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Know Rules of Origin Principle in World Trade

New Delhi (ABC Live): Rules of Origin Principle : Rules of origin  are the criteria used to define where a product was made. They are an essential part of trade rules because a number of policies discriminate between exporting countries: quotas, preferential tariffs, anti-dumping actions, countervailing duty (charged to counter export subsidies), and more.

Rules of origin are also used to compile trade statistics, and for “made in …” labels that are attached to products. This is complicated by globalization and the way a product can be processed in several countries before it is ready for the market.

The Rules of Origin Agreement requires WTO members to ensure that their rules of origin are transparent; that they do not have restricting, distorting or disruptive effects on international trade; that they are administered in a consistent, uniform, impartial and reasonable manner; and that they are based on a positive standard (in other words, they should state what does confer origin rather than what does not).

For the longer term, the agreement aims for common (“harmonized”) rules of origin among all WTO members, except in some kinds of preferential trade — for example, countries setting up a free trade area are allowed to use different rules of origin for products traded under their free trade agreement.

The agreement establishes a harmonization work programme, based upon a set of principles, including making rules of origin objective, understandable and predictable. The work was due to end in July 1998, but several deadlines have been missed.

It is being conducted by a Committee on Rules of Origin in the WTO and a Technical Committee under the auspices of the World Customs Organization in Brussels. The outcome will be a single set of rules of origin to be applied under non-preferential trading conditions by all WTO members in all circumstances.

An annex to the agreement sets out a “common declaration” dealing with the operation of rules of origin on goods which qualify for preferential treatment.

Work in the Committee on Rules of Origin

Since the adoption of the Agreement on Rules of Origin, the work of the Committee has focused primarily on the harmonization of non-preferential rules of origin. More recently, WTO members have also initiated some work on preferential rules of origin and, in particular, on the rules of origin used under trade preferences for least-developed countries (LDCs).

Non-preferential rules of origin

Non-preferential rules of origin are those which apply in the absence of any trade preference — that is, when trade is conducted on a most-favoured nation basis. Not all countries apply specific legislation related to non-preferential rules of origin. However, some trade policy measures such as quotas, anti-dumping or “made in” labels may require a determination of origin and, therefore, the application of non-preferential rules.

In the Agreement on Rules of Origin, WTO members agreed to negotiate harmonized non-preferential rules of origin. These negotiations have not concluded, and about 40 WTO members currently apply national rules of origin for non-preferential purposes. See Technical information on rules of origin.

Preferential rules of origin

Preferential rules or origin are those which apply in reciprocal trade preferences (i.e. regional trade agreements or customs unions) or in non-reciprocal trade preferences (i.e. preferences in favour of developing countries or LDCs).

Annex I of the Agreement sets out certain disciplines with respect to preferential rules of origin. More recently, WTO members have adopted additional instruments related to non-reciprocal preferential rules of origin — that is, the 2013 Bali Ministerial Decision on Rules of Origin for LDCs and the 2015 Nairobi Ministerial Decision on Rules of Origin for LDCs.

The Bali Ministerial Decision establishes the first set of multilateral guidelines for rules of origin that WTO preference-granting members apply to their non-reciprocal preference schemes for LDCs. The guidelines are intended to make it easier for LDC exports to qualify for preferences and therefore better utilize market access opportunities that are available to them.

The Nairobi Ministerial Decision elaborates on the 2013 Decision by providing more detailed directions on specific issues which would facilitate LDCs’ export of goods to both developed and developing countries under unilateral preferential trade arrangements. See Nairobi Briefing Note.

About Pankaj Gupta

Pankaj Gupta is Charted Accountant by profession reports on Business and Industry for ABC Live since 2006 and remained instrumental in shaping ABC News & Info Services, the parent company owning, the ABC Live.

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