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[1] For example, the United States provides non-reciprocal trade preferences to goods imported from certain developing countries through trade agreements such as the Generalized System of Preferences and the Caribbean Basin Initiative, and it provides trade preferences for goods made within Mexico and Canada through the North American Free Trade Agreement ("NAFTA"). The United States also reserves the right to apply selective contingent restrictions on goods imported from a country that the United States determines has violated the "rules" of international trade.

[2] On the other hand, if a country treated all imported goods alike, the importance of rules of origin would diminish greatly. While rules of origin would be necessary, they would be easy to harmonize because the goods would be treated alike regardless of origin.

[3] For example, special rules of origin designed to "prevent" circumvention of anti-dumping duties have been increasingly used as a shortcut to applying anti-dumping duties to products produced in and exported from third countries. See Edwin Vermulst, Rules of Origin as Commercial Policy Instruments - Revisited, 26:6 J.W.T. 61, 62 (Dec. 1992) [hereinafter Vermulst, Revisited]. The United States and the European Communities have used specially created rules of origin as legal justification for imposing anti-dumping duties on third-country exports following findings that merchandise produced in such third countries had not acquired that country's origin but rather continued to have the origin of the country with respect to which anti-dumping duties were imposed. Id. at 62.

[4] Agreement on Rules of Origin, December 15, 1993, in Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations, April 15, 1994, 33 I.L.M. 1143.

[5] Examples of potentially restrictive trade practices that require the application of non-preferential rules of origin include enforcement of voluntary export restraint agreements, enforcement of buy national government procurement requirements, application of anti-dumping duties (including issues of third country circumvention and existence of a domestic producer as complainant), application of most favored nation treatment, enforcement of quantitative restrictions, application of countervailing duties, application of country or origin marking requirements, application of drawback programs and enforcement of economic sanctions.

[6] This is permissible under GATT. Art. XXIV of GATT allows the formation of free trade areas and customs unions as long as, among other things, the duties and "other regulations of commerce" applied by the members are not more restrictive than those applied prior to the formation of the area. Preferential agreements are structured as either a reciprocal, trade liberalizing agreement, such as the North American Free Trade Agreement or the European Free Trade Agreement, or as a non-reciprocal system of tariff preferences designed to promote the development of lesser developed countries, such as Generalized System of Preferences or the Caribbean Basin Initiative.

[7] For example, the European Communities' rules of origin applicable to ACP countries allow donor-country benefit and full global cumulation among the preference-receiving countries while the European Communities' GSP rules allow only very limited regional cumulation. See Vermulst, Revisited, supra note 3, at 93.

[8] Reciprocal trading agreements provide the same trade preferences to goods from any and all member countries. The best example of a reciprocal trading agreement is the creation of a free trade area. Non-reciprocal trading agreements provide a preference to goods from the beneficiary country, but not to goods from the country "donating" the preference.

[9] Of course, preferential trading agreements themselves are often inefficient. Restrictive rules of origin only make them even more inefficient.

[10] See Bernard Hoekman, Rules of Origin for Goods and Services: Conceptual Issues and Economic Considerations, 27:4 J.W.T. 81, 81 (Aug. 1993).

[11] See Steinberg, Richard H., Antidotes to Regionalism: Responses to Trade Diversion Effects of the North American Free Trade Agreement, 29 Stan. J. Int'l L. 315 (Summer 1993).

[12] Other factors a profit-maximizing firm considers are the cost of capital, the cost of labor, transportation costs, the existence of economies of scale, taxes, and the level of education or skill of the labor force.

[13] Origin complications may arise with wholly obtained products when dealing with products extracted from territorial waters and from the seabed. For example, fishery products are considered wholly obtained in a country as long as they are obtained on a vessel of that country. Because some origin definitions vary in terms of defining what constitutes that country's vessels, this rule may lead to the anomalous result of fish being caught in the waters of country A by a vessel from country B being considered fish of country B, even though they were "obtained" in country A's waters.

