The lack of harmonisation in rules of origin regulation is still providing countries with the opportunity and incentive to use their rules of origin to implement protectionism in trade policy and to accord disparate treatment to similar goods.In the increasingly globalised nature of production, there is no single correct definition of origin. Nowadays, the origin is determined according to the way rules of origin are formulated and applied. It means that countries, using Rules of Origin in a results-oriented manner as a trade policy tool, can control the degree of preferential treatment in international trade. Rules of origin may, for example, be utilised to restrict the import from particular sources.
As a consequence of the increasing number of free trade area agreements, it is also important to consider the link between rules of origin and regional free trade areas.
In a free trade area, tariffs and quotas are eliminated on goods originating from and traded between member countries. In a custom union the same principle applies with the added element of the determination of a common external tariff applied to goods originating from non-member countries.
Sometimes rules of origin generate distortions since they encourage countries to use local factors of production in order to facilitate the determination of origin and to benefit from preferential measures addressed to them. In this way, local inputs may be preferred even when it is economically more efficient to import them.
Rules of origin encourage countries to diversify their economic processes and produce within their national territory and to use whenever possible local materials in the manufacture of products. Sometimes, however, it would be more efficient for a country to import certain materials or to carry out specific industrial processes abroad because of cheaper or of higher quality. Nevertheless, the benefits deriving from the national origin of the goods make countries move into the opposite direction.
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