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[IWS] CRS: INTERNATIONAL TRADE: RULES OF ORIGIN [10 June 2008]

IWS Documented News Service
_______________________________
Institute for Workplace Studies----------------- Professor Samuel B. Bacharach
School of Industrial & Labor Relations
-------- Director, Institute for Workplace Studies
Cornell University
16 East 34th Street, 4th floor
---------------------- Stuart Basefsky
New York, NY 10016
-------------------------------Director, IWS News Bureau
________________________________________________________________________

Congressional Research Service (CRS)
Order Code RL34524

International Trade: Rules of Origin
June 10, 2008
Vivian C. Jones, Specialist in International Trade and Finance, Foreign Affairs, Defense, and Trade Division
Michael F. Martin, Analyst in Asian Trade and Finance, Foreign Affairs, Defense, and Trade Division
http://assets.opencrs.com/rpts/RL34524_20080610.pdf
[full-text, 21 pages]

Summary
Determining the country of origin of a product is important for properly
assessing tariffs, enforcing trade remedies (such as antidumping and countervailing
duties) or quantitative restrictions (tariff quotas), and statistical purposes. Other
commercial trade policies are also linked with origin determinations, such as country
of origin labeling and government procurement regulations.

Rules of origin (ROO), used to determine the country of origin of merchandise
entering the U.S. market, can be very simple, noncontroversial tools of international
trade as long as all of the parts of a product are manufactured and assembled
primarily in one country. However, when a finished product's component parts
originate in many countries, as is often the case in today's global trading
environment, determining origin can be a very complex, sometimes subjective, and
time-consuming process.

U.S. Customs and Border Protection (CBP) is the agency responsible for
determining country of origin using various ROO schemes. Non-preferential rules
of origin are used to determine the origin of goods imported from countries with
which the United States has most-favored-nation (MFN) status. They are the
principal regulatory tools for accurate assessment of tariffs on imports, addressing
country of origin labeling issues, qualifying goods for government procurement, and
enforcing trade remedy actions and trade sanctions.

Preferential rules are used to determine the eligibility of imported goods from
certain U.S. free trade agreement (FTA) partners and certain developing country
beneficiaries to receive duty-free or reduced tariff benefits under bilateral or regional
FTAs, trade preference programs (such as the Generalized System of Preferences),
and other special import programs. Preferential rules of origin are specific to each
FTA, which means that they vary from agreement to agreement and preference to
preference.

This report deals with ROO in three parts. First, we describe in more detail the
reasons that country of origin rules are important and briefly describe U.S. laws and
methods that provide direction in making these determinations. Second, we discuss
briefly some of the more controversial issues involving rules of origin, including the
apparently subjective nature of some CBP origin determinations, and the effects of
the global manufacturing process on ROO. Third, we conclude with some
alternatives and options that Congress could consider that might assist in simplifying
the process.

This report will be updated as events warrant.

Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Rules of Origin in U.S. Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Non-Preferential Rules of Origin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
International Agreements on ROO . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Preferential Rules of Origin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Pros and Cons of U.S. Rules of Origin Methodology . . . . . . . . . . . . . . . . . . . . . . 6
Proliferation of Preferential ROO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Concerns about Inefficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Influence of Domestic Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
CBP Country of Origin Determinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Proposed Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Subsequent Hearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Global Manufacturing and Rules of Origin . . . . . . . . . . . . . . . . . . . . . . . . . 11
The Case of the Apple iPod . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Effects on Rules of Origin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Counter to U.S. Policy Objectives? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Quotas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Trade Embargoes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
"Yarn Forward" Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Food Imports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
"Buy American" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Conclusion and Options for Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
______________________________
This information is provided to subscribers, friends, faculty, students and alumni of the School of Industrial & Labor Relations (ILR). It is a service of the Institute for Workplace Studies (IWS) in New York City. Stuart Basefsky is responsible for the selection of the contents which is intended to keep researchers, companies, workers, and governments aware of the latest information related to ILR disciplines as it becomes available for the purposes of research, understanding and debate. The content does not reflect the opinions or positions of Cornell University, the School of Industrial & Labor Relations, or that of Mr. Basefsky and should not be construed as such. The service is unique in that it provides the original source documentation, via links, behind the news and research of the day. Use of the information provided is unrestricted. However, it is requested that users acknowledge that the information was found via the IWS Documented News Service.

****************************************
Stuart Basefsky                   
Director, IWS News Bureau                
Institute for Workplace Studies 
Cornell/ILR School                        
16 E. 34th Street, 4th Floor             
New York, NY 10016                        
                                   
Telephone: (607) 255-2703                
Fax: (607) 255-9641                       
E-mail: smb6@cornell.edu                  
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