[14] Anheuser-Busch Ass'n v. United States, 207 U.S. 556, 562 (1908). See also Hartranft v. Wiegman, 121 U.S. 609, 615 (1887) (explaining that a good is substantial transformed when it is "manufactured into a new and different article, having a distinctive name, character or use from that" of the original article or good). The United States determines the origin of goods for non-preferential purposes by the rule of substantial transformation, a standard created by the courts and codified in administrative regulations.

The European Communities use a similar default rule. Council Regulation 802/68, which establishes the criteria to be used for determining the origin of imported goods when no other rule of origin is applicable, states, in part, that a product originates in the country in which the last substantial process or operation that is economically justified was performed, having been carried out in an undertaking equipped for the purpose, and resulting in the manufacture of a new product or representing an important stage of manufacture. Council Regulation 802/68, Art. 5.

[15] See Anheuser-Busch, 207 U.S. at 562. See also United States v. Gibson-Thomsen Co., 27 C.C.P.A. 267 (1940) (holding that under the marking statute, when imported wood toothbrush handles and imported wood hairbrush blocks are combined in the United States with bristles to form a brush, the brush originates in the United States because "each [part] lost its identity in a tariff sense, and [became] an integral part of a new article having a new name, character and use").

[16] Textiles and textile products country of origin, 19 C.F.R. §12.130. The Custom Service based these regulations on its interpretation of Uniroyal Inc. v. United States, 542 F. Supp. 1026 (1982). Country of Origin Rules Regarding Imported Textiles and Textile Products, T.D. 90-17, 24 Customs Service Bulletin 3, 6 (March 14, 1990). Uniroyal held that a product originates in the country where it gained its identity or essence by means of processing operations performed in that country. Therefore, in Uniroyal under the marking statute, the attachment of imported leather uppers to domestic outer soles was not a substantial transformation of a shoe, because the upper maintained its identity, in that the upper was the essence a completed shoe.

For application of a similar test in a non-textile context, see Superior Wire v. United States, 669 F. Supp. 472 (Ct. Int'l Trade 1987), aff'd, 867 F.2d 1409 (Fed. Cir. 1989) (holding that wire produced in Canada from wire rod manufactured in Spain is of Spanish origin because the Canadian processing was not substantial in terms of complexity or cost).

[17] 19 C.F.R. §12.130(b) (stating that a "textile or textile product will be considered to have undergone a substantial transformation if it has been transformed by substantial manufacturing or processing operations into a new and different article of commerce"). The regulation then lists a series of manufacturing or processing operations that will "usually" result in "a new and different article", id. at §1230(d)(1), lists a series of factors to be considered to determine if the good underwent substantial processing, id. at §1230(d)(2), a list of processes that will "usually" result in conferring origin on that good, id. at §1230(e)(1), and a list of processes that will "usually" not result in conferring origin on that good, id. at §1230(e)(2).

[18] The United States applies the standard differently for different purposes. See Koru North American v. United States, 701 F. Supp. 229, 133 (Ct. Int'l Trade 1988) (stating that in ascertaining origin, the court must look to "the purpose of the particular statute involved"); National Juice Products Ass'n v. United States, 628 F. Supp. 978, 988-89, n.14 (noting that "although the language of the test applied under the statutes [tariff preferences, duty drawback, and country of origin marking] is similar, the results may differ where differences in statutory language and purposes are pertinent"). See also N. David Palmeter, Rules of Origin or Rules of Restriction? A Commentary on a New Form of Protectionism, 11 Fordham Int'l L. J. 1, 4 (1987) [hereinafter Palmeter, Protectionism] (arguing that the United States interprets its rules of origin differently for different purposes and providing the example that "threading is substantial transformation if it means GSP benefits will be denied but not if it means that a quota will be inapplicable").

When a court held that courts should not "depart from policy-neutral rules governing substantial transformation in order to achieve wider import restrictions [via a voluntary restraint agreement on steel imports from Japan] in particular cases," Ferrostaal Metals Corp. v. United States, 664 F. Supp. 535, 538 (Ct. Int'l Trade 1987), the United States Congress overturned it, rejecting the principle that the uniform application of a standard for all purposes, by giving the President the power to impose the VRA quota on steel that has been substantially transformed in a non-VRA country as long as the steel was originally melted and poured in a VRA country. Omnibus Trade and Competitiveness Act of 1988, Pub. L. 100418, §1322 (amending 198 U.S.C. §2253).

