Rules of Origin

Business Challenge

Along with its Harmonized System (HS) classification and the determination of its value, the establishment of a product’s country of origin is an essential component in assessing import duties and taxes. The laws, regulations and administrative rulings applied by governments to determine the country of origin are called "Rules of Origin". “Preferential Rules of Origin” define the conditions under which preferential market access is granted to products coming from trading partners.

While multilateral guidelines exist for HS classification and valuation, no such principles exist for origin. Even though you can categorize "types" of rules of origin between and across different free trade agreements (FTAs), each agreement defines and applies rules of origin idiosyncratically. For companies, understanding the structure and application of RoOs is exceptionally challenging if not impossible to decipher. 

Traders need tools to manage the complexity if they are to understand and confidentially utilize free trade agreements. Without a user-friendly tool that simplifies the process of managing origin, many firms will be reluctant to assume the risks and headaches of actually using the trade rules that the government has so painstakingly negotiated.

Technical Challenge

It is relatively easy to confer a product’s origin when it is wholly obtained and produced in a single country. Difficulties arise when a product is manufactured or assembled in, or uses materials originating from more than one country.

Most FTA’s provide for such difficult cases (which tend to be the norm and not the exception) using rules of origin, which are based on any of the following criteria, alone or in combination:

  • A specified change in tariff classification between non-originating materials and final products;

  • Regional value content (i.e. ad valorem percentage test); and

  • Listing specific manufacturing or processing operations which confer or do not confer origin upon the goods.

Adding to this complexity is the fact that, for the thousands of similar products covered by preferential rules of origin, each FTA applies these origin criteria in very different and unique ways.

The basic technical challenge rests in how to reduce (or ideally to eliminate) the inherent complexity of preferential origin determination while delivering reliable answers immediately.