CONTENTS
- 1. Origin Verification | A Core Procedure in FTA Transactions
- - Purpose of Verification
- - Subjects of Verification
- 2. Origin Verification | Import Verification and Export Verification
- - Key Checkpoints
- 3. Origin Verification | Measures After Verification
- - Suspension of Preferential Tariff Treatment
- - Restriction of Preferential Tariff Treatment and Collection of Back Tariffs
- - Designation as a Party Restricted from Preferential Tariff Treatment
- 4. Origin Verification | Types of Violations and Levels of Punishment
- 5. Origin Verification | Response Strategy
1. Origin Verification | A Core Procedure in FTA Transactions
Origin verification refers to the series of administrative procedures for confirming whether the origin requirements set out in an agreement or domestic law are met and for taking sanctions in the event of a violation.
In a narrow sense, it refers to the procedure for confirming whether the origin determination criteria and the origin documentation are satisfied, and in a broader sense, it refers to the procedure for verifying the full range of FTA preferential requirements, including the qualifications of the transacting parties, the transport route, the application of tariff rates, and whether there has been any false labeling.
In other words, it is the process of comprehensively determining whether the application of the preferential tariff is itself lawful.
Purpose of Verification
Origin verification serves the following purposes.
• Preventing unfair trade practices
• Blocking the circumventing import of third-country goods
• Preventing tariff evasion and securing tax revenue
• Maintaining trade order among parties to an agreement
• Managing FTA implementation and securing international trust
Subjects of Verification
Origin verification is carried out with respect to the following parties.
• Domestic importers
• Domestic exporters and producers
• Certificate of origin issuing bodies
• Exporters and producers in the counterpart contracting country
In particular, not only importing companies but also exporting companies can become subjects of verification by the counterpart country, so advance preparation is needed.
2. Origin Verification | Import Verification and Export Verification
Origin verification is divided according to its subject as follows.
→ Targets goods imported into Korea to which an FTA tariff has been applied
∙ Export verification
→ The counterpart country requests verification of goods exported from Korea
Verification methods are also divided as follows.
∙ Indirect verification : The customs authority of the exporting country investigates on its behalf
∙ Mixed type : Both methods are used in parallel
Because the verification method and the response deadline differ by FTA, a response strategy tailored to each agreement is needed.
Key Checkpoints
In practice, the core issues that arise in origin verification are as follows.
Adequacy of the certificate of origin
∙ Whether any required entries were omitted or falsely stated
Adequacy of the issuing party
∙ Whether the exporter met the qualification requirements in cases of self-certification
Adequacy of the transaction structure
∙ Whether the requirements for third-country intermediary transactions were met
Adequacy of the applied preferential rate
∙ Whether the applied rate and period are appropriate
Whether transshipment for circumvention occurred
∙ Re-export without substantial transformation may constitute a violation
If even one of these elements is not satisfied, preferential tariff treatment may be denied.
3. Origin Verification | Measures After Verification
If origin verification finds that the origin requirements have not been met, a range of disadvantages may follow in stages, including denial of preferential tariff treatment, collection of back tariffs, and administrative sanctions.
Because the effects can extend to future imports of the same goods, a company may face financial and operational burdens at the same time.
Measures after verification generally proceed through the following structure: suspension of preferential tariff treatment → restriction of treatment and collection of back tariffs → stronger sanctions for repeated violations.
Suspension of Preferential Tariff Treatment
Once verification begins, customs may temporarily suspend preferential tariff treatment for identical or similar goods until the verification result is confirmed.
This measure is based on Article 17 of the Enforcement Decree of the FTA Customs Act, and it may apply not only to the goods under verification but also to identical goods imported afterward.
If verification confirms that the origin criteria are met, the suspended duties are refunded. If the criteria are not met, the suspended duties are confirmed as assessed and become a burden on the company.
In other words, a measure that affects cash liquidity begins as early as the verification stage.
Restriction of Preferential Tariff Treatment and Collection of Back Tariffs
If verification confirms any of the following grounds, preferential tariff treatment is denied, and the duties previously reduced or exempted are collected.
This is based on Articles 44 and 46 of the Enforcement Decree of the FTA Customs Act.
• The origin determination criteria were not satisfied
• Supporting origin documents were not submitted or were submitted falsely
• The partner country's verification result was not returned within the deadline
• The submission of materials was refused or access was restricted during an on-site investigation
• The obligation to retain supporting origin documents was violated
In these cases, preferential tariff treatment itself is denied, and the duties are recalculated at the general rate or the basic rate.
Collection may also take place within the five-year exclusion period running from the date preferential tariff treatment was applied, so a substantial additional payment may arise retroactively for past transactions.
Designation as a Party Restricted from Preferential Tariff Treatment
When origin-related violations are repeated, sanctions go beyond the collection of back tariffs and are strengthened against the company or exporter involved.
Under Article 37 of the FTA Customs Act, a party that has fraudulently submitted origin documentation or failed to substantiate origin in good faith two or more times within the past five years may be designated as a "party restricted from preferential tariff treatment".
In that case, preferential tariff treatment is restricted for a set period (five years) across all identical or like goods that the exporter produces or exports.
This sanction directly affects a company's price competitiveness and the continuity of its transactions, and the practical operational disadvantage is considerable.
4. Origin Verification | Types of Violations and Levels of Punishment
Violations related to origin verification may lead not only to administrative fines but also to criminal punishment.
Type of Violation | Level of Punishment |
Preparing or issuing supporting origin documents by fraudulent means | Fine of up to 20 million won |
Obtaining approved exporter certification by false means | Fine of up to 20 million won |
Failure to retain supporting origin documents | Fine of up to 20 million won |
Refusing, obstructing, or evading an origin investigation | Administrative fine of up to 10 million won |
Failure to submit materials requested by customs | Administrative fine of up to 10 million won |
Providing, disclosing, or using information to another person in violation of the confidentiality obligation | Imprisonment or a fine of up to 3 years |
※ Administrative sanctions (collection of back tariffs, restriction of preferential tariff treatment) and criminal punishment may apply together
5. Origin Verification | Response Strategy
For origin verification, "advance management" matters more than "after-the-fact response."
Advance Prevention
∙ Building processes for preparing and verifying certificates of origin
∙ Organizing a system for retaining supporting documents
∙ Reviewing the transaction structure and transport routes
After-the-Fact Response
∙ Handling appeals against the collection of preferential tariffs and administrative fines
∙ Developing a strategy for responding to partner-country verification
∙ Addressing criminal liability and joint penalty provisions
Origin verification is a core risk that can limit a company's use of FTAs.
Establishing a response strategy at the early stage, upon receiving the verification notice, is what matters most.
At Daeryun Law Firm, attorneys specializing in customs and international trade work together to provide comprehensive legal services, from responding to origin verification through administrative and criminal procedures.
If you need related legal advice, you may have your case assessed through the 🔗customs attorney legal consultation booking with Daeryun.
