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2020 ] RULE OF ORIGIN PROVISIONS : A MOVE TOWARDS PROTECTIONISM! A55

standards (a definition of what does not confer origin) if they “clarify a positive
standard.” The latter condition is so vague as to have had very little effect, and
EU and NAFTA rules of origin, for example, are rife with negative standards.
Thus, although in principle the change of tariff classification can provide a sim-
ple, uniform method of determining origin, in practice, instead of a general rule,
there are often many individual rules. Nevertheless, the rule on change of tariff
classification, once defined, is clear, unambiguous, and easy for traders to learn,
and it is relatively straightforward to implement. In terms of documentation, it
requires that traders keep records showing the tariff classification of the final
product and of all the imported inputs. This may not be a demanding require-
ment if the exporter directly imports the inputs, but it may be more difficult if
inputs are purchased from intermediaries in the domestic market.
Value added
When the value added to a product in a particular country exceeds a
specified percentage, the goods are defined as originating in that country. This
criterion can be defined in two ways : as the minimum percentage of the value of
the product that must be added in the country of origin, or as the maximum per-
centage of imported inputs in total inputs or in the value of the product. As in
the case of change of tariff classification, the value added rule has the advantage
of being clear, simple, and unambiguous as stated. In application, however, it
can become complex and uncertain. First, there is the issue of the valuation of
materials, which may be based on several prices : ex-works (from factory); Free
On Board (FOB); Cost, Insurance, and Freight (CIF); or into factory. Each method
yields a different (in this instance, ascending) value of non-originating materials.
Second, the application of this method can be costly for firms that will require
sophisticated accounting systems and the ability to resolve often complex ac-
counting questions. Finally, under the value added method, origin is sensitive to
changes in the factors that determine production cost differentials across coun-
tries, such as exchange rates, wages, and commodity prices. For example, opera-
tions that confer origin in one location may not do so in another because of dif-
ferences in wage costs, and an operation that confers origin today may not do so
tomorrow if exchange rates change.
Specific manufacturing process
This criterion delineates for each product or product group certain man-
ufacturing or processing operations that define origin (positive test) and manu-
facturing or processing procedures that do not confer origin (negative test). The
rules may require the use of certain originating inputs or prohibit the use of cer-
tain non-originating inputs. For example, EU rules of origin for clothing products
stipulate manufacture from yarn, while the rule for sodium perborate requires
manufacture from disodium tetraborate pentahydrate. The main advantage of
specific manufacturing process rules is that, once defined, they are clear and un-
ambiguous so that, from the outset, producers are able to clearly ascertain
whether their product is originating or not. There are, however, a number of
drawbacks to this system, including obsolescence (as a consequence of changes
in technology) and documentary requirements, such as an uptodate inventory of
production processes, which may be burdensome and difficult to comply with.
No one rule dominates others as a mechanism for formally identifying
the nationality of all products, and each has its advantages and disadvantages. It
is clear, however, that different rules of origin can lead to different determina-
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