[19] The criteria include the distinction between producer and consumer goods, the amount of value-added, the complexity of the processing operation, and changes in tariff classification. See C. Edward Galfand, Comment, Heeding the Call for a Predictable Rule of Origin, 11 U. Pa. J. Int'l Bus. L. 469, 480 (1989).

[20] "The search for relevant meaning is often satisfied not by a futile attempt at abstract definition but by pricking a line through concrete applications. Meaning frequently is built up by assured recognition of what does not come within a concept the content of which is in controversy." Bazley v. Commissioner, 331 U.S. 737 (1947) (J. Frankfurter) (explaining why the Supreme Court will not affirmatively define what a recapitalization under the Internal Revenue Code, but rather will just look at the facts of the transaction and compare them to the underlying purpose of a reorganization, of which a recapitalization is one type).

[21] For example, one criterion, the transformation of a good usable solely by producers into a consumer goods, has been held to be both determinative and indeterminative of origin. Compare Torrington Co. v. United States, 764 F.2d 1563 (Fed. Cir. 1985) (transformation determinative); Midwood Industries, Inc. v. United States, 313 F. Supp. 951 (Cust. Ct. 1970) (transformation determinative) with National Juice Products Ass'n v. United States, 628 F. Supp. 978 (Ct. Int'l. Trade 1986) (transformation not determinative); Uniroyal, Inc. v. United States, 542 F. Supp. 1026 (Ct. Int'l. Trade 1982) (no origin conferred despite transformation).

[22] Palmeter, Protectionism, supra note 20, at 4.

[23] See Vermulst, Revisited, supra note 3, at 63-64. The European Community uses the domestic content method as a test for non-preferential purposes and the United States uses it for preferential purposes. The import content method is used by the European Communities as a test for preferential purposes. The value-added test also can be articulated as requiring that a minimum percentage of the value of the parts come from the originating country. Id. The value of the parts test is used by the European Community in some product-specific origin regulations as a subsidiary test when the 45% value-added primary test is not met. See Commission Regulation 861/71 on determining the origin of tape recorders, art. 2 (1971); Commission Regulation 2632/70 on determining the origin of radio and television receivers, art. 2 (1970). It may be unduly restrictive of origin because it ignores local assembly and overhead costs.

[24] See Michael P. Maxwell, Formulating Rules of Origin for Imported Merchandise: Transforming the Substantial Transformation Test, 23 Geo. Wash. J. Int'l L. & Econ. 669, 671-72 (1990) (calling for a rule of origin based on value-added criteria).

[25] See Joseph LaNasa, Rules of Origin under the North American Free Trade Agreement: A Substantial Transformation into Objectively Transparent Protectionism, 34 Harv. Int'l. L.J. 381, 392 (Spring 1993) (arguing that most of the origin determination controversies under the Canadian-United States Free Trade Agreement involved the value-added test).

[26] See id. at 391-92, n.48-49; Jan Herin, Rules of Origin and Differences Between Tariff levels in EFTA and in the EC, Occasional Paper no. 13 (European Free Trade Association 1986) (25% of trade between EFTA and the EC is on a non-preferential basis because of the high costs of satisfying the change in tariff classification and the value-added rules of origin). See also Ralph H. Sheppard, NAFTA Rules of Origin from the Importers' Perspective: What the Agreement Should Contain, Mex. Trade and L. Rep., Rules of Origin Vol. 1 No. 2, Nov. 1, 1991 (stating that the need to certify content in specific shipment in order to comply with value-added requirements lead many businesses to forgo benefits due to the inordinate accounting or inventory costs).

[27] Of course, the fluctuation problem could be minimized through the use of weighted monthly, quarterly, or annual averages.

[28] The net cost method requires the firm to trace the cost of each item or material used in producing the good.

[29] NAFTA art. 402(5)(a,c). The exporter or producer also must use the net cost method when the transaction value is unacceptable under Article I of the GATT Customs Valuation Code, when it elects to accumulate the regional value content of a good or when it elects to designate a self-produced material containing no other intermediate materials as an intermediate material. Id. at art. 402(5)(b, e-f).

