INTRODUCTION TO RULES OF ORIGIN IN INTERNATIONAL TRADE


Dated 15th October 2011

Rules of origin (ROO) are a tool to determine the country of origin of goods in international trade especially in cases of production or manufacture of goods in more than one country. These Rules are essential to ensure that provisions requiring proof of origin are not circumvented by minimal processing, repacking etc. for trade diversion.

TYPE OF ROO:

(a) Preferential Rules of Origin

Preferential Rules of origin are primarily adjuncts of Agreements between its countries or trade blocks extending most favoured / preferential treatment to each other.  They are used to confine concessions to goods of the concerned parties.

(b) Non-preferential Rules of origin

These Rules enacted by many countries apply to imports from all countries other than those covered by preferential treatment for the purpose of appropriate tariffs, quotas, dumping & marking of goods.

 

METHODS ADOPTED FOR DETERMINING ORIGIN OF GOODS

Annex D1 of the Kyoto Convention (Annexure K Chapter-1 of the revised Kyoto Convention) signed under the aegis of WCO(World Customs Organisation) & WTO Agreement on Rules on Rules of Origin  provides the international basis for signatories to determine the origin both of goods produced in more than one country and goods, which are produce of one country. For latter, the criteria of “wholly obtained product” is universally favoured and for former without being definitive about the process, the origin of goods is required to be determined with reference to the last / final country in which “substantial transformation” of the goods took place and reference to “substantial transformation” is to be determined by applying one of three different methods:

• Percentage of value added;

• Change in tariff heading; or

• Specified process of manufacture.

 

(a)        Value-added

A threshold minimum percentage of value addition to a good within the country claiming origin is fixed and it ranges between 20% to 50%.

Advantages:

  • Precision & Simplicity;
  • The value of constituent materials imported or of undetermined origin can be established from available commercial records or documents;
  • The value to the exported goods is based on the ex-work price or the price at exportation, as a rule both prices are readily ascertained & can be supported by commercial invoices & the commercial records of the traders concerned.
  • Disputes in borderline cases
  • Fluctuating prices & currency value
  • Elements as cost of manufacture or total cost of products used, which may be taken as the basis for calculating value added are often difficult to establish & may well have a different makeup & interpretation in the country of exportation & country of importation.

Disadvantages:

 

(b)        Change in Tariff Heading

“Substantial transformation” is said to have occurred in a country where the subject goods after processing get to be classified under a tariff heading different from the imported component materials. The eligibility ranges between 2 digits to 8 digits.

Advantages:

This method permits the precise & objective formulation of the conditions determining origin.

Disadvantages:

  • Preparation of list of exceptions is often difficult.
  • Such list requires to be constantly updated to keep abreast with tech developments & economic conditions.
  • Descriptions of manufacturing or qualifying processes must not be unduly complicated.

 

(c)        Specified Process of Manufacture

The origin is limited to the country in which a specified manufacturing or processing operation for a specific product is undertaken.

(Advantage & disadvantage as above)

 

KEY FEATURES OF THE WTO AGREEMENT ON RULES OF ORIGIN

  • Rules of origin are applied equally for all purposes (for example application of most favored nation (MFN) treatment, anti-dumping & countervailing duties, safeguard measures, origin marking requirements any discriminatory quantitative restrictions or tariff quotas, govt. procurement trade statistics.
  • Rules of origin determine origin of goods either by definition of wholly obtained goods or the substantial transformation criteria.
  • Rule of origin observe national treatment & MFN requirements.
  • Rules of origin must be administered in a consistent, uniform, impartial & reasonable manner.
  • Laws, regulations, judicial decisions, & administrative rulings of general application relating to rules of origin must be published.
  • Origin assessments must be provided, upon request, within 150 days (& be valid for three years).
  • Changes in rules of origin are not to be applied retroactively.
  • Any administrative action regarding the determination of origin is subject to possible review. Confidentiality of information must be observed.

SOURCE: GOVERNMENT OF INDIA

 

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