Rules of Origin: A decade of negotiating reform leads nowhere

12 November 2015

Rules of origin regulate the entry of goods. There are two common sets of rules used in international trade but countries are free to design their own, and this makes it a technical subject.

Preferential rules enable regional trade agreements to be implemented and allow duty-free imports or imports at a reduced rate of duty. They tend to be ‘tighter’ than the non-preferential rules; one reason for this is to prevent “trade deflection” (transhipment through a preference-holding country to claim duty-free status on import).

The criterion used to establish origin involves a ‘sufficient transformation’ test in the case of manufactured goods or application of the wholly-obtained criteria in the case of naturally occurring goods such as mineral extracts or animals born and raised in a country. The former involves a tariff heading shift under the non-preferential rules with the addition of a required percentage increase in value added content for goods to be deemed ‘originating’ under the preference rules.

Businesses face complex compliance requirements to meet the plethora of origin rules used in international trade.

“Add to this the fact that most countries apply different rules for different purposes and it becomes very complicated for a company manufacturing for a global market,” said Jonathan O’Riordan, head of international trade and customs policy at sportswear giant Puma, who I met recently at the World Trade Organisation in Geneva.

The company distributes its products in 120 countries, employs more than 10,000 people worldwide, and is headquartered in Herzogenaurach, Germany. He said: “If we have any doubt about the origin of materials we use we don’t claim preference.”

We’re no nearer to seeing the origin rules simplified now than we were 10 years ago when experts led by Stefano Inama, technical chief, at the UN Conference on Trade & Development (UNCTAD) began negotiations in the hope of developing a common system among WTO member countries. Stefano told me that his team “had established a clear path towards harmonising the two sets of rules but consensus could not be achieved”.

The absence of multilateral rules of origin is a cost to business and, as a Chamber of Commerce that issues origin certificates, we see this at first-hand. The rules are not designed to encourage claims to preference and some businesses find that the cost of complying outweighs the benefit.

If this sounds familiar, talk to our trade procedures specialists who help businesses achieve preferential market access every day by guiding them through the rules and compliance requirements.

There is however a bigger debate taking place in high level trade policy circles as the ‘Made in the World’ narrative develops and this will be the subject of my next blog.  

By Tim Bailey, International Trade Director, Chamber International

One of a series of blogs to be published over the coming weeks. Follow Tim on Twitter @ChamberInt_Tim