Rules of origin in the context of trade. Their definition and their shortcomings

Essay from the year 2013 in the subject Business economics - Trade and Distribution, grade: 1,7, Otto Beisheim School of Management Vallendar (Chair of Macroeconomics and International Economics), course: Seminar on European Economic Integration, language: English, abstract: The paper explains tests that are used to determine a goods origin. Moreover, it discusses shortcomings of the methods applied.Trade liberalization has been and still is an important driver of economic growth worldwide. Many countries cut down tariffs for the import of goods originating from selected trade partner countries in regional trade agreements (RTAs) to make benefits of increased trade between the partners mutually accessible to the participants. Meanwhile each participating country of a RTA keeps up its own tariffs for trade partners outside the RTA. These tariffs usually vary from member to member and hence provided outsiders an incentive to ship their products via the lowest-tariff-country of a RTA into the country of final destination, hence being exempt from the higher tariffs of the country of final destination. In order to guarantee that the preferential tariff treatment is only given to goods originating in the partner countries, it is necessary to identify the origin of a product. This is what Rules of origin (ROOs), which define clear rules for identifying a products origin, are necessary for. ROOs become seemingly even more important with the proliferation of RTAs worldwide, an ongoing global fragmentation of production and the growth of overlapping preferential trade deals out of RTAs and comparable contracts.