Rules of origin are used to determine the country of origin of a product for purposes of international trade. There are two common types of rules of origin depending upon application, the preferential and non-preferential rules of origin (19 CFR 102). The exact rules vary from country to country.
Non-preferential rules of origin are used to determine the country of origin for certain purposes. These purposes may be for quotas, anti-dumping, anti-circumvention, statistics or origin labeling.
The basis for the non-preferential rules originates from the Kyoto convention which states that if a product is wholly obtained or produced completely within one country the product shall be deemed having origin in that country. For a product which has been produced in more than one country the product shall be determined to have origin in the country where the last substantial transformation took place.
To determine exactly what was the last substantial transformation, three general rules are applied:
- Change of tariff classification (on any level, though 4-digit level is the most common)
- Value added-rule (ad valorem)
- Special processing rule, the minimum transformation is described. For instance, in the EU non-preferential rules of origin for T-shirts (HS6109), the origin is supposed to be in the country where the complete making-up was done.
According to the non-preferential rules a product always has exactly one country of origin. However, the non-preferential rules may differ from country to country; the same product may have different origins depending on which country's scheme is applied. Usually it is the rules of the country into which a product is being imported that apply.
Preferential RoO are part of a free trade area or preferential trade arrangement which includes tariff concessions. These trade arrangements might be unilateral, bilateral or regional (also sometimes called multilateral) trade arrangements. The rules of origin determine what products can benefit from the tariff concession or preference, in order to avoid transshipment.
Section 304 of the Tariff Act of 1930 as amended (19 U.S.C.1304) requires most imports, including many food items, to bear labels informing the ultimate purchaser of their country of origin. Meats, produce, and several other raw agricultural products generally were exempt. The 2002 farm bill (P.L. 107-171, Sec. 10816), however, contains a requirement that many retail establishments provide, starting on September 30, 2004, country-of-origin information on fresh fruits and vegetables, red meats, seafood, and peanuts. However, the consolidated FY2004 appropriation (P.L. 108-199) signed January 23, 2004, delays this requirement for two years except for seafood.