Country of Origin

Country of origin is the country of manufacture, production, or growth from which an article or product originates. Designation of the country of origin is implemented for two reasons. The first is that such information is sought by consumers and traders who regard such designations favorably: For example, the engineering products of a particular country may be renowned for their reliability and technical specification; similarly, clothes produced in another country may be especially prized because of their sophistication. Within this category may also be mentioned the administration of “buy national policies.” The second reason is administrative. Designation of country of origin is required for the imposition of duties, import restrictions, and for the compilation of national trade accounts. This second category could be extended to include measures to protect local or “infant” industries, and as an extension of political policy where sanctions are applied.

Rules governing country of origin have been longstanding, especially where the imposition of tariffs has been concerned. Examples include the Australian Customs Tariff Act, 1908, which accorded preference to United Kingdom exports; section 304 of the United States Tariff Act, 1930, which required imported products to be marked with the country of origin, and the British Import Duties Act, 1932, by which duties were levied on non-British Empire products. Since 1945, rules of origin marking have become important as a consequence of the spread of regional trading agreements: Between 1947 and 1995, 98 regional trading agreements were notified to GATT (General Agreement on Trade and Tariffs). This meant that accurate designation of country of origin was important if the exports of particular countries were to avoid tariffs.

Global-level awareness of the issues generated by country of origin were raised during the formation of GATT in 1947, but no specific regulation was effected on origin matters and the countries that acceded to this agreement were free to determine their own rules of origin. A GATT proposal required that the nationality of goods resulting from materials and labor of two or more countries would be that of the country in which such goods last underwent a substantial transformation, but it was left to individual countries to determine the processes which would satisfy this condition.

The International Convention on the Simplification and Harmonization of Customs Procedures (Kyoto Convention) was agreed in 1973. This Convention stipulated that the origin of goods should be determined by the last country in which a “substantial transformation” [Page 427]occurred. But the rules determining “country” of origin were nonbinding. Much of the Convention's work was limited to clarifying different criteria to apply in the determination of origin. In fact, the first binding multilateral agreement on country of origin did not occur until the Uruguay Round Agreement on Rules of Origin. This agreement established a three-year program to harmonize rules of origin among GATT (subsequently World Trade Organization) members. This program was not completed by the set deadline of 1998, and currently there is still no global harmonization of country of origin requirements.

Increasing globalization has affected the accuracy of country of origin designations. For example, when all stages of production, from raw material to ready-for-sale product occur in one country, the origin of an import is completely unambiguous. But when the various stages of production occur in different countries (for example, by trade in intermediate products) determining country of origin becomes more complicated. In this case, a single country of origin designation becomes meaningless. A further factor has been the rapid growth in foreign direct investment (FDI): Multinational companies transfer semiprocessed products within their global supply chain networks.

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