Applicability of De Minimis Rule to Specific Materials Mentioned in Provisos under the Korea-ASEAN FTA (AKFTA) Released

A critical issue in the application of rules of origin is whether the De Minimis Rule (Minority Tolerance Rule) can be applied to specific materials mentioned in the 'Proviso' of the Product-Specific Rules (PSR) under the Korea-ASEAN FTA (AKFTA), even if the materials fail to meet the Change in Tariff Classification (CTC) criteria. To clarify: the De Minimis Rule does not apply to the proviso clauses of the AKFTA PSR.

1. Understanding the Nature and Role of the De Minimis Rule

The De Minimis Rule is a tolerance provision within FTA origin regulations. It allows a finished product to be recognized as originating even if a small amount of non-originating materials fail to satisfy the required Change in Tariff Classification (CTC) criteria. For instance, if the rule requires a 'Change in Chapter,' but a non-originating material belongs to the same chapter as the final product, the product can still qualify for FTA benefits if the value of that non-originating material does not exceed a certain percentage (7% of the FOB price or weight in the case of AKFTA). In essence, De Minimis is a limited allowance for non-compliance with standard CTC rules.

2. The Character and Purpose of 'Provisos' in AKFTA PSR

The Proviso mentioned in the AKFTA PSR serves a different purpose than the De Minimis Rule. Consider the example of food preparations under HS 1901.90, where the origin criteria are as follows:

• ① A change to sub-heading 1901.90 from any other heading. Provided that materials of headings 04.01 to 04.04 and Chapters 10 and 11 are originating in a Party.
• ② A regional value content (RVC) of not less than 40%. Provided that materials of headings 04.01 to 04.04 and Chapters 10 and 11 are originating in a Party.

The phrase starting with 'Provided that' constitutes the proviso. This clause imposes an absolute condition that specific key materials—such as dairy products (HS 0401-0404), cereals (Chapter 10), and milling products (Chapter 11)—must be originating goods produced within the FTA territory (Korea or ASEAN member states). This requirement is independent of whether those materials underwent a tariff heading change; it directly demands the originating status of the core ingredients to encourage regional production and strengthen local industry requirements.

3. Why De Minimis Cannot Be Applied to Provisos

If a specific material listed in a proviso is non-originating, the product fails to meet the origin criteria immediately. Because the proviso mandates the originating status itself rather than a change in tariff classification, even a 1% inclusion of non-originating material listed in the proviso results in disqualification. The De Minimis Rule is designed to waive minor discrepancies in general CTC applications; it is not intended to dilute absolute originating requirements for specific core materials.

While De Minimis offers flexibility for general rules by overlooking minor amounts of non-compliant materials, the Proviso acts as a mandatory and rigid condition. It is similar to a rule stating that a product's 'main ingredients must be organic'; in such a case, one cannot argue that the product is organic simply because the non-organic portion is less than 10%.

Conclusion

In most FTAs, including AKFTA, the De Minimis Rule applies only to standard PSRs like CTC or Value-Added criteria. It does not apply to provisos that require certain materials to be originating. Therefore, if materials from HS 04.01-04.04 or Chapters 10 and 11 are not originating in an AKFTA party, the final product (e.g., HS 1901.90) cannot be recognized as an AKFTA originating good, even if all other criteria are met. It is vital for traders to understand the weight of these provisos to ensure compliance.