Country of origin can mean several different things different people, such as:
- Country of manufacturer as determined according to preset rules like value add rules, tariff shift or transformational process
- Country of last process or activity thereby creating the finished good
- Country that owns the technology behind the product
In supply chain and logistics, country of origin usually refers to the country of manufacturer. Although seemingly a straight forward concept, this can quickly become complicated when parts of a product may be manufactured in different parts of the world, raw materials may be procured from different parts of the world and finish product itself may be transported to different parts of the world before it is ready for sale.
Let’s look at an example of a car manufacturer:
A car manufacturer may purchase steel from United State of America, plastic resin from China and fabric from India. It may fabricate the steel frame of the car in a factory in France, while it may manufacturer the engine in a factory in South Africa. Glass for windscreens and windows may be procured from Malaysia. The frame and engine may be brought to Thailand for assembly. The steel outer body may be fabricated in Vietnam. The assembled frame and engine may be transported to Vietnam for the outer steel body to be assembled onto it. After completion, the car may be transported to Singapore, where tires imported from Indonesia are installed and the completed vehicle is tested for performance and quality. After testing, the semi-finished product may be brought to Japan for installation of seats and electrical accessories.
The above example is no doubt extreme, but it illustrates how complex it can be to simply determine country of manufacture.
In order to determine the correct country of manufacture, a lot of additional information is required, such as manufacturing cost statements and details concerning the processes that occurred at each country.
The 2 most common rules used by countries to ascertain country of origin are:
- Value Added Rule: This means that the value of the materials used in construction of the product belong to a particular country. Even this rule can be confusing at times and may result in a single product qualifying for several countries of origin. In some countries, you can also include the cost of labor nd overheads when calculating local value.
- Tariff Shift Rule: This rule means that the HS codes of the raw materials used in the manufacturer of the finished good are different at the Heading (1st 4 digits) or Sub-Heading (1st 6 digits)
Trader should also be aware that country of origin determination can vary when discussing country of origin for preferential duty treatment (i.e via Free Trade Agreement) and non preferential duty treatment.