materials, exception rules, and supporting documentation in sequence.
| Step | Check Items | Main Stakeholders | Decision to Proceed |
|---|---|---|---|
| 1 | Confirm the EPA, FTA, CPTPP, RCEP, or other agreement to be used. | Importer, exporter, customs broker | Review the Product-Specific Rules of Origin under the targeted agreement. |
| 2 | Confirm the HS code of the finished product. | Importer, exporter, customs broker | Identify the Product-Specific Rules of Origin based on the finished product classification. |
| 3 | Check the Product-Specific Rules of Origin for the applicable product. | Importer, exporter, origin management staff | Confirm whether CTC can be applied or if there is a choice between RVC or processing criteria. |
| 4 | Verify which level—CC, CTH, or CTSH—is required. | Importer, exporter, customs broker | Prepare an HS comparison list according to the required level. |
| 5 | Classify the raw materials and parts used into originating and non-originating materials. | Manufacturer, exporter, importer | Identify non-originating materials subject to CTC determination. |
| 6 | Check the HS code for each non-originating material. | Manufacturer, exporter, supplier | Retain documentation supporting the material classification. |
| 7 | Compare the HS codes of the finished product and non-originating materials. | Importer, exporter, manufacturer | Confirm compliance with CC, CTH, or CTSH requirements. |
| 8 | If any materials do not meet CTC, verify whether de minimis or alternative criteria can be applied. | Importer, exporter, manufacturer | Consider also RVC or processing criteria. |
| 9 | Retain material lists, HS classification rationale, and process documentation. | Importer, exporter, manufacturer | Prepare for post-clearance verification by customs. |
| 10 | Check consistency between origin declarations, certificates of origin, and supporting documents. | Declarant, customs broker, importer | If discrepancies exist, correct them before import declaration. |
4-Column Decision Checklist
CTC should not be checked only immediately before import declaration. It is necessary to organize product classification, material classification, manufacturing processes, and origin certification documents step by step.
| Checkpoint | Counterparty | Items to Confirm | Actions if Issues Arise |
|---|---|---|---|
| At Start of Transaction | Importer, exporter, sales representative | Agreements used, applicable cargo, presence or absence of preferential tariff rates. | If the applicable agreement is unclear, organize export country, import country, and HS code. |
| Finished Product Classification | Importer, exporter, customs broker | HS code of finished product, basis of classification, Product-Specific Rules of Origin. | If classification is unclear, consider reviewing specifications or requesting prior rulings. |
| Material Verification | Manufacturer, exporter, origin management personnel | Materials used, classification as originating or non-originating materials, material HS codes. | If material information is insufficient, obtain additional documents from suppliers or manufacturers. |
| CTC Determination | Manufacturer, exporter, importer | Comparison of HS codes for finished product and non-originating materials, fulfillment of CC, CTH, CTSH rules. | If materials do not meet criteria, proceed to check de minimis or other rules. |
| Non-Qualifying Material Confirmation | Manufacturer, exporter, importer | De minimis, RVC, processing criteria, availability of product-specific exceptions. | If no exceptions or alternative criteria apply, consider general tariff rates or other regimes. |
| Minor Processing Confirmation | Importer, exporter, manufacturer | Check if activities such as packaging, sorting, labeling, or simple assembly are applicable. | If minor processing is suspected, re-examine the origin determination. |
| When Using CPTPP | Importer, exporter, manufacturer, customs broker | CPTPP Product-Specific Rules of Origin, self-declaration, de minimis thresholds, record retention. | Retain not only the declaration but also the CTC determination sheet and material documentation. |
| When Using RCEP | Importer, exporter, manufacturer, customs broker | RCEP originating materials, cumulation rules, certification methods, country of origin, shipment criteria. | Confirm that materials from RCEP contracting parties are not automatically treated as originating materials. |
| Certificate Preparation | Declarant, exporter, manufacturer | Origin declaration, certificate of origin, consistency between declaration details and supporting documents. | If certificates and determination documents do not match, correct before declaration. |
| Import Declaration | Importer, customs broker | Preferential tariff declaration, document consistency, availability of retained documents. | If supporting documents are insufficient, proceed cautiously to avoid applying preferential tariffs without basis. |
| Customs Post-Clearance Verification | Importer, exporter, manufacturer | HS classification, material status, CTC determination, non-qualifying materials, supporting documents. | Present the entire set of retained documents; if incomplete, obtain additional materials from business partners. |
Main Documents
When verifying the CTC, it is necessary to keep records of the HS codes for finished products and non-originating materials, Product-Specific Rules of Origin, material lists, classification documents separating originating and non-originating materials, CTC determination tables, and reference materials for de minimis and RVC checks.
