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October 16, 2017
Rules of Origin
What are Rules of Origin? Rules of origin (ROO) are
laws, regulations, and procedures used for ascertaining the
nationality of imported products. ROO are important for
many reasons, including determining the admissibility of
imported goods, assessing duty rates, country of origin
marking, applying tariff quotas, enforcing U.S trade laws,
establishing eligibility for preferential programs and free-
trade agreements (FTAs), and collecting trade statistics.
Determining origin is relatively straightforward if all of a
product's raw materials and parts are manufactured and
assembled in one country. However, in today's global
economy, parts of manufactured goods to be assembled into
products such as automobiles, computers, or clothing, often
come from many countries. This can make determining
origin a complex process.
Non-preferential ROO apply to imports from all countries
with which the importing country has normal trade relations
(NTR), and are consistent with World Trade Organization
(WTO) obligations. For the United States, NTR applies to
all WTO members, except those that have an FTA with the
United States or receive another kind of U.S. preferential
trade treatment. Non-preferential ROO are used to assess
tariffs, enforce trade laws (e.g., antidumping and
countervailing duties), collect statistics, and for other
purposes.
For non-preferential ROO, there is no specific U.S. law or
legislative methodology that specifically defines the term
country of origin. Instead, U.S. Customs and Border
Protection (CBP) administers non-preferential rules based
on a body of CBP regulations, prior agency interpretations,
and court decisions. When the country of origin is in doubt,
an importer may apply to CBP for an advance customs
ruling.
Preferential ROO apply to FTAs such as the North
American Free Trade Agreement (NAFTA) and certain
non-reciprocal trade preferences, like the African Growth
and Opportunity Act (AGOA) and the Generalized System
of Preferences (GSP). Preferential ROO are important
because they ensure only eligible trading partners receive
the tariff benefits of the special program or FTA. Some
preferential ROO may also be crafted to limit the impact of
these programs on import-sensitive industry sectors. They
are unique to each special trade program or FTA.
Preferential ROO in FTAs are negotiated by the parties to
the agreement and approved by Congress as part of the FTA
implementing legislation. For special U.S. trade programs
like AGOA and GSP, they are drafted and approved by
Congress.
Enforcement. CBP interprets, administers, and enforces
rules of origin, as well as country of origin labeling, tariff
classification, customs valuation, and many other laws
relating to U.S. imports.
International Commitments. The 1994 WTO Agreement
on Rules of Origin requires WTO members not to use ROO
to disrupt trade, to apply ROO in a consistent, transparent,
non-discriminatory, and reasonable manner, and to notify
other members about any rule changes. The WTO
agreement also set up an ongoing program to harmonize
non-preferential rules, with negotiations conducted by a
WTO Rules of Origin committee and a technical committee
under the World Customs Organization (WCO). The WCO
also facilitates trade by providing assistance to customs
administrations worldwide on interpreting ROO and other
technical issues.
Figure I. Rules of Origin Uses
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Source: World Customs Organization. Graphic by CRS.
ROO in FTAs generally stipulate how much manufacturing
must come from within the FTA region in order to receive
trade benefits (e.g., duty-free treatment). Although FTAs
are individually negotiated, there are many common
elements across agreements.
Originating Goods. In order to receive the benefits of an
FTA, imported products must originate in one of the
partner countries by satisfying one of three conditions.
They must be: (1) grown, harvested, or fished in the FTA
region; (2) produced in the FTA region using only materials
made in the FTA; or (3) produced in the FTA region with
non-FTA country components while meeting additional
product-specific ROO requirements.
Specific Rules of Origin. Each U.S. FTA has a chapter
containing general ROO provisions, combined with an
annex that lists ROO for individual products. These
product-specific ROO generally take one of three forms
(see Figure 2).
Change of Tariff Classification or tariffnshift rules
require that a product be substantially transformed as
illustrated by a change in its Harmonized Tariff Schedule
(HTS) tariff classification. The level of change required
varies from product to product. One example of a tariff-
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