Reconciling Rules of Origin and Global Value Chains: The Case for Reform

Abstract

Rules of Origin (ROO) are in need of reform. Aside from being used for protectionist purposes, they have also become so complicated that they result in companies foregoing trade preferences granted by preferential agreements on a substantial scale. This article makes the argument for a fundamental reconceptualization of ROO, based on today’s Global Value Chains (GVCs). The article is divided in four sections. First, it surveys the methods currently applied for assigning origin. Second, existing obstacles to reform are then outlined. A third section briefly examines previous attempts at reforming ROO. Fourth, the contours and possible ramifications of a value-added approach to determining origin are explored, given that (i) ROO are not suitable for today’s world characterized by GVCs; and (ii) the tension between bilaterally established rules and multilateral decision-making continues to hamper attempts at harmonization or reform. Considering that the assembly stage of the production process is no longer the stage in which most value is added to the final product, it is argued that other aspects of the production process—such as R&D, design, intellectual property, and marketing—should be taken into account in the valuation of the product in question. This contribution offers a general proposal for reform. Flexible ROO that take into account these aspects are better suited for a trading landscape characterized by GVCs.