| Document / Material | Purpose of Verification | Main Holders | Notes |
|---|---|---|---|
| Verification Documents for Finished Product HS Codes | Identify the target item and Product-Specific Rules of Origin. | Importer, exporter, customs broker | Misclassification of the finished product leads to incorrect rule verification. |
| Verification Documents for Non-Originating Materials and Parts HS Codes | Confirm classification changes relative to the finished product. | Manufacturer, exporter, supplier | Incorrect material classification results in wrong CTC determination. |
| Verification Documents for Product-Specific Rules of Origin | Check options such as CC, CTH, CTSH, and RVC. | Importer, exporter, customs broker | Verify according to each agreement. |
| Material List / Parts List | Summarize used materials and organize the evaluation targets. | Manufacturer, exporter | Separating originating from non-originating materials is necessary. |
| Documents Classifying Originating and Non-Originating Materials | Identify non-originating materials subject to CTC evaluation. | Manufacturer, exporter, importer | Also keep supporting documents for originating materials. |
| Supplier Declarations | Confirm whether materials can be treated as originating. | Supplier, manufacturer, exporter | Check the applicable agreement, relevant items, and validity period. |
| Production Process Chart | Verify the actual processing content. | Manufacturer, exporter | Used to demonstrate that processing is more than minor processing. |
| Invoice / Packing List | Confirm cargo details, product names, quantities, and prices. | Exporter, importer | Check consistency with declaration documents and material lists. |
| Certificate of Origin / Origin Declaration | Verify proof of origin required for preferential tariff rates. | Exporter, importer, issuing authority | CTC supporting documents are needed in addition to the certificate or declaration. |
| Calculation Reference Materials for Using De Minimis Rule | Confirm whether non-compliant materials fall within allowable limits. | Manufacturer, exporter, importer | Check limits by agreement and product. |
| RVC Calculation Documents | Verify whether RVC can be used instead of CTC. | Manufacturer, exporter, importer | FOB price, non-originating material value, and calculation basis are required. |
| Documents to Retain for Customs Verification | Explain CTC determinations during post-clearance verification. | Importer, exporter, manufacturer | Keep a complete set of determination tables, supporting documents, and transaction records. |
How to Confirm When Judgment Is Difficult
With CTC, overlapping factors such as HS code classification of finished products and materials, interpretation of Product-Specific Rules of Origin, minor processing regulations, and de minimis provisions can make judgment challenging.
In particular, for complex machinery, chemicals, composite materials, or products with numerous components, just verifying the classification of finished products versus non-originating materials can take considerable time. Additionally, since the CTC criteria and exceptions vary by each agreement, the determination for the same cargo may differ depending on the agreement applied.
When judgment is difficult, applying for a customs advance ruling or consulting experts may be considered. An advance ruling is a system where queries are submitted to customs before import declaration to receive prior confirmation on tariff classification, origin, and related matters.
Common Practical Issues
In CTC, issues often arise with misreading HS classification or Product-Specific Rules of Origin, incomplete materials, de minimis, switching to RVC, and cumulation rules under RCEP.
