What is Origin in Trade Compliance?
Saurabh Gupta ?
Trade Compliance & Customs Analyst @Vestas | Gold??Medalist | Ex- Trade Compliance & Customs Analyst @Renault Nissan Groupé | Cracked UPSC Exams | Cracked Services Selection Board (SSB interview) | Automobile Engineer
What is Origin?
?Origin is the "economic identity of an item." It refers to which country the economic value of a good belongs to.? Rules of origin are also specific rules that determine which country the goods originate from.? They are important in terms of the fact that products from different countries are subject to different treatment in practice and determining the procedures to be applied to the product.
Origin is used for the purposes of calculating customs duties of origin, monitoring the implementation of tools such as quota and anti-dumping measures, and compiling foreign trade statistics.
There are two basic criteria used to determine the origin of a product;
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1)?Goods that are wholly obtained or produced in a country:
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Goods obtained or produced entirely in a country are naturally considered to originate in that country.? For example, live animals raised in the country, plant products, precious metals and minerals extracted in the country, etc.? takes the origin of the country in which it is located.
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2) Essential Conversion Metric
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Conversion criteria are applied when two or more countries have a share in the production of the goods.? These are as follows:
·?????? The customs tariff of the goods should change
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·?????? Value Added Rule
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·?????? It must go through a fundamental two-stage transformation
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·?????? All imported materials used must be included in tariffs other than the customs tariff of the final product.
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When determining the originating status of a product, it is first checked whether that product is "completely obtained in a country".? If the product meets the definition of "completely obtained in a country", it is considered as originating in that country. If the product is “not a product completely obtained in a country”, that is, products that use inputs from other countries in the production and will be exported from that country, it is necessary to determine whether the product has gained the origin of that country as a result of the production activity in a country.? In this case, the origin status is determined by evaluating the process and craft.
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How to determine which country an item originates from?
When determining which country a product originates from, the rules of origin applicable to the trade between the two countries where that good is bought and sold are taken into account.? There are two types of origin rules:
?1-?Preferential Rules of Origin
?2- Non-Preferential Rules of Origin
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1)? Preferential rules of origin
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If there is a preferential trade agreement between the two countries that are the importer and exporter of the product, the origin of the goods is determined on the basis of the rules of origin in that agreement.? This is called the "preferential origin of the goods".? A commodity that meets the preferential rules of origin may benefit from tax exemptions or reductions provided by the preferential trade agreement.
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2) Non-Preferential Rules of Origin
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If there is no preferential trade agreement between the two countries that are the importer and exporter of the product, the origin of the goods is determined on the basis of the rules of origin in the national legislation of the countries.? This is called the “non-preferential origin of the article”.
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According to the customs legislation, when determining the origin of the goods produced in more than one country, the goods are primarily divided into textile products or products other than textile products.? Then, the rules of origin determined in the customs legislation are examined.
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Non-preferential rules of origin ensure that the trade policy measures that form the backbone of the foreign trade policy of the countries are implemented properly and effectively.? Non-preferential rules of origin are also important in terms of preventing the normal flow of trade from changing direction due to the application of different customs tariffs or non-tariff measures in the foreign trade of countries.
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What is Cumulation of Origin?
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Cumulation of origin is a system that allows countries bound to each other by bilateral or multilateral agreements in international trade to use inputs sourced from each other to an unlimited extent.? The purpose of cumulation of origin is to increase trade between countries that recognize preferential regimes to each other.? There are three types of cumulation: bilateral cumulation, diagonal cumulation and full cumulation.
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Bilateral cumulation
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It is valid between two countries and only applies to goods originating in these two countries.? In this system, two countries with free trade agreements are allowed to use inputs originating from each other.? In case of using third country materials, these inputs have to undergo substantial transformation. For example, bilateral cumulation can be applied between Turkey and Bosnia and Herzegovina.
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Diagonal cumulation
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Diagonal cumulation means that where more than two countries are party to a single agreement, or where several countries are bound by similar agreements, input originating in any of those countries is allowed to be used in the manufacture of the final product.? The Pan-European Mediterranean Cumulation of Origin (PAAMK) System is an example.
Full cumulation
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Full cumulation is also a cumulation that allows for a combination of workmanship or operations performed in more than one party country to gain originating status.? For example, full cumulation can be applied between Turkey, Tunisia, Morocco, and Algeria.
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