1. The WTO-Agreement on Rules of Origin
Achim Seiler, Trade Consultant and Capacity Building Specialist, Kathmandu
EU-Project: Trade and Private Sector Development (TPSD)
TPSD is implemented by
in cooperation with
and

2. Structure Definitions and Coverage
Disciplines During the Transition Period
Disciplines after the Transition Period
Procedural Arrangements on Notification, Review, Consultation and Dispute Settlement
Harmonization of Rules of Origin
Annex 1: Technical Committee on Rules of Origin
Annex 2: Common Declaration with Regard to
Preferential Rules of Origin

3. Rules of Origin I
Non-preferential rules of origin
2. Preferential rules of origin

4. Rules of Origin II
Non-preferential rules of origin apply to most-favored-nation (MFN) trade as a means to determine the origin of goods within the framework of WTO trade policy instruments, such as anti-dumping proceedings, quantitative restrictions, Agreement on Textiles and Clothing and quotas that do not include preferential treatment
Preferential rules of origin apply in the context of preferential tariff regimes such as the GSP, Free Trade Areas (FTAs), and regional integration. The purpose of preferential rules of origin is to confer preferential treatment such as preferential duties, special quotas, etc.

5. Definitions and Coverage I
...rules of origin shall be defined 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 1 of GATT 1994 (Art. 1.1.)

6. Definitions and Coverage II
Rules of origin referred to in paragraph 1 shall include all rules of origin used in non-preferential commercial policy instruments, such as in the application of: most-favored-nation treatment under Articles I, II, III, XI and XIII of GATT 1994; anti-dumping and countervailing duties under Article VI of GATT 1994; safeguard measures under Article XIX of GATT 1994; origin marking requirements under Article IX of GATT 1994; and any discriminatory quantitative restrictions or tariff quotas. They shall also include rules of origin used for government procurement and trade statistics. (Art. 1.2.)

7. Definitions and Coverage III
It is understood that this provision is without prejudice to those determinations made for purposes of defining “domestic industry” or “like products of domestic industry” or similar terms whenever they apply. (Footnote No. 1 to Art. 1.2.)

8. Disciplines During the Transition Period I
Until the work program for the harmonization of rules of origin (...) is competed, Members shall ensure that:
When they issue administrative determinations of general application, the requirements to be fulfilled are clearly defined, in particular:
(i) in cases where the criterion of change of tariff classification is applied, such a rule of origin, and any exceptions to the rule, must clearly specify the subheadings or headings within the tariff nomenclature that are addresses by the rule

9. Disciplines During the Transition Period II
(ii) in cases where the ad valorem percentage criterion is applied, the method for calculating this percentage shall also be indicated in the rules or origin;
(iii) in cases where the criterion of manufacturing or processing operation is prescribed, the operation that confers origin on the good concerned shall be precisely defined

10. Disciplines During the Transition Period III
rules of origin are not used as trade policy instruments per se
rules of origin shall not themselves create restrictive, distorting, or disruptive effects on international trade;
rules of origin are not more stringent than those applied to determine whether or not a good is domestic;
rules of origin are administered in a consistent, uniform, impartial and reasonable manner;
rules of origin are based on a positive standard
publication of related laws, regulations, judicial decisions and administrative rulings

11. Disciplines During the Transition Period IV
upon the request of an exporter or importer and not later than 150 days after such an request, assessments of the origin to be accorded to a good are issued
such assessments shall remain valid for three years and be made publicly available;
changes in rules of origins will not take effect retroactively;
any administrative action taken in relation to the determination of origin is reviewable promptly by judicial, arbitral or administrative tribunals or procedures, independent of the authority issuing the determination
confidential information will be treated strictly confidential by the authorities concerned.

12. Disciplines after the Transition Period I
Taking into account the aim of all Members to achieve, as a result of the harmonization work program, the establishment of harmonized rules of origin, Members shall ensue, upon the implementation of the results of the harmonization work program, that:
they apply rules of origin equally for all purposes as set out in Article 1;
The country to be determined as the origin of a particular good is either the country where the good has been wholly obtained or, when more than one country is concerned in the production of the good, the country where the last substantial transformation has been carried out

13. Disciplines after the Transition Period II
rules of origin applied to imports and exports are not more stringent than those applied in determining whether or not a good is domestic;
rules of origin are administered in a consistent, uniform, impartial and reasonable manner;
related laws, regulations, judicial decisions and administrative rulings of general application relating to rules of origin are published
upon the request of an exporter or importer and not later than 150 days after such an request, assessments of the origin to be accorded to a good are issued
such assessments shall remain valid for three years and be made publicly available;

14. Disciplines after the Transition Period III
changes in rules of origins will not take effect retroactively;
any administrative action taken in relation to the determination of origin is reviewable promptly by judicial, arbitral or administrative tribunals or procedures, independent of the authority issuing the determination
confidential information will be treated strictly confidential by the authorities concerned.