| Case | Typical Issues | Documents to Check | Practical Measures |
|---|---|---|---|
| CC Established | When non-originating materials are steel products under HS Chapter 72 and the finished product is screws under Chapter 73, whether a chapter change requirement is met becomes an issue. | Finished product HS code, material HS code, Product-Specific Rules of Origin | Confirm if CC is sufficient according to the Product-Specific Rules of Origin. |
| CTH Established | When the HS codes of non-originating parts and the finished product differ at the 4-digit level, whether the change of heading requirement is met becomes an issue. | 4-digit classification of finished product and materials, Product-Specific Rules of Origin | Check whether classification changes at the 4-digit level. |
| CTC Not Met | When non-originating parts and finished products are classified under the same HS heading, there may be a failure to meet the CTH requirement. | Material list, HS code comparison table, Product-Specific Rules of Origin | Verify applicability of de minimis, RVC, and processing criteria. |
| Classification Mistake | Misclassifying the HS code of the finished product or parts, mistakenly concluding that CTC is met. | Basis for classification, specifications, catalogs, prior ruling documents | Reconfirm classification basis and consult experts if necessary. |
| Partial Material Non-Compliance | Majority of materials meet the CTC, but some non-originating materials do not comply. | List of non-compliant materials, value and weight data, de minimis documentation | Identify the non-compliant materials and verify the de minimis threshold. |
| Switching to RVC | CTC is not met, but RVC can be chosen under the Product-Specific Rules of Origin. | FOB price, value of non-originating materials, RVC calculation documents | Consider whether the situation can be explained by RVC. |
| Cumulation under RCEP | Whether materials from RCEP member countries can be excluded from non-originating materials is a concern. | Origin documentation for materials, supplier declarations, cumulation documents under RCEP | Confirm the basis for treating materials as RCEP originating. |
| Minor Processing | When only packaging or labeling causes classification changes, whether this qualifies as substantial processing is an issue. | Process flowcharts, work details, minor processing rules under the agreement | Check if it qualifies as minor processing under relevant provisions. |
Application Scenarios of the System
Here, we organize the scenarios where CTC tends to cause particular issues as separate cases. We will review the decision sequence, which can be difficult to understand from tables alone, following the practical workflow.
Scenario 1: Using CTC under CPTPP
Under CPTPP, CTC may be applied within the Product-Specific Rules of Origin. Depending on the item, the required criteria may be CC, CTH, CTSH, or a choice between RVC and processing criteria.
Since CPTPP adopts a self-declaration system, even when using CTC, it is important to retain documents such as HS codes for the finished products and non-originating materials, confirmation materials on Product-Specific Rules of Origin, bill of materials, and manufacturing process documentation.
Furthermore, the de minimis rule may become an issue under CPTPP. In cases where some non-originating materials do not satisfy the CTC, it is necessary to confirm the applicable items, allowable percentage, and value or weight criteria.
Scenario 2: Using CTC under RCEP
CTC may also be applied within the Product-Specific Rules of Origin under RCEP. Since RCEP involves cumulation rules across member countries, it is important to accurately distinguish between originating and non-originating materials from RCEP member countries.
Even if materials are procured from RCEP member countries, it must be confirmed whether those materials can be treated as RCEP originating materials. If treated as originating materials, they may be excluded from non-originating materials in the CTC determination.
When checking CTC under RCEP, the target countries, country of origin, HS codes, Product-Specific Rules of Origin, cumulation rules, de minimis rule, certification method, and document retention should all be reviewed together.
Scenario 3: When Some Non-Originating Materials Do Not Meet CTC
There are cases where only a portion of non-originating materials used in the finished product fail to meet CTC. In this case, the entire product cannot automatically be treated as originating simply because the majority of materials satisfy the classification change.
First, re-verify the HS classification of the finished product and the materials that do not meet requirements, then confirm the level required by the Product-Specific Rules of Origin. Next, consider whether the value or weight of the non-compliant materials falls within the de minimis allowance, or if RVC or processing criteria can explain the shortfall.
In practice, non-compliant materials are itemized, and value or weight, the role of the materials, and the applicability of alternative criteria are organized. If explanation is not possible, it may be necessary to avoid forcibly using preferential tariff rates and instead consider standard tariffs or other systems.
Scenario 4: Misclassification of HS Codes for Finished Products or Materials
CTC is a system that compares the HS codes of the finished product and non-originating materials. Therefore, if the HS classification of the finished product or materials is incorrect, the overall determination of whether CTC is met will be wrong.
For example, an incorrect HS code for the finished product changes the applicable Product-Specific Rules of Origin. Likewise, incorrect HS codes for materials may lead to a material classification that is actually non-compliant being mistakenly judged as compliant.
