Rules of Origin

The rules of origin determine quotas, preferential tariff rates, and many similar cross border trade-related concerns. While it may be easy to understand what is meant by referring to the “manufacturing site” of a product, it isn’t that simple to determine the country of origin from a Customs point of view. The reason for that is that in a world that has been turned into a global village with the advancement of technology, the parts and components that make up a product aren’t manufactured in a single region. It is often the case that a product’s components arrive from multiple different countries to a manufacturing plant where they may be assembled. In such a scenario, rules to determine the origin of a product are needed so that trade policies can be applied to these products.

WTO Agreement on Rules of Origin

Rules of Origin Committee

Ever since the WTO’s rules of origin agreement was implemented, the committee has focused on improving the administration and definition of non-preferential rules of origin. This has been well complemented by the recent addition of work on preferential rules of origin by a handful of members in the WTO. The preferential rules of origin for the Least Developed Countries have received special attention from the WTO.

Non-preferential rules of origin

These rules apply when there is no particular trade preference, which mostly means carrying out trade with another country using the most-favored-nation rules. While some countries do not have any special laws for non-preferential rules of origin, they still have to apply these rules in some cases. These cases mostly include determining the eligibility of issuing a “made-in” label, calculating and applying quotas and anti-dumping issues.

WTO’s rules of origin agreement enables parties to negotiate non-preferential rules of origin. Its “Harmonization Work Programme” works towards the application of similar rules for non-preferential trade purposes. However, it excludes the rules of origin that are enforced in preferential or regional trade agreements.

The non-preferential rules of origin are in many cases to preferential rules of origin you may be familiar with in Free Trade Agreements:

  1. Local value content
  2. Tariff shift
  3. Specific processing methods
  4. Wholly grown/produced

Preferential rules of origin

These rules apply either to trade preferences of reciprocal nature or those of non-reciprocal nature. Reciprocal preferences refer to customs unions or regional agreements whereas non-reciprocal preferences include among other things preferences for developing or least developed nations. Any rules that are applied according to reciprocal trade agreements need to be in accordance with the Agreement on Rules of Origin Annex II.

Some guidelines have been set by the Bali Ministerial Decision. It allows WTO members to utilize non-reciprocal preferences for Least Developed Countries. The purpose of this is to make it simpler for exporters to utilize the opportunities present in the least developed countries.

In addition to the above, there is also the Nairobi Ministerial Decision which helps the least developed countries export products to not only developing countries but also developed countries.

The WTO-ITC-WCO Origin Facilitator contains the largest database in the world for certification requirements and rules of origin.

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