The Origin of Goods

• Author: Jon R. Johnson
• Pages: 124-145

CHAPTER

THE

ORIGIN

Rules

for

establishing

the

origin

of

goods

are

necessary

for the

applica-

tion

of

many provisions

of

international agreements respecting

the

trade

in

goods. Preferential trading arrangements require rules

for

determin-

ing

eligibility

for

preferential

tariff

treatment. Some quantitative restric-

tions, such

as

those under textile restraint agreements, apply

to

goods

of

specific countries. Many countries require that

at

least some

imported goods

be

marked with their country

of

origin. Antidumping

and

countervailing duties

and the

restrictions resulting

from

safeguard

actions

are

country-specific

in

their application.

The

benefits

of

govern-

ment procurement

disciplines

apply only

to

goods

of

countries covered

by

the

applicable agreement.

There

are two

types

of

rules

of

origin: preferential

and

non-preferen-

tial.

Preferential

rules

of

origin

are

used

to

determine whether goods traded

among

members

of a

preferential trading area

are

eligible

for

preferential

tariff

treatment. Goods must

be

"wholly originating"

or be

sufficiently

transformed

and/or

have

sufficient

value added within

the

preferential

trading area

to be

considered

as

"originating"

and

entitled

to

preferential

treatment.

The

preferential

trading

area

can be a

free

trade area, such

as

those created

by

NAFTA,

CIFTA,

and

CCFTA,

or an

"autonomous trade

regime"

in

which

a

country unilaterally grants preferential

tariff

treatment

to

goods

of

other countries.

For

example, Canada unilaterally grants

the

General

Preferential

Tariff

to

goods

of a

number

of

developing countries.

Non-preferential

rules

of

origin

are

rules

for

determining

the

origin

of

goods

for

reasons other than

the

granting

of

preferences. These rea-

124

E

OF

GOODS

The

Origin

of

Goods

125

sons

include

the

administration

of

country-of-origin

marking require-

ments,

the

application

of

discriminatory quantitative restrictions

or

tar-

iff

rate quotas,

the

application

of

antidumping

or

countervailing duties

or

safeguard

measures,

the

administration

of

government procurement

rules

and the

accumulation

of

trade

statistics.1

The

distinction

between preferential

and

non-preferential

rules

of

origin

is

complicated under

NAFTA

by the

fact

that

the

determination

of

eligibility

for

tariff

treatment

is a

two-step process.

It

must

first

be

deter-

mined that

a

good

satisfies

the

NAFTA

Chapter Four rules

of

origin that

apply

for

determining eligibility

for

preferential

tariff

treatment

and

that

the

good

is

"originating."

However, because

tariff

elimination among

the

NAFTA

countries proceeds

in

different

stages, there

are

several

different

NAFTA

preferential

tariffs

from

which

to

choose,

depending

on the

country

of

origin

of the

good.

The

rules

of

origin

in

NAFTA

Chapter

Four determine only whether

a

good

is

originating

and not its

country

of

origin.

The

country

of

origin determination

is

made

in

accordance with

the

non-preferential rules

of

origin used

for

country

of

origin purposes

or,

in the

case

of

most goods entering Canada,

in

accordance with special

country

of

origin rules

set out in

NAFTA

Annex 302.2.

Under

GATT

1947, each member country established

its own

rules

for

establishing

the

origin

of

goods.

The

difficulty

with

this

approach

was

that negotiated benefits

under

trade agreements could

be

denied

through manipulation

of

origin rules.

The

solution

to the

problem

of

rule

manipulation

is the

creation

of

norms through

the

development

of

commonly

agreed rules.

The

Rules

of

Origin

Agreement lays

the

ground-

work

for

developing commonly agreed non-preferential rules

of

origin

and

sets

out

minimum standards

for the

application

of

both preferential

and

non-preferential rules

of

origin.

NAFTA,

CIFTA,

and

CCFTA each

contain

commonly agreed

rules

of

origin

for

determining

eligibility

for

preferential

tariff

treatment.

The

NAFTA

negotiators attempted

to

address

the

question

of

non-preferential rules

of

origin

but

failed

even

to

develop common principles

let

alone

a

common

set of

rules.

CIFTA

and

CCFTA

do not

contain provisions respecting non-preferential rules

of

origin.

The

Agreement

on

Rules

of

Origin,

set out in

Annex

1A of the

Agreement

Creating

the

World

Trade

Organization,

15

April 1994 (Dobbs

Ferry,

N.Y.:

Oceana Publications,

1997)

[Rules

of

Origin

Agreement],

distinguishes between preferential

and

non-

preferential

rules

of

origin. These various purposes

for

non-preferential rules

of

origin

are all

referred

to in

para.

2 of

art.

1.

1