[30] See Vermulst, Revisited, supra note 3, at 65-71. The local value-added of a good can be calculated by either deducting the cost of non-originating parts from the sales price or by adding up all items of local value-added. This value is then placed over a denominator representing the price of the good, which yields the percentage of local value-added. If the import content rule is being used, subtract the resulting percentage from 100% to see if the import content ceiling is surpassed. While these two calculation methods in theory should lead to the same result, in practice they do not because of the lack of harmonization of calculation methods. Id.

[31] Id. at 65. Goods can be valued, in ascending order, at the ex-works price (the price as it leaves the factory), free on board (FOB) price (the price at the border of the exporting country), cost insurance and freight (CIF) price (the price at the border of the importing country) or the delivered into-factory price. For example, the European Communities uses the ex-works price. Any other costs must be deducted from the price. This greatly complicates the valuation process by requiring additional calculations and documentation of the costs of these other items. On the other hand, the United States often uses the appraised value of the good as it enters the United States. Because this value often will just be the transaction price in transactions between non-related parties, this method does not entail doing any additional calculations. Id.

[32] See Vermulst, Revisited, supra note 3, table 4 at 71 (showing that the same product will have a different domestic content ratios in the United States, the European Communities, Australia, Canada and Japan).

[33] While the problem of punishing low cost producers also arises with other methods of determining origin, because in practice, all origin rules impose value-added constraints since all origin rules require value-adding processing, the problem is most acute with an explicit value-added test. However, with substantial transformation as the test, the problem of discriminating against low-cost producers arises, if the agency or court compares processing costs to see if a substantial transformation occurred.

[34] See LaNasa, supra note 25, at 400-01 (arguing that the enormous clout of the American car manufacturers resulted in rules of origin for automobiles that discriminated against foreign car companies, an argument supported by the fact that General Motors received preferential treatment in its joint venture with Suzuki on the treatment of the origin of the CAMI).

[35] Compare NAFTA, art. 403(6) (requiring a regional value content equal to or greater than 62.5% for light trucks and passenger vehicles using the net cost method) with id. at art. 401(b) (requiring just a specified change in tariff classification for most goods) with id. at annex 401.1, §6401.10 - 6401.10 (requiring that footwear meet the specified tariff classification change and that it have a regional value content equal to or greater than 55% under the net cost method).

[36] Roll-up occurs when imported parts are substantially transformed in a preference-receiving country into an intermediate part whose whole value then counts towards fulfilling the value-added requirement for the final good. For example, under the Canadian-United States Free Trade Agreement, an intermediate part was considered wholly a domestic part if it had regional value content equal to or greater than 50%. If it had a regional value content less than 50%, then the roll-down occurred, i.e., the part was considered wholly an imported part.

Under the Canada-United States Free Trade Agreement, the controversy over roll-up exploded into an international controversy. Honda assembled cars (Civics) in Canada with engines assembled in Ohio that used Japanese parts. Canada and Honda claimed that the engines had a direct cost of 66%, thereby entitling them to roll-up. With their value rolled-up, the assembled cars met the CFTA's regional value content requirement for cars and therefore were entitled to preferential treatment. The United States argued that the engines were not entitled to roll-up because Canada and Honda had included indirect costs in their computation of direct costs and that a proper calculation of direct costs revealed that the engines had less than 50% regional content and therefore their value must be roll-downed. Without being able to count the value of the engines, the Honda cars assembled in Canada no longer could not meet the CFTA's regional value content requirement for automobiles and therefore were not entitled to preferential treatment. The United States' interpretation of direct costs of assembly excluded costs that were reasonably allocated to the assembly costs, overhead costs and general expenses of doing business. The United States claimed that the dispute was purely a technical matter. The Canadians claimed that the decision was a political one motivated by American desires to bash Japan and to force Japanese companies to relocate their assembly operations to the United States. See Frederic Cantin and Andreas Lowenfeld: Rules of Origin, The Canada-U.S. FTA and the Honda Case, 87 Am. J. Int'l L. 375 (July 1993).

