Customs - Rules of Origin

The Concept of Rules of Origin has become increasingly important for international trade. In fact, the implementation of regional integration and application of trade measures, such as, import bans and prohibitions, discriminatory restrictions, tariff quotas, among others depend on the application of Rules of Origin.
 
Trainees should be able to explain meaning and purpose of Rules of Origin; describe general principles and criteria for preferential treatment, and, apply Rules of origin and preferential treatment applicable to EAC, COMESA, SADC and EU.

Lesson 1: Definition of Rules of Origin

Introduction

The Concept of Rules of Origin has become increasingly important for international trade. In fact, the implementation of regional integration and application of trade measures, such as, import bans and prohibitions, discriminatory restrictions, tariff quotas, among others depend on the application of Rules of Origin.

Class 1

Definition of  Rules of Origin

Rules of origin are those criteria needed to determine the national source of products.

Their importance is derived from the fact that duties and restrictions in several cases depend upon the source of imports.

In most cases one would assume that simply because a product is imported from country X its origin is in that country.  The rules of origin provide comprehensive and precise criteria for establishing the origin status of the product in question.

Class 2

There is a wide variation in the practice of Countries with regards to the rules of origin. 

While the requirement of substantial transformation is universally recognized, some countries apply the criterion of change of tariff classification others the ad Valorem percentage criterion and yet others the criterion of manufacturing or processing operation. 

In a globalizing world it has become even more important that a degree of harmonization is achieved in these practices of members in implementing such a requirement.

Class 3

According to Article I (1) of General Agreement on Tariff and Trade (GATT) 1994 Rules of origin is defined as those laws, regulations and administrative determinations of general application applied by any Member to determine the country of origin of goods provided such rules of origin are not related to contractual or autonomous trade regimes leading to the granting of tariff preferences.

GATT has no specific rules governing the determination of the country of origin of goods in international commerce. Each contracting party was free to determine its own origin rules, and could even maintain several different rules of origin depending on the purpose of the particular regulation.


See GATT Digital Library below:

Class 4

The Kyoto Convention (International Convention on the simplification and Harmonization of Customs procedures, 1974) defines Rules of Origin as the specific provisions, developed by principles established by national legislation or International agreements applied by a country to determine the origin of goods.


See Kyoto Convention below:

Class 5

Rules of Origin refer to the vital link between the goods and the country where they are produced. In other words, Rules of origin are laws, regulations and administrative determination of country of origin of goods.

Rules of Origin are designed to be uncontroversial and neutral device for implementing discriminatory trade policies, compiling economic statistics, and marking a good. Thee agreement on Rules of Origin distinguishes between preferential and Non-Preferential Rules of Origin.


Class 6

Preferential rules of origin are those laws, regulations and administrative determinations of general application applied by any member to determine whether goods qualify for preferential treatment under contracted or autonomous trade regimes leading to the granting of tariff preference”.

These Rules of Origin are:

  • Governed by trade agreements with reciprocation;
  • Also used for statistics and controls;
  • Developed for goods to enjoy preferential tariff treatment

Class 7

Non preferential rules of origin are those laws, regulations and administrative determinations of general application applied by any member to determine the country of origin of goods;

Non preferential rule of origin are used for all other purpose, including enforcement of product and country specific trade restriction that increase the cost entry (i.e. antidumping duties) or restrict or present market entry (i.e. Quotas).

Quiz 1: Definition of Rules of Origin

What is the difference between GATT and Kyoto Convetion

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What are Rules of Origin?

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What is the difference between Preferential and Non-preferential Rules of Origin?

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Lesson 2: Purpose of Rules of Origin

Class 1

The determination of a country of Origin of a product is relevant to Customs, trade policy and the trading public. 

  • It helps in the proper classification of goods, the basis not only for declaration of goods in general, but the collection of import and other duties. 
  • It facilitates the determination of the correct values for the goods
  • It helps in the collection of accurate trade statistics• It helps to solve trade disputes between member states in terms of trade policy;

Class 2

Rules of Origin could be used as an important trade and commercial measure. Although they are themselves not trade instruments, they are frequently used to address different trade policy instruments.

The trade measures where origin determination is required include:

  • Measures to correct unfair trade e.g. through the imposition of countervailing/antidumping duties against imported products causing material injury to Domestic industry.
  • Measures designed to give preference to products from developing countries or beneficiary countries in regional cooperation agreement.

Quiz 2: Purpose of Rules of Origin

Which of these fact are false?

  • Rules of Origin help in the proper classification of goods, the basis not only for declaration of goods in general, but the collection of import and other duties.
  • Rules of Origin facilitate the determination of the correct values for the goods
  • Rules of Origin help in the collection of accurate trade statistics
  • Rules of Origin help to solve trade disputes between member states in terms of trade policy
  • Rules of Origin do not help trade

Lesson 3: General Principles

Introduction

With the objectives of harmonizing rules of origin and, inter alia, providing more certainty in the conduct of world trade, the Ministerial Conference shall undertake the work programme on the basis of principles.

Class 1

General Principles

The general principles are as follows: 

(a) Rules of origin should be applied equally for all purposes as set out in Article 1 of GATT 1994 

(b) Rules of origin should provide for the country to be determined as the origin of a particular good to be either the country where the good has been wholly obtained or, when more than one country is concerned in the production of the good, the country where the last substantial transformation has been carried out;

(c) Rules of origin should be objective, understandable and predictable;

(d) Notwithstanding the measure or instrument to which they may be linked, rules of origin should not be used as instruments to pursue trade objectives directly or indirectly. They should not themselves create restrictive, distorting or disruptive effects on international trade.  They should not pose unduly strict requirements or require the fulfilment of a certain condition not relating to manufacturing or processing as a prerequisite for the determination of the country of origin. However, costs not directly related to manufacturing or processing may be included for purposes of the application of an ad valorem percentage criterion;

(e) Rules of origin should be administrable in a consistent, uniform, impartial and reasonable manner;

(f) Rules of origin should be coherent;

(g) Rules of origin should be based on a positive standard. Negative standards may be used to clarify a positive standard.

Class 2

Criteria 

Various methods or criteria are used in determining the origin of the goods:

1. Goods wholly produced in the country of Export that is, that there is no material from outside the country used in production.

2. The substantial transformation rule states that a good originates in the last country where it emerged from a given process with a distinctive name, character or use. e good is a product of the country where it underwent substantial transformation.

3. Value-added Percentage Test – A stated minimum percentage of value that must come from the originating country or a stated maximum percentage of value that can come from the uses of imported parts and materials e.g. the COMESA Rules of Origin require that goods produced in the member states whose value added results from the process accounts for at least 35% of Ex-factory cost of the goods.

4. Change in tariff classification. Goods produced in an exporting country and are classified or become classified are under a tariff heading under which they were imported. The HS of tariff nomenclature has been adopted by 90% of world trade and provides uniform criteria to be used in defining origin determination for all products in international trade.

5. Goods of economic importance.

Quiz 3: General Principles

Which general principle is not true?

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Which if the following is NOT a method / criteria used in determining the origin of the goods?

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