Rules of Origin Rules of Origin and Why they Matter
ROOs are used to determine whether or not a product qualifies to receive preferential tariff treatment under the FTA. The rules determining country of origin can be very simple if a product is manufactured and assembled primarily in one country. However, when a finished product includes components that originate in many countries, determining origin can be more complex. There are two types of ROOs: nonpreferential and preferential.
Nonpreferential (Generic) Rules of Origin
Non-preferential ROOs are used to determine the origin of goods exported to countries that are WTO members and therefore grant one another duties (tariffs) on a Most-Favored-Nation (MFN) basis. Under non-preferential rules, the product must be wholly the agriculture output, product, or manufacture of one particular country. Alternatively, the product with components from more than one country needs to be substantially transformed.
Preferential Rules of Origin
FTA ROOs are preferential rules. They are specific to each FTA and generally vary from agreement to agreement and from product to product. They are used to verify that products are eligible for duty-free or reduced duties under U.S. trade preference programs even though they may contain nonoriginating (non-FTA) inputs. As with a nonpreferential ROO, if goods are a “wholly obtained product” establishing the origin is usually fairly straightforward. However, if a good was not entirely grown or manufactured in the targeted country/region, specific ROOs apply. For example, if paper is made entirely in the United States from U.S. trees, the paper clearly originates in the United States. However, if envelopes are folded and glued in the United States from paper made in Brazil, which one is considered the country of origin? The FTA ROOs provide precise answers to such questions.
Originating Goods
To receive preferential treatment under FTAs, U.S. goods must qualify or “originate.” A good is considered to be originating if it is wholly obtained (see the definition of wholly obtained at the end of this chapter) in the territory of one or more of the parties to the FTA. It’s also originating if it contains foreign input but meets specific ROOs listed in particular FTA agreements or meets other requirements specified in the agreement.
Locating FTA-Specific Rules of Origin
ROOs are listed in FTA agreements by HS product classification numbers. Therefore, to determine which specific ROO applies, an exporter needs to identify the product’s specific HS classification number.
You can locate an HS number by looking up its U.S. Schedule B number. The first six digits of the Schedule B number are usually the HS number, which is recognized by customs officials everywhere. To locate the Schedule B number for your product, visit 1.usa.gov/1vHzesa, or call the U.S. Census Bureau at (800) 549-0595 x2.
You will find the most up-to-date ROOs on the U.S. International Trade Commission website under “General Rules of Interpretation” by clicking on “General Note 12” of the rules. The ROOs for all of the FTAs are in one document. The list of 2014 ROOs can be found at 1.usa.gov/1x20QLD
The ROOs are listed by chapters (first two digits of an HS number) and within a particular chapter by the full six-digit HS code. Many of the ROOs refer to a portion of an HS code. Each HS code may be broken up. For example, the HS code 123456 will have chapter 12, heading 1234, and subheading 123456.
The original ROOs are listed in an annex or in the chapter titled “Rules of Origin” of a particular FTA. They may be found at 1.usa.gov/1ph6Np9 Another source is export.gov/fta; click on the FTA country you are shipping to and select the “Rules of Origin” link. You may need to consult the most recent rules as opposed to the original ones because the HS codes tend to be revised every few years, necessitating the need to adjust the rules.
Categories of Rules of Origin
Product-specific ROOs are based on changes in tariff classification, RVC, or both. They explain how goods that contain nonoriginating, non-FTA materials or components may still qualify for FTA benefits, an important feature, since many popularly traded items contain inputs from different countries other than those involved in the FTA.
Product-Specific Rules of Origin Based on Tariff Shift
Some product-specific ROOs use a tariff classification change test to determine if a significant change has occurred within the FTA region for the product to qualify for the FTA benefit. Generally, under such a rule, a good qualifies as originating in the FTA region if its final production process takes place within the FTA region and if that results in a significant change in components or materials non-originating in FTA country.