Bridging rules of origin and global standards to enhance trust in global trade
Several factors, including the expansion of global value chains (GVCs) through free trade agreements (FTAs) and governments and businesses’ new push to facilitate trade, are challenging the traditional operation of rules of origin.
As it is known, to prevent trade deflection and satisfy other trade policy objectives, all FTAs feature rules of origin regimes. These origin regimes increasingly feature the following basic architecture: some origin rules of general application; separate provisions that articulate product specific rules (PSRs) on a product by product basis; and other related origin administrative matters such as transportation, verification and origin certification requirements. Product specific rules define what is or is not considered to be ‘originating’ under and FTA, and thereby able to enjoy the benefits of the agreement, including duty reduced and free treatment between the parties.
Product specific rules in FTAs tend to reflect the resource and human capital endowments of the FTA’s partners and therefore tend to be different for each of the other agreements in place and under contemplation. Therefore, there is no choice but to work with the rules of origin in place, and possibly even the future ones that will emerge from new FTAs.
FTAs are the main force behind global trade today and the emergence of new and expansion of old GVCs. With more FTAs come more rules of origin and resulting origin complexity; notwithstanding the gradual emergence of some de facto convergence, especially as it relates to PSRs.
At the same time that origin rule content is becoming more complicated, many FTAs and countries are pushing for multiple and often disparate traceability regulations on preferential origin certification, product certification and compliance with packaging, labelling, transshipment and other security and sustainability-related requirements. This, in turn, translates into more costs, barriers, and time to trade. These changes represent ever increasing and ever bewildering sets of origin data requirements, origin analytics and origin determination. Combine these challenging realities with the immutable fact that the liability for origin declarations almost always and exclusively falls on importers.
Furthermore, it has to be taken into consideration that various countries may have specific sensibilities regarding rules of origin and the certification of origin of products, their security, or their country’s brand integrity. While those sensibilities must be acknowledged and taken into account, we must also think of ways to prevent them to become non-tariff barriers to trade.
While digitisation of documents is a key task fort this undertaking, preliminary research indicates that the essential task to enhance trust between importers and exporters could be the identification, standardization and quality of trade and origin literate data required to determine and prove all varieties of preferential and non-preferential origin. In this rather complex context, the premise is that technology without a standardised global data framework cannot provide the overarching solutions needed.
To produce a research paper with three main objectives:
- Build the case for the need for harmonized data sets for Rules of Origin.
- Build the case for how Chain of Custody standards could validate rules of origin using one standard.
- Build the case for simplifying trade processes through the Chain of Custody standard and the impact of reducing trade facilitation costs (i.e certificates of origin).