President Donald Trump of the United States has imposed ‘reciprocal tariffs’ on imports from various countries.
With this abandonment of the policy to impose the same tariffs on imports from most countries, nearly all governments, businesses, and economists are busy examining the short- and medium-term implications of this change.
The executives at the operating levels are, however, grappling with a different question — how the US Customs will determine that the imported goods originate from a particular country.
Rules of origin (RoO) are used by most countries to implement measures such as anti-dumping duties and anti-subsidy countervailing duties, and also to determine whether to charge normal or lower duties based on where the imported goods are produced.
They are also used for purposes such as trade statistics, application of labelling and marking requirements, and government procurement.
RoO in most countries are transparent and administered in a consistent, uniform, impartial, and reasonable manner.
RoO vary depending on whether an importer claims a preferential rate of duty on the imported goods under any free/preferential/regional trade agreement.
Where no import duty concessions are being claimed, a simple declaration or certificate by the exporter on their invoice or a non-preferential certificate of origin (CoO) issued by an authorised trade body like a chamber of commerce is usually accepted by the Customs in the importing country.
Normally, such declarations or certificates are given quite freely if the goods are available from nature in the exporting country or the goods are manufactured by the exporter using inputs procured domestically.
Where foreign-origin inputs are used, the goods still get the originating status if the processes carried out in the exporting country result in a new commodity and exceed certain specified basic operations like repacking, relabelling, simple assembly, disassembly, etc.
RoO for claiming lower duty rates under trade agreements usually prescribe minimum value addition in the exporting country if foreign-origin materials are used in making the goods.
The texts of the rules differ under each trade agreement and they always form part of every trade agreement.
Invariably, the rules require the presentation to the Customs in the importing country of a preferential CoO issued by a government agency in the exporting country.
US laws require the presentation of a preferential CoO only for the clearance of imported goods at lower duty rates under trade agreements.
Most goods, barring very few exceptions, used to enter the US at the normal duty rates applicable for imports from all countries, with or without a declaration/certificate of the exporter or a non-preferential CoO.
Since the last few weeks, however, US Customs have started asking for details of foreign-origin inputs used for making the goods and their value.
Now, with country-specific tariffs, the US Customs may not be satisfied with a mere declaration or certificate of the exporter or a non-preferential CoO and may ask for 'proof of origin', as the Indian Customs do for imports under trade agreements.
The executives at the operating levels wonder what documents the US Customs will call for to establish the origin of the goods.
They apprehend the hold-up of goods by the US Customs for origin verification.
It is likely that the US Customs will prescribe some additional documentation to confirm the origin of the goods.
Till then, Indian exporters should be ready to furnish adequate documents to prove the origin of the goods.
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