Global trade has become an everyday issue with immense effects on trade and the economy. Today’s global trade climate sees countries around the world engaged in trade negotiations aspiring to eliminate trade barriers. Customs tariffs and associated privileges are among the issues that most impact global trade flows and the import-export sector.

Thailand has negotiated customs tariff privileges as part of its 14 free trade agreements (FTAs) with 18 countries, including six bilateral and eight regional agreements. These FTAs set forth criteria for member states to comply with and adopt into national law. For customs privileges, one of the most important criteria for achieving customs privileges is rules of origin, which indicate the originating country of imported or exported goods and the accompanying duty rates or privileges for reduction or exemption.

Rules of Origin Under FTAs

The rules of origin mapped out in FTAs allow for duty exemptions or exemptions or rate reductions based on the determination of goods’ country of origin. This largely includes two main categories:

• Wholly obtained (WO) means the product was entirely produced in a single originating country and does not include any foreign (non-originating) content or manufacturing process.
• Product specific rules (PSR) are detailed criteria that define how each product’s origin is determined. PSR criteria that are often found in FTAs include “change in tariff classification” (determining origin based on sufficient transformation of materials), “regional value content” (requiring a minimum percentage of value to be added locally), and specific manufacturing or processing operations (mandating particular production steps occur in the originating country). These criteria also extend to cover other subordinated methods of verification, such as accumulation rules and de minimis rules, to provide more flexibility for the establishment of origins and tariff privileges under such FTAs.

Compliance Challenges

Despite attempts to promote international trade and eliminate trade barriers through the establishment of FTAs, importers and exporters nevertheless face difficulties or disputes arising from FTAs, especially disputes concerning the origin of goods either at the time of importation/exportation or through the process of postclearance audit by customs officers. If imported goods are not originating goods as declared, the importer is subject to additional duty assessment. Declaration of non-originating goods as originating goods may constitute a criminal offense, such as false declaration to avoid duty payment.

Hence, it is of utmost importance that entrepreneurs understand and are aware of the criteria of rules of origin and associated procedural aspects, including requirements for certificates of origin, document retention periods, and dispute resolution mechanism pertaining to Customs disputes.

Thailand and US Reciprocal Tariffs

Tariff privileges have been a vital issue in the international trade arena and have continuously been pivotal points in trade negotiations. A prominent global issue that has been headlined worldwide this year is the “reciprocal tariff” regime executed by US President Donald Trump’s administration, which imposed significantly high and controversial tariff rates on nations trading with the US, which has been criticized as a trade barrier. For Thailand, the tariff was initially imposed at a rate of 36% and has since been reduced to 19% following a series of negotiations and tradeoffs between nations.

However, although the reciprocal tariff rate now appears settled, the US is still pursuing further agreements on “transshipment tariffs,” as this would likely prevent other countries, particularly China, from using supply chains in other countries to disguise products’ country of origin to benefit from lower tariffs or circumvent trade restrictions.

Thailand’s Transshipment Scrutiny

Pursuant to recent negotiations with the US, Thailand is being scrutinized regarding its transshipment practices, especially concerning the exportation of goods actually originating from China as “made in Thailand” with nominal or no local content added from Thai manufacturers. This practice occurs because the goods would encounter higher tariff rates if exported directly from China to the US.

To facilitate negotiations, Thailand has reportedly planned to set up a special task force to manage issues concerning certificates of origin, which are expected to be required under new trade rules being negotiated with the U.S.

While the agreed criteria for transshipment are still not well settled, it can be expected that transshipment practices will be more thoroughly tested and verified for goods being shipped to the US.

Conclusion

Based upon FTAs and the prospective rules on transshipment tariff classification, rules of origin and associated documentation such as certificates of origin are crucial considerations for entrepreneurs who wish to enjoy tariff privileges and prevent risks of higher tariff exposure. Thailand’s experience demonstrates how geopolitical trade tensions can quickly reshape compliance requirements for businesses operating in global supply chains. As transshipment rules continue to evolve, companies should regularly review their origin determinations and supply chain structures to ensure continued compliance and market access.