1. The trade
A processing business imports materials, works them, and re-exports the finished goods.
The customs exposure is in the import duty on the materials and the export treatment of the finished goods.
2. The import side
Materials enter duty-paid.
Where the finished goods are exported, the processing trade regime allows duty deferral or exemption, subject to the regime’s conditions.
3. The export side
Finished goods exported under the processing trade regime.
The materials’ duty position is settled against the export.
4. The documentation
Processing trade handbook or equivalent authorisation.
Import declarations for the materials.
Records showing the material-to-product consumption ratio.
Export declarations for the finished goods.
5. The origin question, separate from duty
Processing trade treatment is a duty regime.
Preferential origin is a separate question.
Finished goods can be exported under processing trade and still fail to qualify for preferential origin at destination, because the processing did not change the tariff classification.
6. The consumption ratio
The single most common area of dispute.
The handbook records a ratio. Actual production consumes a different ratio. The difference has to be accounted for.
7. A scenario
A company assembled electronics under processing trade, exported to an FTA market, and claimed preference.
At verification, the assembly did not change the subheading, and the value added fell below the threshold.
The preference was withdrawn. The processing trade treatment was unaffected.
8. The lesson
Two regimes, two sets of tests, one product.
9. Closing view
Processing trade and preferential origin are frequently confused because they both concern imported materials and exported goods.
They answer different questions.
*This article is based on China’s processing trade rules and the origin rules of China’s free trade agreements. Exporters should confirm requirements with China Customs.*