Global and Regional Trade: What are Rules of Origin?

Rules of origin are the criteria used to determine the national source of a product. These criteria are used to determine whether a product qualifies for preferential treatment under a trade agreement, such as a reduced import tariff or duty-free status. Rules of origin create non-tariff barriers.

1. Regional Value Content (RVC): This rule of origin requires a certain percentage of a product's value to be sourced from within the trade agreement region in order for the product to qualify for preferential treatment. For example, under the USMCA, cars must have at least 75% of their content made in North America to qualify for duty-free treatment.
2. Material Input Rule: This rule of origin requires that a certain percentage of a product's inputs must be sourced from within the trade agreement region in order for the product to qualify for preferential treatment. For example, a product might need to have at least 50% of its inputs sourced from within the trade agreement region to qualify.
3. Specific Process Rule: This rule of origin requires that a certain specific process or set of processes must be performed within the trade agreement region in order for a product to qualify for preferential treatment. For example, a textile product might need to be woven within the trade agreement region to qualify under this rule.

The European Union (EU) uses various rules of origin to determine the national source of a product in order to ensure that preferential treatment under trade agreements is granted only to products that are actually produced within the EU. Here are some examples of rules of origin imposed by the EU:

1. Regional value content (RVC) rule: A car must have at least 55% of its content made in the EU to qualify for duty-free treatment.
2. Specific sectoral rules: The EU also has specific sectoral rules of origin for certain products, such as textiles, chemicals, and certain agricultural products. These rules vary depending on the type of product and the specific trade agreement.