To be precise, when we speak of rules of origin in compliance with a trade promotion agreement between two or more nations, we speak of exporting a group of goods, which seek to reach a certain degree or percentage of national content to use or grant preferences to goods. produced in these territories and thus acquire the exemption in the application of quotas or customs duties to that good based on compliance with said agreement. It is through these rules that the treaties signed between countries guarantee legal certainty through predictability and transparency in the production of products, controlling the permitted supplies and the degree of transformation required to comply with the favor of the privileges granted in business relationships.
The economic foundation of the preferential Specific Rules of Origin (hereinafter REO’s) is based on avoiding trade deflection. The objective is to prevent products from countries that have not been granted preferential treatment from being transshipped to a country that is a member of a Preferential Trade Agreement (ACP) or Generalized System of Preferences (GSP), with a reduced tariff, and then be exported. to another country where a high tariff applies.
The Agreement’s rules of origin, which are designed to ensure that the goods it covers are produced by its member countries, for example, by limiting the amount of inputs that producers from non-member countries of the Agreement can import for use in final products from exportation.
However, while preferential REOs can serve as an effective means of preventing transshipment, they can also lead to protectionist measures. Indeed, REOs have become a widely used trade policy instrument and, in some sectors, have generated protectionist effects. The potential effects of the RoO are accentuated over time, since they remain in force even when the preferential tariffs have been eliminated from the different RTAs.
For this category of Rules or specific requirements of origin, it should be noted that there are non-preferential rules and preferential rules. Non-preferential rules are applicable in the case where the origin decision does not necessarily have any consequence for the treatment given to the product when is imported into the country of destination. Examples of these are, for example, the Airbus aircraft that require components from all over the world in order to be competitive in costs, and whose origin is granted by the country that assembles and designs it.
Non-preferential rules also apply in the context of measures granted under the World Trade Organization rules, for example, anti-dumping measures or the application of countervailing duties. Here what determines the rule of origin is whether it will be subject to any restrictive measure due to other circumstances in international trade.
On the other hand, the preferential rules have the purpose of granting some additional benefit to the product when it is imported to the country of destination. This is clearly the case of trade agreements where products originating in member countries enter without paying the tariff applicable to that product or paying a reduced tariff.
Given that there may be different tariffs towards third parties by the members of the trade agreements, it is important to be able to determine precisely and with clear criteria if those products that are imported are eligible for such preferences.
Now it should be noted that there are tacit objectives of the rules of origin, that is, what are the other results that are sought in the context of negotiating the rules of origin for an FTA
The best known case of the promotion or protection of any industry within the region is the textile industry under the CAN. The rules that were negotiated there are known as “yarn forward” rules, which means that garments must use fabrics produced in the region for those garments to be eligible for tariff preferences. Then the fabrics themselves must have been produced from yarns produced in the region. Yarns, for their part, generally allow fibers to be imported from this area.
According to studies by the Inter-American Development Bank, from whom I borrow the following definitions, there are four main RoO criteria used to confer origin to products in RTAs. These are used independently or in combination with other(s):
Change in Tariff Classification (CCA) Between the manufactured good and the inputs that have been used in the production process from a country that is not a member of an RTA. The CCA in the exporting partner country of the RTA can affect the chapter (the first two digits of the Harmonized System), the heading (four first digits of the Harmonized System), subheading (first six digits of the Harmonized System) or the tariff fraction (eight- ten digits). For example, a Mexican automobile manufacturer (harmonized system subheading 870321) makes a subheading modification (six-digit product of the Harmonized System) in order to benefit from the preferential treatment of the FTA between Japan and Mexico.
Exception to a Specific CCA (ECCA). An ECCA generally prohibits the use of non-originating materials from a given subheading, heading or chapter. Using the same example, the Mexican automobile manufacturer could not make this change of subheading to another subheading belonging to the same heading of the Harmonized System, that is, 8703.
The Value of Content (VC) The VC establishes the minimum percentage of value that must have been added in the exporting country. In the case of the automobile to be exported from Mexico to Japan, there is a minimum regional CV of 65% (that is, non-originating inputs must be used to add up to a maximum of 35% of the value of the good).
Technical Requirement (RT). The RT stipulates or prohibits the use of certain input(s) and/or the execution of certain process(es) in the production of the good. This criterion is very characteristic of the RoO that regulate textile products.
The use of RoOs is widespread in customs unions, either as a transitory tool in the process towards a common external tariff or as a permanent way of treating a category of goods, for which it is difficult to obtain agreement on a common external tariff. .
Author: Juan Sebastian Quiceno