[37] NAFTA, at art. 403(1-2) (requiring tracing of the value of a specified list of automotive parts), annex 403.1-.2 (listing the automotive parts and materials whose value must be traced). The administrative burden is lessened somewhat by allowing the producer to use an annual averaging method. Id. at art. 403(4-5).

[38] See LaNasa, supra note 25, at 400-402.

[39] See Vermulst, Revisited, supra note 3, at 74. The United States uses them for preferential and non-preferential purposes, often in combination with a value-added test. The European Communities use them for many of their non-preferential product-specific origin regulations. Id.

[40] Edwin Vermulst and Paul Waer, European Community Rules of Origin as Commercial Policy Instruments, 24:3 J.W.T. 55, 66.

[41] Id. at 66.

[42] In the European Communities, certain product-specific regulations that purport to apply the "last substantial process" test can be viewed as nothing more than protectionist interpretations designed to benefit European Communities industry and restrict market access of Japanese producers. Id. at 94 (citing the zipper, integrated circuits and photocopier regulations).

[43] Commission Regulation 2071/89 on determining the origin of photocopying apparatus incorporating an optical system or of the contact type, art. 1 (1989).

[44] See Vermulst and Waer, supra note 40, at 66-67.

[45] The Harmonized System was implemented by the International Convention on the Harmonized Commodity and Description Coding System on January 1, 1988. It was developed by and is administered by the Customs Co-operation Council. While one hundred twenty-one countries have adopted it for customs tariffs and trade statistical purposes, only seventy-one nations have contracted to the International Convention, as of June 1, 1993. See Hironori Asakura, The Harmonized System and Rules of Origin, 27 J.W.T. 4, 8 (Aug. 1993) [hereinafter Harmonized System]. Because the one hundred twenty-one countries account for 90% of world trade, the Harmonized System is one of the most basic and widely applied international trade laws.

[46] See, e.g., Origin Agreement, supra note 4, at art. 9(2)(c)(ii) (calling for global harmonization of non-preferential rules of origin defined primarily in terms of change in tariff classification using the Harmonized System as the underlying nomenclature); North American Free Trade Agreement, art. 401(b) (providing for determinations of origin by specified change in tariff heading), art. 413(a) ("the basis for tariff classification in Article 401 is the Harmonized System"), Annex 401.1 (using the Harmonized System as the tariff classification system used to define the required change in headings).

[47] If the product itself has not been classified, the products placed into a basket of unclassified goods. A question may arise as to in which basket it should be included.

[48] In contrast, when the substantial transformation standard was used to create exceptions or special rules, it produced "unguided formlessness" in which a diverse series of criteria were applied in an illogical or inconsistent manner. See Galfand, supra note 19, at 492 ("Whereas flexibility in the substantial transformation criteria equates to unguided formlessness, the objective and mechanically precise character of the Harmonized System renders it capable of sustaining exceptions and special rules without losing its identity.").

[49] Asakura, supra note 45, at 9. For example:

***

Id.

[50] For example:

Chapter 72 Iron & Steel

This example is taken from id. at 12.

[51] Many of the headings are further sub-divided into subheadings, which are further subdivided into two-dash subheadings. Id. at 9. Sometimes, the required change in tariff classification occurs at the subheading or the chapter level. For example, in the agricultural chapters, many of the headings specify different kinds of agricultural products which have undergone minimal processing. Id. at 17 (describing how in Chapter 7, which deals with edible vegetables and certain roots and tubers, the headings progress from fresh or chilled vegetables (7.01 - 7.09) to frozen vegetables, whether uncooked, steamed or boiled vegetables (7.10), to provisionally preserved vegetables unsuited for immediate consumption (7.11) to dried vegetables (7.12, 7.19) to roots and tubers (7.19)). There, a product will be substantially transformed if the change occurs at the chapter level. For example, the North American Free Trade Agreement dealt with the vegetable problem by stating that items in headings 7.01 - 7.14 originate in the country where they were transformed from an item classified in a different chapter. See NAFTA, Annex 401.1. See also Asakura, supra note 45, at 17 (describing the eighteen times that NAFTA requires a change at the chapter level instead of at the heading level for at least some of the headings contained in that chapter).

