Rules of Origin: Why does my product not originate even though I meet all requirements?

Question

We received a question from a very concerned PREMIUM ongoing support subscriber. They have been denied preferential tariff rates by customs authorities. The argument was that their product did not originate under the terms of the free trade agreement and was not eligible for duty rate reductions.

The company does not agree. They say they meet all the requirements :

1. Their product undergoes a tariff shift when its produced

2. The value of the finished product more than doubles all its raw materials

3. The processing operation is very significant

In another word, the goods are totally transformed!

"Why do we still not meet the rules of origin under the trade agreement? Are Customs authorities wrong"?

Jacky M, Customs Manager, Premium On-Going Support subscriber.

Answer

Arne Mielken, Managing Director of Customs Manager Ltd replies:

Duties/charges or any customs restrictions or obligations applicable to goods imported into a country will depend on their origin. It is this origin of goods that, in part, will determine whether they can benefit from trade agreements.

Overall, as a general rule of thumb, you are totally right, Jacky, the origin of goods is usually the country where they last underwent their last economically significant transformation. The extent of the “transformation” is often measured by added value, but there must usually also be a change in the product. However, the exact rules vary by type of product.

You are also right that there are, broadly, three basic rules used to decide if goods are sufficiently transformed. These are

• the ad-valorem, or ‘value added’ rule

• the change of tariff classification

• manufacture from certain products or through specific processes.

Jacky, these are general rules, they are more like categories. Just meetings these general rules might not enough though in every case. First, there are a set of general conditions to meet in every FTA that may "disqualify" your products at the outset. Secondly, there usually is contains a detailed set of rules that need to be met for a product to originate. These are hidden in annexes. They trump the generic rules. You need to carefully study these and understand them to ensure that your products originate. If you are certain that you meet the product-specific rules + the general requirements at the beginning of the legal text, then the chances of your product's originating would be much higher.

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