Report: Rules of Origin for the 21st Century

Can the rules of origin keep up with the changing conditions in production and trade? In this report, we discuss different ways to update the rules of origin in connection with increased servicification, digitalisation, sustainable development and utilisation of preferences.

This report is about rules of origin. What is that, exactly?

The rules of origin decide a products origin. They are an essential part of every free trade agreement as the key that unlocks access to the lower tariff as well as the protection that shields the tariff preferences from outside use. Without the rules of origin, any company from any country could freeride on the trade agreement – which obviously goes against its purpose.

Why a report from the National Board of Trade on rules of origin?

At the National Board of Trade we deal with rules of origin from a trade policy perspective. We constantly strive to improve existing rules and regulations to facilitate different trade flows. Naturally, we do this by looking at the situation today, but one of our main tasks is also to have a broader perspective, to look at coming changes to production and trade. This report puts rules of origin in the context of increased use of services in goods production (servicification), digitalisation, sustainable development and the general usability of the rules for different stakeholders.

You write about how the rules of origin could change – could you let us in on your ideas?

The rules of origin are based upon a few well established methods to determine a product’s origin. These methods still work. However, as production methods and techniques change, the rules of origin require an update too. Otherwise, there is a risk that the rules will be outdated and not fit for purpose. Considering the time and resources we devote to negotiating free trade agreements, it would be a pity if they are not used to their full potential.

One area to explore is the use of blockchain technology to prove origin. Via blockchain, transactions can be digitally authorised, verified and traced in a reliable way. Considering that products today move around the world in complicated production networks, tracing origin is not easy to do. Blockchain technology could potentially guarantee traceability in a new way, offering more security in the proof of origin.

Another part of the report deals with sustainable development. Today, it is imperative that trade policy takes areas such as climate change and environmental issues, workers’ rights, gender and income distribution into account. All areas of trade policy can contribute here, including rules of origin. The report presents a few initial thoughts and ideas on how this can be done.

What is the significance of rules of origin?

Companies often view rules of origin as a problem and a cost. The cost sometimes outweighs the gain (in terms of a lower tariff rate). This is unfortunate and to further facilitate the use of free trade agreements, this report has a chapter on how the rules of origin can be made more user-friendly.

Countries have a broader perspective on the economy and need to give its private sector the right tools to contribute, for example by taking part in international trade and using free trade agreements. However, negotiating a trade agreement and its rules of origin is no simple task. Every agreement has its own dynamics, economic interests and political considerations. These dynamics change depending on whom you are negotiating with and the rules of origin naturally reflect this.

Who should read this report?

First and foremost persons with an interest in trade policy. I also hope that persons who normally do not work with rules of origin, but in areas mentioned in the report such as services, digitalisation, sustainable development and utilisation of trade agreements find the report useful. Hopefully one or two of the ideas presented in the report can create a foundation for a discussion that cuts across different policy areas.