Types Rules of Origin

Acceptable Materials: A provision that specifies how a fungible material is non-originating and tempered when the two types are stored together and/or used in the manufacture of originating and non-originating goods. It allows the tracking of both types of goods not through physical identification and separation, but on the basis of an accounting or inventory management system. Accessories, spare parts and tools: A provision that clarifies the process for determining the origin of accessories, spare parts or tools supplied with the goods. This type of tariff change shows that non-originating items have been converted either in the United States or in FTA partner countries to the extent that they qualify for a preferential tariff under the FTA. The quantity of non-FTA components does not matter. The GATT does not contain specific rules for determining the country of origin of goods in international trade. Each Party was free to define its own rules of origin and even to maintain several according to the objective of each regime. The drafters of the GATT stated that the rules of origin should be retained: . under the jurisdiction of each importing country, in accordance with its legislation for the application of the most-favoured-nation clause (and for other GATT purposes), to determine whether products actually originate in a given country.

Article VIII(1)(c) of the General Agreement, which deals with import and export fees and formalities, provides that the Parties also recognise the need to minimise the frequency and complexity of import and export formalities and to reduce and simplify import and export document requirements: and interpretative note 2 to that article states that it would be consistent if: When importing goods from the territory of one Party into the territory of another Party, the presentation of certificates of origin should be required only to the extent strictly necessary. For example, in Vietnam, goods exported to an importing country under a non-preferential arrangement may require a certificate of non-preferential origin certified by the Vietnamese Chamber of Commerce and Industry. The Council is also responsible for issuing the Certificate of Preferential Origin Form A if the goods are exported to a GSP granting country. However, if the goods are traded under a free trade agreement, the issuing authority is a local office of the Import and Export Administration, which reports directly to the Ministry of Industry and Trade. In the WTO, non-preferential rules of origin are no more harmonised than in free trade agreements. Despite enormous efforts, the work programme on the harmonisation of non-preferential rules of origin has not yet made significant progress, so that there are still no common rules of origin for non-preferential purposes in the WTO. During the so-called `transition` period, the formulation and implementation of non-preferential rules is literally at the discretion of MEPs. [11] The only difference with preferential rules of origin is that non-preferential rules of origin are subject to more stringent requirements in the WTO Agreements, in particular the Agreement on Rules of Origin and the Trade Facilitation Agreement. [12] Because of this role, rules of origin also help create trade between members of a preferential trade regime.

Such an effect on commercial purchases can occur through two channels. First, since the preferences apply exclusively to products originating in partner countries, it follows that one party tends to increase its imports from another party to a free trade agreement. For example, if country A signs a free trade agreement with country B because of lower tariffs, product X originating in country B will now become cheaper than the like product X originating in country C; As a result, country A has an incentive to import more X. Second, preference is also given to inputs originating in one partner country, as they are normally considered to originate in the other party where they are included in production. This means that country A has an incentive to use inputs originating in country B, as this makes it easier for its products to benefit from originating status under the free trade agreement with country B. Both channels may lead to an increase in trade between country A and country B, but may also have a negative impact on their trade with country C (i.e. trade diversion). Although rules of origin help to overcome embezzlement and encourage the creation of trafficking, they also cause trade diversion, which in many cases is not economically efficient. [16] The rules for determining the country of origin can be very simple when a product is wholly grown or mainly manufactured and assembled in a country. However, if a finished product contains components from many countries, determining origin may be more complex. Rules of origin can be very detailed and specific, varying from agreement to agreement and product to product.

During the transitional period (i.e. until the entry into force of the new harmonized rules), Members shall ensure that: (a) the rules of origin, including the specifications of the attempted substantial conversion, are clearly defined; (b) rules of origin are not used as an instrument of trade policy; (c) the rules of origin themselves do not have restrictive, distorting or disruptive effects on international trade and do not require compliance with conditions unrelated to the manufacture or processing of the product concerned; (d) The rules of origin applied to trade are not stricter than those applied to determine whether a product is domestic and do not discriminate between members (GATT most-favoured-nation principle). However, with respect to rules of origin applied to government procurement, Members are not required to assume additional commitments not already undertaken under the GATT 1994 (with the exception of national treatment for government procurement under Article III:8 of the GATT). (e) the rules of origin are applied in a uniform, uniform, impartial and appropriate manner; (f) the rules of origin are based on a positive standard. Negative norms are permitted either in the context of a clarification of a positive norm or in individual cases where a positive determination or origin is not required; (g) the rules of origin are published without delay; (h) upon request, the assessments of origin shall be made public as soon as possible and no later than 150 days after such a request; Confidential information may not be disclosed unless it is necessary in the context of legal proceedings. Origin assessments shall remain valid for three years, provided that the facts and conditions remain comparable, unless a decision contrary to that assessment is taken in a review pursuant to point (j). This advance origin information is considered a major innovation in the Agreement; (i) the new rules of origin or amendments thereto do not apply retroactively; (j) any administrative act relating to the determination of origin may be reviewed without delay by court, arbitral or administrative tribunals, or by procedures independent of the determining authority; such findings may modify or even reverse the provision; (k) confidential information shall not be disclosed without the express consent of the person providing it, unless required by legal proceedings. Non-preferential origin does not result in a reduction in duties, but is used for other purposes, such as quotas, anti-dumping duties and countervailing duties. It is also used for trade statistics and labelling purposes. The rules can be expressed in two ways, namely a maximum quantity for non-originating inputs or a minimum requirement for local content. In all these cases, rules of origin are necessary because the identity of the producing country cannot be reliably inferred from the point of entry.

Under the 1992 North American Free Trade Agreement (NAFTA), for example, Mexico, Canada and the United States phased out tariffs on their respective exports, while exports from other countries continued to face tariff barriers. Given that NAFTA was primarily intended to benefit businesses and workers in North America, it was clear that goods manufactured elsewhere could not be circumvented simply by transiting through one NAFTA country before being transported to another. Nor would it have been possible to classify these foreign goods as produced in a NAFTA country if, in reality, they had only been labelled, repackaged or processed superficially to benefit from preferential treatment. However, in the era of global manufacturing, finished products are often assembled from components from many different countries. When should foreign inputs that do not qualify for preferential treatment be considered converted into a new qualifying product? Precise legal standards – specific rules of origin – vary considerably from country to country, but most use a value criterion based on the percentage of value added, which is usually between 35 and 60 per cent and is calculated in a prescribed manner. Since the adoption of the Convention on Rules of Origin, the Committee`s work has focused on the harmonization of non-preferential rules of origin.