If you have any question about rules of origin, you will find the answer right here.
So keep reading to learn more.
What Does Rules Of Origin Mean?
These are licit standards developed from principles established by national legislation.
Or international agreements put in place by a country to determine the origin of goods.
Different organizations, countries, and trade agreements have different rules and ways of establishing.
Which country they can claim as their country of origin for certain goods.
In simple terms, say a country for example has different criteria that goods not wholly produced in that country.
Must meet in order to claim that country as the country of origin.
Why Are Rules Of Origin Important In International Trade?
Rules of Origin have become very prominent in today’s trading system reason being, many products are made of several materials each from a different country.
Therefore, determining where the product comes from is not easy.
Rules of Origin helps to assign one country as the country of origin of a given product by determining the economic nationality of a product.
It also helps to dictate trade policy measures and preferences.
Are There Standard Rules Of Origin For International Trade?
The key criteria used to determine Rule of Origin include:
- Goods wholly obtained-these are goods produced exclusively by raw materials from one country.
- Substantial transformation- can be expressed in three different ways:
- Change in tariff classification-
Goods are considered substantially transformed when goods categorized as heading and subheading are different from non-originating material used.
- Value addition-
also called ad valorem percentage.
Goods here are considered substantially transformed when the value added to goods rises to a certain level expressed by ad valorem percentage.
Its normally expressed in two ways namely;
- Maximum allowances for non-originating material
- Minimal requirement of domestic content
- Manufacturing or processing operation-
Goods are considered substantially transformed .
If it has undergone certain manufacturing processing operation in the process of production
- Minimal operation-
This is the vice versa of manufacturing operations discussed above in that specifically identified manufacturing operation.
Or insufficient to give out to the origin example labelling
- De minimis or tolerance rule-
This allows 10-15% of the total value of the end product to be considered non-originating without losing the origin status.
How Does Rules Of Origin Compare To Certificate Of Origin?
There is a similarity in these terms especially because of the term ‘origin’. However, they are very different;
Rule of Origin is a criteria used to determine where a product was manufactured from.
A product may not be wholly produced in a certain county however rule of origin helps attribute one country as the county of origin for the product.
Rule of origin should be declared to Customs at the point of import.
Certificate of Origin on the other hand is a document used to show the country where goods have come from.
it contains details of the product, its final destination, and the country of export.
This document is used to levy import tax on goods appropriately and to also determine goods that are eligible for import.
It can either be soft or hard copy.
A Certificate of Origin is issued after the Rule of Origin.
It’s issued to prove goods satisfies the rules of origin and the goods meet certain criteria to be considered originating from a particular country.
Where Can You Use Rules Of Origin?
Rules of Origin can be used under the following circumstance:
- For trade statistics
- For government procurement
- When you are applying for labelling and marking requirements
- To determine the kind of treatment your goods receive whether its Most-Favoured-Nation(MFN) treatment or preferential treatment
- To apply commercial policy measures for example anti-dumping duties or safeguard.
Which Types Of Rules Of Origin Are There?
Generally speaking, we have two types of Rule of Origin Namely Preferential and Non-preferential.
Each is discussed below:
- Preferential Rule of Origin- it’s similar to a trade agreement and it regulates preferential tariff according to the agreement.
The agreement contains sets of rules that goods must meet to be considered they come from a territory of the trade agreement.
The goods are counterchecked against the rules which are set according to the HS classification, specific to the product.
We have two types of preferential rule of origin:
- Wholly obtained-
These goods are acquired with Free Trade Agreement party without any other addition. For example food crops grown and harvested within FTA or goods produced from wholly obtained raw materials.
- Substantial transformation- here goods undergo a process to be considered as originating from a certain country.
- Non-originating materials should change their HS code to obtain the status.
- A given percentage of the total value of the end product must be added to the FTA territory in terms of maximum allowance for non-originating input or minimum requirement for local content.
- Specific processing should take place at a certain stage of the production process
- Non-preferential Rule of Origin-
Applies to goods traded between countries that are not linked by any preferential trade agreement.
Either because goods are not covered by an existing FTA or absence of preferential agreement.
Non-preferential rules are mostly agreed upon by each country and are according to the following rules:
- Wholly obtained- are goods entirely produced in a country territory without materials from outside the territory
- The last substantial transformation-
If goods have been produced in more than one country, the country where the last transformation was done is considered the country of origin.
Are There Specific Requirements For Rules Of Origin?
Yes.
For you to obtain a Rule of Origin needs direct consignment of goods.
Meaning your shipment should be directly transported from the production point straight to the stated destination so that country of origin can be identified.
Can A Product Have More Than One Country Of Origin?
Not really.
The reason being a product can be manufactured by different countries however multi-country of origin is not acceptable.
The country of origin is the last one with substantial transformation.
For example, Kenya is manufacturing products in China with raw materials from different counties say France and Italy.
China will be considered the country of origin because the last process which is manufacturing is taking place in that country.
In addition, blend claim is acceptable for instance Kenya and China coconut oil.
Where Can You Find Rules Of Origin?
You will find rules of Origin at the heart of the World Trade Organization (WTO). It is the committee on rules of origin.
How Does Free Trade Agreements Affect Rules Of Origin?
Different countries enter Free Trade Agreement to eliminate tariffs and non-tariff barriers among them.
However the rules of origin is the main reason why FTAs are underutilized.
FTA removes trade according to the product using rules of origin which appoints the actual origin of the product.
FTA rules are underutilized because rules of origin must be adhered to.
The rules become complex as the FTA increases sometimes tariff and rules vary according to the product origin.
Which International Organization Play Fundamental Role In Overseeing Implementations Of Rules Of Origin?
The International Convention on the Simplification and Harmonization of Customs Procedure also called Kyoto Convention ensures rules of Origin are implemented.
Additional Resources:
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