[52] See, e.g., Vermulst, Revisited, supra note 3, at 73.

There is no need to develop a new classification system designed specifically for origin determinations, given that the Harmonized System has already developed a rather accurate, predicable, universally adopted, and well-managed classification system.

[53] See, e.g., NAFTA, art. 401(d)(i) (good originates in the preferential territory if it "is produced entirely in the territory of one or more of the Parties but one or more of the non-originating parts used in the production of the good does not undergo a change in tariff classification because the good was imported into the territory of a Party in an unassembled or a disassembled form but was classified as an assembled good pursuant to General Rule of Interpretation 2(a) of the Harmonized System").

[54] See, e.g., Origin Agreement, supra note 4, at art. 9(2)(c)(iii) (stating that the harmonized rules of origin may use supplementary criteria); NAFTA art. 402 (setting out the regional value content test which is used as a supplementary test to the change in tariff classification test).

[55] See Origin Agreement, supra note 4, at art. 9(2)(c)(i) (stating that the harmonized rules of origin will contain a list of minimal operations or processes that do not by themselves confer origin on a good); NAFTA, at art. 412 (listing non-qualifying operations).

These processes may include simple packing and preservation operations, simple mixing of products of the same or different kind, and simple assembly of parts into complete articles. These disqualifying provisions can be controversial because they may exclude processes, such as mixing and assembly, that may add a great deal of value. However, this problem can be resolved by adopting exceptions to the exceptions, i.e., by specifying the mixing and assembly processes that will confer origin, notwithstanding the general rule that mixing and assembly do not confer origin.

[56] However, disputes over tariff classification, such as whether a vehicle is a truck or a van, do occur, because this classification system, like any classification system, is sometimes imprecise and subject to political considerations. N. David Palmeter, The U.S. Rules of Origin Proposal to GATT: Monotheism or Polytheism?, 24:2 J.W.T. 25, 28 (April 1990).

[57] The Harmonized System Committee seeks to ensure uniform international application of the system by making classification decisions and settling international classification disputes between member countries. It also assists with the problem of fitting millions of goods into the 1241 four-digit headings by publishing the Harmonized System's General Rules for Interpretation, its detailed Legal Notes, and the extensive complementary publications such as the Custom Co-operation Council's Explanatory Notes. These sources of information on interpretation and help with application help ensure more uniform, accurate and predictable classifications.

[58] See Asakura, supra note 45, at 6 (describing how differentiated tariff levels began with the introduction of preferential tariff rates early in the twentieth century). See also Anheuser-Busch Brewing Ass'n v. United States, 207 U.S. 556 (1907) (laying out the substantial transformation standard that defines the United States' approach to origin determinations).

[59] See John H. Jackson, World Trade and the Law of GATT, at 468 (1969).

[60] General Agreement on Tariffs and Trade, Basic Instruments and Selected Documents, 2nd Supplement, 56 (1954).

[61] Id.

[62] France, Germany and Italy.

[63] New Zealand and the United Kingdom.

[64] See Edurne Navarro, Rules of Origin in GATT, at 358, in Edwin Vermulst, Paul Waer & Jacques Bourgeois (eds.), Rules of Origin in International Trade: A Comparative Study (U. Mich. Press 1994).

[65] Cf. id. at 359 (arguing that the view of rules of origin as an instrument of economic policy is the more common view).

[66] The Kyoto Convention is officially called the International Convention on the Simplification and Harmonization of Customs Procedures. It was signed at Kyoto on May 18, 1973 and entered into force on September 25, 1974. Annex D.1 on rules of origin entered into force in 1977. Twenty-three countries ratified the Annex. Navarro, supra note 64, at 359-60.

[67] See Hoekman, supra note 10, at 84. The alternative methods were the change in tariff heading in a specified nomenclature, a list of specific processing operations which do or do not confer origin, a percentage content test (either of the materials or the value-added), or any other criteria that does not impede the realization of the Convention's objectives. Id.