In practice, product specifications, ingredient lists, drawings, catalogs, samples, and classification documentation should be organized, and prior rulings from customs should be used as needed. The CTC determination table needs to be retained together with the supporting HS classification documents.
Scope of Freight Forwarder Involvement
The freight forwarder is not the responsible party for making the CTC determination itself. Confirming CTC requires information such as the HS codes of finished products and materials, material composition, manufacturing processes, and categorization of originating and non-originating materials, which should be managed by importers, exporters, and producers.
Meanwhile, the freight forwarder plays a role in verifying consistency among documents such as invoices, packing lists, B/Ls, Sea Waybills, and Arrival Notices. If there are discrepancies in product descriptions, HS codes, origin, or country of manufacture on customs documents, it is important to verify these with the cargo owner or customs broker.
| Category | Supportable Actions | Actions Not to Conclude | Practical Response |
|---|---|---|---|
| Shipping Documents | Confirm consistency of product names, quantities, and origin statements between Invoice, Packing List, B/L, and Sea Waybill. | Final judgment on whether CTC requirements are met. | If there are document inconsistencies, prompt the cargo owner or customs broker for verification. |
| HS Codes | Encourage customs brokers or cargo owners to verify HS codes. | Legally determining the HS classification of finished products or materials. | If the basis for classification is unclear, refer to customs brokers, customs authorities, or experts for confirmation. |
| Required Documents | Guide the preparation of material lists, certificates of origin, origin declarations, and similar documents. | Judging whether materials are originating or non-originating. | Confirm the presence or absence of necessary documents and organize so that the cargo owner makes the origin determination. |
| Transport Documents | Organize B/Ls and transit documentation related to shipment criteria. | Guaranteeing compliance with shipment criteria under origin rules. | Arrange transport route documentation and share with customs brokers. |
| Preparation for Customs Verification | Organize customs and transport documents. | Guaranteeing that origin will be accepted in customs post-clearance verification. | Manage transport records and CTC determination documents separately. |
| Stakeholder Communications | Support document coordination between cargo owners, customs brokers, and local agents. | Deciding how to handle non-compliant materials or the applicability of de minimis rules. | If non-compliant materials are suspected, share information early with cargo owners and customs brokers. |
Points to Note
When using CTC, it is important to be aware that errors in HS codes can affect the entire determination. It is necessary to verify not only the HS codes of the finished products but also those of non-originating materials and components.
The required standards such as CC, CTH, and CTSH vary depending on each agreement. The relationship between CTC, RVC, and processing criteria also differs by item. Processing within the same HS classification may not satisfy the CTC requirements.
If some non-originating materials fail to meet the CTC, the origin status of the entire finished product may be questioned. In such cases, provisions such as de minimis, RVC, processing criteria, minor processing rules, or exceptions should be reviewed.
If supporting documentation is insufficient, explaining origin to customs during their verification may not be possible. When judgment is difficult, consideration may be given to seeking prior rulings or expert consultation. Since the freight forwarder is not the primary party responsible for CTC determination, it is important not to entirely delegate CTC judgments to them.
Summary
The Change in Tariff Classification (CTC) rule is a basis of origin criteria that checks whether there is a change in HS code classification between non-originating materials and finished products. Since CTC does not require cost calculations, it is practical to use; however, it assumes accurate knowledge of the HS codes for both finished products and materials.
In practice, it is necessary to verify the Product-Specific Rules of Origin, determine which level—CC, CTH, or CTSH—is required, check for any materials that do not meet CTC, assess whether the de minimis rule may be applicable, and confirm if there is an option to use RVC or the processing rule as an alternative.
Under CPTPP and RCEP, self-declaration systems, cumulation rules, de minimis provisions, certification methods, and record-keeping requirements are also relevant. Especially with RCEP, materials purchased from contracting countries are not automatically considered originating materials; therefore, origin documentation for each material should be verified.
When using CTC, it is important to retain HS classification justifications, materials lists, distinctions between originating and non-originating materials, CTC determination tables, and documentation for de minimis or RVC verifications, ensuring readiness to respond to customs inquiries.
