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12. Rules of origin in the wto

Rules of origin - Laws, regulations and administrative procedures which determine a product’s country of origin.

Rules of origin are the criteria needed to determine the national source of a product. Their importance is derived from the fact that duties and restrictions in several cases depend upon the source of imports.

Rules of origin are important in implementing such trade policy instruments as anti-dumping and countervailing duties, origin marking, and safeguard measures.

Once the origin of a good is known, the importing country can apply any region-specific trade preferences or restrictions to the imported goods.

Information about product origin also made it easier for countries to compile economic statistics, and provide consumers with important product information.

The original GATT (1947) contained no provisions on rules of origin.

In 1974, the Kyoto Convention on the Harmonization and Simplification of Customs Procedures was signed by members of the Customs Cooperation Council.

This convention stipulated that the origin of a product should be its last place of substantial transformation.

It also permitted alternative indicators of a substantial transformation of a product such as a change in the tariff classification as a result of further processing of the product that added value to it.

The Kyoto Convention was not an enforceable agreement and did not provide for dispute settlement.

The WTO Agreement on Rules of Origin

Since its adoption in 1994, the main objective of the Agreement on Rules of Origin has been to harmonize non-preferential rules of origin and to ensure that such rules do not themselves create unnecessary obstacles to trade.

The Agreement established interim disciplines for the use of non-preferential rules of origin, pending agreement on harmonized procedures to be developed through a work programme at the WTO.

The WTO Agreement on Rules of Origin recognizes three methodologies for administering rules of origin:

    • Change of tariff classification

    • Ad valorem percentage criterion

    • Manufacturing or processing operation

The WTO requires that each system be administered with clarity and precision.

WTO Members must ensure that:

    • their rules of origin are transparent;

    • rules of origin are not used as instruments to pursue trade objectives directly or indirectly;

    • they do not have restrictive, distorting or disruptive effects on international trade;

    • they are administered in a consistent, uniform, impartial and reasonable manner;

    • regulations and procedures regarding rules of origin are published and available to the public;

    • rules of origin are based on a positive standard (in other words, they should state what confers origin, rather than what does not.)

    • assessments of rule of origin should take no more than 150 days; and

    • changes in rules of origin should not be applied retroactively.