15. Procedural Arrangements I
There is hereby established a Committee on Rules of Origin composed of the representatives from each of the Members. The Committee shall elect its own Chairman and shall meet as necessary, but not less than once a year(...) (Art. 4.1.)
There shall be established a Technical Committee on Rules of Origin under the auspices of the Customs Co-operation Council (CCC). The CCC Secretariat shall act as the secretariat to the Technical Committee (Art. 4.2)

16. Procedural Arrangements II
Each Member shall provide to the Secretariat, within 90 days after the date of entry into force of the WTO Agreement for it, its rules of origin, judicial decisions, and administrative rulings of general application relating to rules of origin in effect on that date. (Art. 5.1.)
During the period referred to in Article 2, Members introducing modifications, other than de minimis modifications, to their rules or origin or introducing new rules of origin, which shall include any rule of origin referred to in paragraph 1 and not provided to the Secretariat, shall publish a notice to that effect at least 60 days before the entry into force of the modified or new rule in such a manner as to enable interested parties to become acquainted with them. (Art. 5.2)

17. Procedural Arrangements III
The Committee shall review annually the implementation and operation of parts II and II of this Agreement having regard to its objectives (Art. 6.1)
The Committee, in cooperation with the Technical Committee, shall set up a mechanism to consider and propose amendments to the result of the harmonization work program (Art. 6.3)
The provisions of Article XXII of GATT 1994, as elaborated and applied by the Dispute Settlement Understanding, are applicable to this Agreement (Art. 7)
The Provisions of Article XXIII of GATT 1994, as elaborated and applied by the Dispute Settlement Understanding, are applicable to this Agreement (Art. 8)

18. Work Program pertaining to the Harmonization of Rules of Origin
The negotiations for the harmonization of non-preferential rules of origin are divided into three stages according to three basic issues:
(i) definitions of goods wholly obtained in one country and minimal operations and processes which in themselves do not confer origin;
(ii) substantial transformation by way of a change in tariff classification as defined by the Harmonized Commodity Description and Coding System (HS); and
(iii) substantial transformation via supplementary criteria such as ad valorem percentage and/or manufacturing or processing operations in those instances when the exclusive use of the HS nomenclature does not allow for the expression of substantial transformation

19. Preferential Rules of Origin
Annex II of the Agreement on Rules of origin provides that the Agreement’s general principles and requirements for non-preferential rules of origin in regard to transparency, positive standards, administrative assessments, judicial review, non-retroactivity of changes and confidentiality shall also apply to preferential rules of origin as well as the obligation to notify such rules as well as any modifications thereof.

20. Example of Restrictive Rules of origin: The Case of EU Imports of Fish
The vessel must be registered in the beneficiary country or in the EU;
The vessel must sail under the flag of the beneficiary country or of a member state of the EU;
The vessel must be at least 60 percent owned by nationals of the beneficiary country of the EU or by companies with a head office in either the beneficiary country or an EU state of which the chairman and a majority of the board members are nationals
The mast4er and the officerrs must be nationals of the beneficiary country or an EU member and at least 75 percent of the crew must be nationals of the beneficiary country or the EU
Source: Official Journal of the European Communities, 2000

21. Different Approaches to Determining Origin I
Rule
Advantages
Disadvantages
Key Issues
Change of tariff classification in the Harmonized System
Consistency with non-preferential rules of origin;
Once defined, the rule is clear, unambiguous, and easy to learn;
Relatively straightforward to implement
Harmonized System not designed for conferring origin;
Documentary requirements may be difficult to comply with
Conflicts over the classification of goods can introduce uncertainty over market access
Level of classification at which change required – the higher the level, the more restrictive;
Can be positively or negatively tested
Source: Paul Brenton and Hiroshi Imagawa:
Rules of Origin, Trade and Customs, in: Customs Modernization Handbook,
downloadable at page 210

22. Different Approaches to Determining Origin II
Rule
Advantages
Disadvantages
Key Issues
Value-added
Clear, simple to specify, and unambiguous;
Allows for general rather than product-specific rules
Complex to apply- requires firms to have sophisticated accounting systems
Uncertainty due to sensitivity to changes in exchange rates, wages, commodity prices, and so forth
The level of value-added required to confer origin
The valuation method for imported materials (methods that assign a higher value, e.g. CIF), will be more restrictive on the use of imported products
Source: Paul Brenton and Hiroshi Imagawa:
Rules of Origin, Trade and Customs, in: Customs Modernization Handbook,
downloadable at page 210

23. Different Approaches to Determining Origin III
Rule
Advantages
Disadvantages
Key Issues
Specific manufact. process
Once defined, clear and unambiguous
Provides for certainty if rules can be complied with
Documentary requirements can be burdensome and difficult to comply with
Leads to product-specific rules
Domestic industries can influence the specification of the rules
Can quickly become obsolete due to technological progress
The formulation of the specific processes required – the more procedures required, thee more restrictive
Should test be negative or positive? Negative test more restrictive
Source: Paul Brenton and Hiroshi Imagawa:
Rules of Origin, Trade and Customs, in: Customs Modernization Handbook,
downloadable at page 210