Rules of Origin ("ROO")
DefinitionBy rules of origin ("ROO") we mean the rules that determine the country of origin of a textile or apparel produt. Each free trade agreement has its own rules of origin. Likewise, each preference program has requirements that may be handled under the heading of rules of origin as well. Rules of origin are typically written in terms of the value-added (as in the Israel and the Jordan FTAs). A better rule is expressed in terms of "tariff line shift." Under this approach a good is considered to "originate" if its manufacture resulted in a change in the product such that its tariff classification has changed and that change is one that, under the rule in question, confers origin.
For example, the NAFTA for woven fabric of wool is commonly called "yarn-forward." The actual language of the rule is
A change to headings 5111 through 5113 from any heading outside that group, except from headings 5106 through 5110, 5205 through 5206, 5401 through 5404 or 5509 through 5510.
Now to decode that! woven wool fabric (headings 5111 through 5113) is originating if it is woven in a NAFTA country and provided that the following inputs were also made in a NAFTA country: the wool yarn in the fabric (headings 5106 through 5110), the cotton yarns (if any) (headings 5205 through 5206), the man-made fiber filament yarns (if any) (headings 5401 through 5404), and the man-made fiber spun yarns (if any) (headings 5509 through 5510).
Equally important as the rule of origin is how the rule is applied. Take NAFTA which has a "yarn-forward" rule, now consider its application. Under NAFTA the rule of origin is applied to only the single fabric in a garment that determines the tariff classification. That is what is often referred to as the essential character rule. (Note that NAFTA also has an origin requirement, on a fabric-forward basis, for certain linings in tailored clothing.)
HistoryThe first free trade agreement the U.S. was party to was the U.S.-Israel FTA (effective 1985). The rule of origin in the U.S.-Israel FTA is very weak: Goods must undergo a single transformation in Israel and at least 35 percent of the value must be added in Israel (in the case of goods with U.S., up to 15 percent U.S. content may count toward the 35 percent standard). The North American Free Trade Agreement (NAFTA, effective 1994) has a much stronger rule, fiber-forward or yarn-forward for most textile or apparel articles.
U.S. Customs and Border Protection Informed Compliance Publications
How do I read the tariff shift rules? March 2006
U.S. Rules of Origin May 2004.
Textile and Apparel Rules of Origin April 2004.
Copyright 2013, Agathon Associates.
This page last updated 5/22/2014.