What is Preferential Rule of Origin
For the customs clearance of goods, it is necessary to determine the “nationality”
of the goods, i.e. to ascertain the country of origin of imported products.
After the classification of a commodity into the Harmonized System and the
determination of its value, the determination of the country of origin is the third
key element in customs clearance procedures.
The laws, regulations and administrative rulings applied by governments to
determine the country of origin are called “Rules of Origin”.
The concept of origin used in the study relates to the identification of the rules and
regulations used for the determination of the country of origin in trade in goods.
“Goods” are defined to be all those commodities which are classifiable under the
Harmonized System (HS).
Studies on rules of origin do not deal with geographical indications, such as
“Champagne”, “Cognac”, “Tequila” etc.. This area of intellectual property rights is
sometimes confused with rules of origin.
However, rules of origin are not relevant for the regulations of geographical indications.
The reason why countries wish to determine the origin of goods lays in the existence of
differentiated treatment on international trade.
Rules of origin would not be necessary in a completely open world economy as all
commodities would be treated in the same way regardless of their origin.
Even in a system where trade-restrictive measures would be applied on a
non-discriminatory basis, it would not be necessary to know the origin of a commodity
since the measures would be applied for all countries in the same way.
But the reality is another: countries do not apply the same trade policy measures
towards all other countries in international trade of goods, which leads to the need to
fulfil various legal or administrative requirements for the implementation of different
trade policy measures according to the different origin of goods, such as different levying
of import duties, allocating quotas, imposing anti-dumping duties or applying safeguard
Thus, the determination of the country of origin is a very important element in
international trade relations and it is not surprising that different international instruments
address this topic. The first international instrument to deal with rules of origin was the
WCO Kyoto Convention (International Convention on the Simplification and Harmonization
of Customs Procedures), which was drawn up by the Customs Co-operation Council (CCC) on
18 May 1973 and entered into force on 25 September 1974.
Three chapters in the Kyoto Convention deal with rules of origin
(Annex K to the Revised Kyoto Convention – former Annex D).
There, rules of origin are defined in a broad way as “specific provisions,
developed from principles established by national legislation or
international agreements applied by a country to determine the origin of goods”.
However, the Kyoto Convention does not address the issue of an internationally agreed
definition on how to determine the origin of a product.
Attempts to reach an internationally agreed definition on how to determine the origin of
a product were undertaken under the more recent WTO Agreement on Rules of Origin
which was negotiated during the Uruguay Round of multilateral trade negotiations and
which is contained in the multilateral legal framework of the WTO.
In this Agreement, the WTO members try to pave the way for an internationally accepted
definition on how to determine rules of origin for non-preferential purposes.
For that reason, the WTO Agreement on Rules of Origin has to distinguish between the
following two distinct types of rules of origin:
– Non-Preferential Rules of Origin; and
– Preferential Rules of Origin.
What’s the difference between
Non-preferential Rules of Origin
Article 1 of the WTO Agreement on Rules of Origin defines
“Non-Preferential Rules of Origin” as “those laws, regulations and
administrative determinations of general application applied by any Member to
determine the country of origin of goods provided such rules of origin are not
related to contractual or autonomous trade regimes leading to the granting of
tariff preferences going beyond the application of paragraph 1 of Article I of
GATT 1994” (Most Favoured Nation Clause).
The non-preferential rules of origin are used for the implementation of an array
of trade policy measures which are listed under paragraph 2 of Article 1 of the
WTO Agreement on Rules of Origin:
– Application of Most Favoured Nation Treatment;
– Anti-Dumping and Countervailing Duties;
– Safeguard Measures;
– Origin Marking Requirements;
– Quantitative Restrictions or Tariff Quotas;
– Government Procurement; and
– Trade Statistics.
Non-Preferential Rules of Origin are used to determine the country of origin of
goods when it comes to the application of the above-mentioned trade policy
instruments. Until the harmonization of the non-preferential rules of origin by
the WTO Members, each country is free to implement and apply its own set of
non-preferential rules of origin.
The probative value of non-preferential origin is not guaranteed since each country
applies its own legislation for non-preferential rules of origin which may well be
different from those of another country.
Preferential Rules of Origin
According to paragraph 2, Annex II of the WTO Agreement on Rules of Origin,
“preferential rules of origin” are:
“Those laws, regulations and administrative determinations of general
application applied by any Member to determine whether goods qualify for
preferential treatment under contractual or autonomous trade regimes leading
to the granting of tariff preferences going beyond the application of paragraph 1
of Article I of GATT 1994”.
Preferential rules of origin respond to specific trade interests linked to a preferential
trade arrangement and they clearly reflect these specific interests.
Preferential rules of origin are therefore patterned after the economic interests of the
involved parties with the result that preferential rules of origin are unavoidably
individualistic and differ from arrangement to arrangement.
Preferential rules of origin are designated to ensure that free trade agreements and
trade preference programs benefit only the intended countries
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