What are rules of origin in international trade?

In international trade, the rules of origin are the criteria used by national governments and international trade agreements and treaties to determine the national origin of a product or good. The WTO Agreement on Rules of Origin arising out of the Uruguay round of WTO negotiations was an attempt to harmonize the rules of origin for different countries.

Why are rules of origin important?

Rules of origin are important because many trade rules, regulations, and laws, provide differential treatment (known as preferential rules of origin) to goods and products based on where they originate from. For example, under the NAFTA rules of origin, certain goods were granted duty-free or reduced tariff treatment.

How do you determine country of origin?

Different countries determine country of origin rules in different ways. In the United States, for example, Customs and Border Protection will use a number of different rules to determine country of origin, including the “wholly produced” rule, the “de minimis” rule, and the “substantial transformation” rule. Other countries will apply other rules, and many trade agreements provide standards and procedures for determining country of origin.

Why do free trade areas develop rules of origin?

Free trade areas develop rules of origin in order to differentiate between products made and produced within the free trade region and those without. This way, trading partners of one member of a free trade agreement can’t indirectly make use of the free trade agreement by passing their products through one country and into another.

What does origin criterion mean?

Origin criterion refers to a condition a product or good must meet before it will be considered to originate from a particular country for the purposes of international trade. For example, one of the origin criteria for the former North American Free Trade Agreement was that it be wholly obtained or produced in a NAFTA member country.

Are tariffs based on country of origin?

Generally speaking, yes. Tariffs are often applied based on the country of origin test. This is particularly true when a country is a member of a free trade agreement and must differentiate between products produced by a country that is a member of the agreement and a country that is not. Country of origin rules can become complex, however, and many disputes have arisen about how to classify certain goods.