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A54 EXCISE LAW TIMES [ Vol. 372

natural state, and are therefore apparently wholly obtained, can become complex
and restrictive is the case of fish — typically, a sensitive sector in many countries.
Methods for determining substantial transformation
The three main criteria for determining origin are change of tariff classi-
fication, value added, and specific manufacturing process. We discuss each in
turn. Change of tariff classification. Origin is granted if the exported product falls
into a different part of the tariff classification from any imported inputs that are
used in its production. Application of this “tariff-shift” method has been facili-
tated by the widespread adoption of the Harmonized System (HS), under which
most of the world’s more than 190 countries are now classifying goods according
to the same harmonized categories. The level of classification of the HS at which
change is required remains an issue, however. Typically, it is specified that the
change should take place at the heading level (that is, at the four-digit level of the
HS).
Examples of simple HS headings are “beer made from malt” (HS 2203)
and “umbrellas and sun umbrellas” (HS 6601).
But headings can be more sophisticated : Machinery, plant or laboratory
equipment, whether or not electrically heated (excluding furnaces, ovens and
other equipment of Heading 8514), for the treatment of materials by a process
involving a change of temperature such as heating, cooking, roasting, distilling,
rectifying, sterilizing, pasteurising, steaming, drying, evaporating, vaporizing,
condensing or cooling, other than machinery or plant of a kind used for domestic
purposes; instantaneous or storage water heaters, non-electric. (HS 8419)
The HS, however, was not designed specifically as a vehicle for deter-
mining country of origin; its purpose is to provide a unified commodity classifi-
cation for definition of tariff schedules and for statistical purposes. Thus, in par-
ticular cases it can be argued that a change of tariff heading will not identify sub-
stantial transformation, whereas in other cases, substantial transformation may
occur without change of tariff heading. As a result, schemes utilizing the criteri-
on of change of tariff heading usually provide for a wide range of exceptions that
need to satisfy other criteria for determining country of origin. The change of
tariff classification may be used to define both a positive test of origin, by stating
the tariff classification of imported inputs that can be used in the production of
the exported goods (for example, those under a different heading), and a nega-
tive test, by stating cases in which change of tariff classification will not confer
origin.
For example, the North American Free Trade Agreement (NAFTA) rule
of origin for tomato ketchup states that a change to ketchup (HS 2103 20) from
imported inputs of any chapter except sub-heading 2002 90 (tomato paste) will
confer origin. In other words, any ketchup made from imported fresh tomatoes
will confer origin, but ketchup made from tomato paste imported from outside
the area will not qualify for preferential treatment, even though the basic change
of tariff classification requirement has been satisfied.
In the EU’s preferential rules of origin, bread, biscuits, and pastry prod-
ucts (HS 1905) can be made from any imported products except those in Chapter
11, which include flour — the basic input to these products. The WTO Agree-
ment on Rules of Origin stipulates that preferential and non-preferential rules of
origin should be based on a positive standard, but it allows the use of negative
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