The Rules of Origin (RoO), one of the most contentious issues in international trade, was back on the world economy's centre-stage recently. Developed and developing countries were at loggerheads to devise a set of criteria that would allow trade transactions to be settled in an open, transparent and predictable manner. The issue looks much more complex than it appears. Therefore, it is necessary to look at it in detail.
RoO are a set of criteria required to determine the national origin of a product. When a product is wholly produced in one country, it doesn’t invite any controversy or disagreement over its origin. However, in current era of globalisation, where more and more products are produced through amalgamation of inputs from different sources and countries, conferring origin to the product has become a difficult task.
In today’s active pursuit of globalisation of production, conduct of international trade in goods doesn’t necessarily remain free and fair. Rather, it confronts many complex challenges in terms of various stages of preparations such as sourcing of materials, tariffs negotiations, labelling requirement, value creation, involvement of technology, etc. These dimensions, though, play a crucial role in producing the ‘finished’ products. Yet, it creates uncertainty regarding the origin of the product.
Trade distortions that emanate out of this transaction have invited the wrath of many exporters and countries, who have repeatedly asked the World Trade Organisation (WTO) to establish a ‘Rules of Origin Agreement’ to determine the origin of the product among member countries. This would ensure that their RoO are transparent; that they do not have any restricting, distorting or disruptive effects on international trade; that they are administered in a consistent, uniform, impartial and reasonable manner; and that they are based on a positive standard which essentially would mean that they should state what confers origin rather than what does not.
RoO that are currently active are of two types: non-preferential and preferential. Non-preferential RoO define the origin of goods mainly for statistical purposes and for the application of trade measures such as tariffs, quotas, anti-dumping, countervailing duties, etc. Preferential RoO, often more stringent, is defined by members of a preferential trade area to ensure that only goods which originate from one of the member countries benefit from a preferential access at import.
It’s often non-preferential which is critical and needs to be harmonised. Though the technical committee on RoO set up by the WTO has already