1. The case
An exporter of construction materials supplied a project in Australia over two years.
The certificate of origin was issued for each shipment and the preference was claimed.
2. What changed
In the second year, the exporter changed a component supplier, moving from a domestic supplier to an imported one.
The change improved the margin.
3. What was not revisited
The origin analysis.
4. The rule at issue
The product-specific rule required a change in tariff classification.
The newly imported component fell in the same heading as the finished product.
The change in tariff classification test, which had been met before, was no longer met.
5. The discovery
A verification request from the Australian authority, covering a period that spanned the supplier change.
The exporter’s first response covered the earlier shipments. The later ones did not stand up.
6. The outcome
Preference withdrawn for the affected shipments.
Duty recovered from the importer.
The importer recovered the amount from the exporter under the sales contract’s indemnity clause.
7. The lesson
A sourcing change is an origin event.
The origin analysis has to be re-run whenever the bill of materials changes, not only when the product changes.
8. What to build
A rule in the procurement process: any change in a component supplier triggers an origin re-check before the change is confirmed.
9. Closing view
The exporter did nothing wrong commercially. It failed to connect two processes.
Most origin failures are of this kind.
*This article is based on the China-Australia Free Trade Agreement origin rules and verification practice.*