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Overview and challenges

There is no international definition of Origin, although a distinction is made between two systems: preferential and non-preferential. In the case of preferential Origin, everything is based on bilateral or multilateral agreements. In the case of non-preferential Origin each country applies its own rules, although within some regional economic unions the non-preferential rules are harmonized for all the Member States of the Union concerned.

The WCO, in the International Convention on the simplification and harmonization of Customs procedures (Revised Kyoto Convention), defines rules of origin as “the specific provisions, developed from principles established by national legislation or international agreements ("origin criteria"), applied by a country to determine the origin of goods.”

The country of origin must not be confused with the country of provenance (i.e., the last country that the goods passed through). The purpose of rules of origin is to determine the “nationality” of a good. The determination of the country of origin is, alongside tariff classification and Customs valuation, an essential factor for establishing the amount of the Customs duties and taxes payable. The origin of a good will also determine, where appropriate, the application of any trade policy measures (quotas, anti-dumping duties, trade embargoes…).

There are several methods and criteria for determining the origin of a good. While the substantial transformation criterion is universally recognized, the change of tariff classification criterion, the value added criterion and the criterion related to manufacturing or processing operations are also applied.

As the General Agreement on Tariffs and Trade (GATT) does not contain any specific rules governing the determination of Origin, there is wide variation in the practice of governments in this regard.

Towards the end of the 1980’s, developments in three important areas helped to focus more attention on the problems posed by rules of origin:

- an increase in the number of preferential trading arrangements;

- an increase in the number of origin disputes arising out of quota arrangements;

- an increase in the use of anti-dumping laws and, alongside this, of claims of circumvention of anti-dumping duties through the use of third country facilities.

The Members of the WTO, wishing to ensure that rules of origin did not themselves create unnecessary obstacles to trade, decided in 1994 to establish the Agreement on Rules of Origin.

The Agreement states that rules of origin must not be used as instruments to pursue trade objectives, and must not themselves have restrictive, distorting or disruptive effects on international trade.

The WTO Agreement on Rules of Origin, concluded as part of the Uruguay Round in 1994, has opened a new chapter in the history of Customs. Until then, there was no global model for the determination of origin, which is one of the cornerstones of trade policy, trade statistics and general macroeconomic analysis.

The WTO Agreement on Rules of Origin sets out important provisions relating to the application and administration of Rules of Origin, providing for the Harmonisation of Non-Preferential Rules of Origin , those Rules of Origin which are not derived from trade regimes leading to the granting of tariff preferences.
By securing transparency in trade policy, this harmonisation is expected to facilitate international trade.
The WTO Committee on Rules of Origin (CRO) and the WCO Technical Committee on Rules of Origin (TCRO) are the two bodies responsible for the full development of this Agreement.

In 1999, the TCRO concluded the technical review of the Harmonized Rules of Origin and these final results were forwarded to the CRO in Geneva for consideration. In 2006, these results are still under consideration by the WTO.