Classification of “Rules of Origin”

There are two types of rules of origin: non-preferential and preferential.

Non-preferential rules of origin are used to distinguish foreign products from domestic products when a country does not want to provide the former with the same treatment granted to the latter. In some countries, for example, public procurement either excludes foreign products or reserves certain transactions to domestic products, or grants a margin of preference to them.

According to WTO Agreement, signed in Marrakech in 1994, “the general notion of rules of origin shall include all rules of origin used in non-preferential commercial policy instruments, such as in the application of most-favoured-nation treatment, anti-dumping and countervailing duties, safeguard measures, and any discriminatory quantitative restrictions or tariff quotas”.

Hence, non-preferential rules are important for several reasons including the application of tariffs, quotas, antidumping and agreements on textiles and clothing.

Preferential rules of origin are used to determine which goods may enter a country under a preferential treatment. They define if goods are eligible for special treatment under a trading arrangement between two or more countries, such as the Generalised System of Preferences (GSP)2, free trade areas, bilateral and regional integration agreements. According to the agreements, certain products benefit from duty-free or duty-reduced entry into the nations granting special treatment, provided that they originate from specific countries. If the product is judged as “not originated” from that country because, for example, it has not undergone substantial transformation or has had little value added there, the applicable tariff rate would usually be the mostfavoured- nation rate.

The WTO Agreement on Rules of Origin is applied only to non-preferential rules of origin. It is not applicable to the process of determination of the country of origin for preferential trade, for which the origin is determined on the basis of the provisions prescribed by a country for the particular system of preferences. Recognising that some Members applied preferential rules of origin, distinct from non-preferential ones, a “Common Declaration with Regard to Rules of Origin” has been added to the main document. In this Declaration, members agree to apply many of the same general principles for rules of origin to those rules, which they use to administer preferential arrangements (either in free trade areas or within GSP) and to notify these rules.

However, they do not accept to apply harmonised rules for preferential purposes.

For the aims of this Common Declaration, “preferential rules of origin shall be defined as those laws, regulations and administrative determinations of general application applied by any Member to determine whether goods qualify for preferential treatment under contractual or autonomous trade regimes leading to the granting of tariff preferences going beyond the application of paragraph 1 of Article I of GATT 1994”.

Within this context, the main purpose of rules of origin is to ensure that benefits arising from preferential tariff treatment under the Generalised System of Preferences (GSP) or any other preferential arrangement is limited to products that have been produced or manufactured in the preference-receiving country.

Therefore, rules of origin are crucial instruments both to identify the nationality of a given good and to determine whether and which commercial arrangements have to be applied. They are also a tool of trade policy to differentiate between priority partner states.

The differences between the two regimes are the mirror image of deliberate different trade policy objectives and the rationale for this differentiation has been underlined in the framework of the EU rules of origin by the European Court of Justice (ECJ) in the S.R. Industries v. Administration des douanes case.
For example, custom unions and free trade areas may have their own origin rules; the same is for a country that takes part in the Generalised System of Preferences (GSP).