Abstract
Rules of Origin are the set of rules that are used to identify the Country of Origin of an exported item and to determine the eligibility for preferential treatment for the item. The Rules of Origin that determine the Country of Origin for a product are usually referred to as the nonpreferential, or economic, Rules of Origin. The Rules of Origin that determine the eligibility for preferential treatment are commonly referred to as the preferential Rules of Origin. An important distinction between preferential and nonpreferential origin is that preferential origin treatment is requested (by the importer) and nonpreferential origin determination is required (for the exporter). The description for both the nonpreferential and preferential Rules of Origin are given by the WTO.
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- 1.
World Trade Organization: Article 1 and paragraph 2 of Annex 2 of the Agreement on Rules of Origin.
- 2.
World Trade Organization: Rules of Origin Technical Information.
- 3.
World Trade Organization: Rules of Origin Technical Information.
- 4.
Harmonization of Rules of Origin, Article 9.
- 5.
One of the tasks of the Technical Committee on Rules of Origin of the WTO is to provide a definition for “wholly obtained”. In absence of a conclusion, the definitions of “wholly obtained” vary from country to country. However, there appears consensus on what the elements are.
- 6.
Further details for all additional rules are provided in Sect. 5.2.
- 7.
This may be hard to prove as assembly is an integrated component in the manufacturing process and may occur in different location (factory, locally, etc.) for a variety of reasons.
- 8.
For text of proposed Rules (not product based rules) G/RO/W/111/rev.2, see Annex 5.
- 9.
Given that Anti-Dumping Duties are a unilateral measure directed at products specifically from a particular manufacturer or country, the importing country will wish to avoid situations where the exporting countries have more favorable rules when it comes to Country of Origin determination.
- 10.
Please see Sect 6.4, as reviewing the status of sub-components is an option to reduce risks.
- 11.
A “lop-sided” FTA is typically a FTA where one party is clearly the dominating economy (for example FTAs with the European Union or the USA), and where it will be easier for the importing country to impose additional rules and requirements on products imported under preferential treatment.
- 12.
People’s Republic of China General Administration of Customs Order No. 122 of December 6, 2004, effective January 1, 2005.
- 13.
Texas Instruments, Inc. v. United States, 69 CCPA 152, 681 F.2d 778 (1982) (cited with approval in Torrington Co. v. United States, 764 F. 2d 1563, 1568 (1985)).
- 14.
Supreme Court Ruling Anheuser-Busch Brewing assn. v. United States, 207 U.S. 556 (1907).
- 15.
US 19 CFR Ch. 1 (4-1-03 edition), Sect. 102.21.
- 16.
USA – Jordan Free Trade Agreement, Chap. 3: Wholly Obtained or Produced Goods.
- 17.
Vermulst et al. (eds.) (1994) in “Rules of Origin As Commercial Policy Instruments? – Revisited”, Chap. 9, elaborate on the various elements of numerator and denominator, local interpretations and difference in application between non-preferential and preferential calculations.
- 18.
See GATT, Article VII – Customs Valuation, specifically article 5 through 8 on the elements to be added to or to be excluded from the valuation basis. The excludable items must be substantiated and have to be specifically identifiable on the invoice. For Origin related purposes, the key is to properly identify all components of the Bill Of Materials so a determination on eligibility for preferential treatment can be made at the moment of export, rather than at the moment of import. In general, it can be stated that if the denominator used for FTA eligibility determination is not consistent with the customs value declared for import purposes, Customs may require additional documents and/or data and is more likely to perform further investigations.
- 19.
Both the WCO and WTO have departments dedicated to work on Customs Valuation. A detailed analysis on Customs Valuation can be found in Sherman and Glashoff (1988), Springer Verlag.
- 20.
From: South Korea – Chile FTA.
- 21.
From: US – Peru FTA.
- 22.
See footnote 18 on Vermulst.
- 23.
Adjusted value definition as provided in USA – Peru Trade Promotion Agreement.
- 24.
The “Honda case” is the case that illustrates best the far reaching consequences regarding the use of rolled up versus traced (or rolled down) calculations. Canada–US FTA, Honda case, 87 Am J Int’l L. 375 (July 1993).
- 25.
Source for both list and footnotes 10–12 of Chap. 4: ASEAN–South Korea FTA.
- 26.
“Simple” generally describes an activity which does not need special skills, machines, apparatus or equipment especially produced or installed for carrying out the activity.
- 27.
“Simple mixing” generally describes an activity which does not need special skills, machines, apparatus or equipment especially produced or installed for carrying out the activity. However, simple mixing does not include chemical reaction. Chemical reaction means a process (including a biochemical process) which result in a molecule with a new structure by breaking intramolecular bonds and by forming new intramolecular bonds, or by altering the spatial arrangement of atoms in a molecule.
- 28.
Slaughtering means the mere killing of animals and subsequent processes such as cutting, chilling, freezing, salting, drying or smoking, for the purpose of preservation for storage and transport.
- 29.
Japan – Mexico FTA, Section xx, Article.
- 30.
Agreement of Implementation of Article VII of the General Agreement on Tariffs and Trade 1994, Part 1, Article 1.
- 31.
For example: Sherman and Glashoff (1988).
- 32.
Application of the first sale principle is, although supported by WTO, not common place throughout the WTO community. In 2008, US Customs and Border Protection challenged the validity of the principle and although refuted then, the issue will likely be revisited on a periodical basis.
- 33.
The fact that the customs value does not match the value used for FTA eligibility calculation purposes should not lead to complications. This is more a problem with Anti-Dumping Duties, where Customs first indication whether product is being dumped is usually a review of the customs value. If the lower first sale value is used, it will raise the attention level from the importing authorities.
- 34.
USA – Morocco Article 5.1 (b).
- 35.
Article 15, European Union – FYROM FTA.
- 36.
ASEAN Annex 3, Rules of Origin, Rule 10.
- 37.
South Korea – EFTA FTA, Annex I, Section I, Title III.
- 38.
Australia – Chile FTA, Chapter 4, Article 4.13.
- 39.
Japan – Mexico FTA, Section 4, Article 24.
- 40.
USA – Morocco FRA, Chap. 5, Article 5.6.
- 41.
Australia – Chile FTA, Chap. 4, Article 4.12.
- 42.
North American Free Trade Agreement, Article 403, Part 2, Chap. 4, Article 40, paragraph 3 and 4.
- 43.
Japan – Mexico FTA, Section 4, Article 23, paragraph 5.
- 44.
North American Free Trade Agreement, Article 403, Part 2, Chapter 4, Article 40, paragraph 2.
- 45.
SACU – EFTA FTA, Appendix 2 to Annex V.
References
Friedman LM (2003) NAFTA Rules of Origin, Barnes/Richardson Global Trade Law. January 1, 2003
Hoberg U (2009) Accounting Segregation – Use of the system and experiences in Norway. WCO Seminar, January 2009
Sherman SL, Glashoff H (1988) Customs Valuation Commentary on GATT Customs Valuation Code. Kluwer, Deventer, Netherlands
Vermulst EA, Bourgeois J, Waer P (1994) Rules of Origin in International Trade: A Comparative Study (Studies in International Economics). University of Michigan Press, MI
Warushapperuma G (2004) Sri Lanka – Country Report, Regional Seminar on Rules of Origin
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van de Heetkamp, A., Tusveld, R. (2011). (Rules of) Origin. In: Origin Management. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-19808-3_5
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