Division Disadvantages

Difficulties are likely to arise especially in border-line cases in which a slight difference above of below the prescribed percentage causes a product to meet, or fail to meet, the origin requirements.

Similarly, the origin attributed depends largely on the fluctuating world market prices for raw materials and also on currency fluctuations. There fluctuations may at times be so marked that the application of rules of origin formulated on this basis is appreciably distorted.

Another major disadvantage is that such elements as cost of manufacture or total cost of products used, which may be taken as the basis for calculating value added, are often difficult to establish and may well have a different make-up and interpretation in the country of exportation and the country of importation. Disputes may arise as to whether certain factors, particularly overheads, are to be allocated to cost of manufacture or, for example, to selling, distribution, etc. costs.

While these various rules for determining origin all have, in one degree or another, advantages and disadvantages, it must be stressed that the absence of common rules of origin, at both importation and exportation, not only complicates the task of customs administrations and of the bodies empowered to issue documentary evidence of origin but also causes difficulties for those involved in international trade. This points to the desirability of moving progressively towards harmonization in this field. Even where different methods have been introduced to reflect economic conditions or negotiating factors in preferential tariff arrangements, it seems very desirable that they should exist within a common or standard framework, for ease of understanding by traders and ease of application by the customs.

Having regard to the foregoing considerations, the Annex proposes, following the definitions of certain technical terms, those rules for the determination of origin which it is felt can be most easily applied and controlled, with least risk of misunderstanding and fraud and the least interference with commercial activities.

The provisions concerning these rules are accompanied by other provisions generally agreed to be essential for the practical application of a system of origin determination.

The Annex deals solely with the customs aspects of rules of origin. It does not, for example, extend to measures taken to protect industrial or commercial property or to ensure respect for origin indications or other trade descriptions in force.