Identify and Apply Rules of Origin (2024)

Rules of Originfor FTAs:Qualifying Products forPreferential Tariff Treatment

I. Free Trade Agreement Rules of OriginTypes

Rules of origin (ROOs) are used to determine if products are eligible for duty-free or reduced duties under the FTA ruleseven though they may contain non-originating(non-FTA)components.

• The rules determining country of origin can be very simple if a product is wholly grownor manufacturedand assembled primarily in one country. However, when a finished product includes components that originate in many countries, determining origin can be more complex.Rules of origin can be very detailed and specific, and vary from agreement to agreement and from product to product.
• If you are unsureof yourproduct’s qualification or if past shipments have been questioned by the FTA destination customs authority, you can make an appeal. All FTAs have a mechanism for requesting a binding advanced ruling on the goods by the destination customs authority.Consult the specific FTA for this processand contact information.

II.Where to Find Your Rules of Origin

Rules of origin (ROOs) are listed in FTA agreements by HS product classification numbers: Australia, USMCA, Chile, Colombia, CAFTA-DR, Korea, Singapore, Peru, and Panama. OtherROOs are based on a 35% appraised value method: Israel, Jordan, Bahrain, Morocco, and Oman.

Three options for findingROOs:

• TheU.S. International Trade Commission(ITC) website lists theHarmonized Tariff Scheduleof the United States. To locate specific Rule of Origin, open the most recent tariff schedule (“HTS By Chapter).ROOs for all FTAs are listed by HS code in the section titled“General Notes; General Rules of Interpretation; General Statistical Notes.” Scroll down until you see the applicable FTA General Note, then open the link. The FTA is indicated at the top of the page under the page number.The ITC lists most up-to-date rules, taking into account revisions to HS codes.
• A second option isviewingthe original ROOs in an annex or in the chapter titled “Rules of Origin” of anFTA.Thefull FTA textis availableon theUnited States TradeRepresentative(USTR) website.You may need to consult the most recent rules of origin (in theGeneral Notesincluded in the U.S. Harmonized Tariff Schedule) as opposed to the original onessince some HS codes may be be revised,necessitating the need to adjust the rules.
• Third Option: The Rules of Origin Facilitator provides user-friendly access to the International Trade Centre (ITC’s) database of rules of origin and origin provisions in trade agreements. It is the first comprehensive global online resource on tariffs, trade agreements and rules of origin designed with SMEs in mind. The tool enables you in a few clicks to find out import duties in foreign markets applicable to your product, available duty savings, detailed rules of origin, and certification procedures.
• You can alsochecktheCBPFTAcomparisonchart(origination section)whichlistsreference documents to where to findrules of origin.

III.How to Read and Apply Free Trade Agreement Rules of Origin

You will find several types of rules of origin (ROOs) across the many FTAs. They are specific to each FTA and generally vary from agreement to agreement and from product to product.While the details may vary, many of the methods and formulas are repeated.

Qualifying your product under ROOs may consist ofone of the following options: 

• Wholly obtained
• Exclusively from originating materials
• 35% appraised value method
• Tariff shift(achange in tariff classificationrule)(see below) 
• A regional value content requirement(percent-based rule) (see below); 
• Both a change in tariff classification and a regional value content requirement(combined (a) and (b)concept) (see below)

Note: It is necessary to refer to the rule associated with the product being exported. Regional value content can only be applied when it is allowed under a product-specific rule.

Tariff Shift Rules of Origin

This type of tariff classification changeshowsthatnon-originating components have been sufficiently transformedin either the United States or FTA partner country(ies) to allow them toqualify for a preferential tariff under the FTA.The amount of non-FTA components does not matter.

This transformation requires a change in the HS classification codeof the non-originating components to the HS code of the final product (e.g., processing wood into furniture). Learn about tariff shift-based rules.

Regional Value Content

Regional value content (RVC)rules require that a good include a certain percentage of FTA content.To benefit from an FTA, your product must have added value from the U.S. or FTA partner country or countries. This value might derive from the cost of FTA-sourced materials or skilled labor.Each FTA text has its own product-specific rules of origin that proscribe what RVC method/formula(s) you may use to qualify your product for preferential tariff.Remember, not all products may be subject to RVC rules:

• RVC-basedrulescan be calculated using the following methods/formulas: net cost (NC), transaction value (TV), build-down, and build-up.
• To see specific exampleshow theseformulas work, includingconcept of valuation, consultRegional ValueContent.

Tariff Shift or RVC

Forsome products, aROOmight allow for the option of using the tariff shift or RVC.

IV. Other Rules of Origin/Ways to Claim FTA Benefit

• Treatment ofAccessories, Spare Parts and Toolsunder an FTA
• Accumulationmay allow the producer to reduce the value of the non-originating materials used in the production of the good.
• De Minimisallows the exporter to disregard a very small percentage of non-originating materials the do no meet a tariff shift rule.
• Direct Shipmentare goods which must be shipped directly from one FTA party to another FTA party.
• Fungible Goods and Materialsrefers to goods or materials (components) that are interchangeable for commercial purposes and whose properties are essentially identical.
• Indirect Materialsaregoods used in the production, testing, or inspection of a good but not physically incorporatedinto the good.
• Chemical Reaction Rules.

Now that you applied your rule of origin and know that your product qualifies for preferential FTA tariff rate, you can certify the origin of the good.

• Who fills out the FTA certificate or declaration?
• Who claims preference for the FTA?
• Data Elements to be included in the USMCA Certification (Annex 5-A in of the USMCA