[68] See Navarro, supra note 64, at 9-10. The United States was an especially strong advocate for inclusion of rules of origin in the Uruguay Round because it felt threatened by the European Community's local content requirements, which it felt would dramatically impede access of U.S. goods into the European Communities. In recent years, the United States has engaged in similar use of its rules of origin, especially in its preferential trade agreements and with respect to textiles.

[69] See Harold Owen Beede, Note, The EEC Rules of Origin "Game": Can Non-Members Play?, 14 Suffolk Transnat'l L.J. 81 (Fall 1990).

[70] Id.

[71] Origin Agreement, supra note 4, at art. l(l) (expressly excluding rules of origin "related to contractual or autonomous trade regimes leading to the granting of tariff preferences going beyond the application of [most-favored nation status]"). While there was some discussion about harmonizing all rules of origin, the more restrictive approach of only harmonizing non-preferential rules of origin was adopted, partially because that was what the European Communities preferred and partially because the United States began using preferential rules of origin in restrictive manner. See Navarro, supra note 64, at 10. Attached to the Origin Agreement as Annex II is a Common Declaration with regard to Preferential Rules of Origin. This Annex seeks to provide more transparency and foster the development of a rule of law around the application of the preferential rules through the adoption of suggested procedural reforms.

For an explanation of why countries may want to adopt different rules of origin for preferential trade agreements and even vary the rules between the different agreements, see Section II of this article.

[72] Id. at art. 9(2)(a). The transitional period will last until the harmonization program is completed. The Origin Agreement hopes that the transitional period lasts no longer than three years. Id. at art. 9(2)(a).

[73] Id. at art. 9(3); 9(2)(b). While Article 9(2)(b) states that both the Technical Committee and the Committee on Origin will draft the proposed rules, Article 4 implies that the Technical Committee will do almost all of the work because Article 4(2) states that "the Technical Committee shall carry out the technical work called for in Part IV [Harmonization of Rules of Origin]"; Article 9(2) states that the Technical Committee "shall develop harmonized definitions" and Article 9(3) states that the Committee's role is to periodically consider the interpretations and opinions of the Technical Committee . . . with a view to endorsing such interpretations and opinions." The Technical Committee, which was established by Article 4(2) of the Origin Agreement, will operate under the auspices of the Customs Co-operation Council. Id. at Art. 4(2). Each member to the Origin Agreement has the right to be represented on it, id. at Annex 1, and to be represented on the Committee, id. at art. 4(l). Additionally, trade organization representatives are allowed to attend meetings of the Technical Committee as observers. Id. at Annex I(6)

[74] If a majority voting system is applied, then the decisions should be binding with no reservations allowed in order to fully implement global harmonization of the nonpreferential rules of origin.

[75] Id. at art. 9(4)

[76] Id. at art. 9(l)(b); 9(2)(c)(i).

[77] Id.

[78] Id. at art. 9(l)(b); 9(2)(c)(ii).

[79] Id. at art. 2(f).

[80] Id. at art. 2(h) (providing for advance ruling procedure during transitional period); art. 3(f) (providing for the same advance ruling procedure after transitional period); Annex 11 (providing for same advance ruling procedure for preferential rules of origin).

[81] Id. at art. 2(g) ("laws, regulations, judicial and administrative rulings of general application relating to the rules of origin are published").

[82] Id. at art. 2(i).

[83] E.g., id. at art. 2(h) ("upon the request of an exporter, importer or any person with a justifiable cause").

[84] E.g., id. at art. 2(h).

[85] E.g., id. at art. 2(a) (stating that the administrative determinations must "clearly specify the subheadings or headings" when using the criterion of change in tariff classification; must indicate the method of calculating the percentage when using the percentage criterion; and must "precisely specify" the prescribed operation when using technical criterion).

[86] E.g., id.

[87] E.g., id.

[88] The advance ruling provisions in many ways codify the United States procedural approach, which allows judicial review of origin determinations and which allows advance rulings. In making these advance rulings, the Treasury Department will often publish prospective rulings for comment, and then publish the final ruling.

This provision in the Agreement represents a substantial advance over existing practices of the European Community. See Vermulst, Revisited, supra note 3, at 76. In the European Community, the Committee on Origin was willing to give advance rulings on origin determinations, but only a member state or the Commission had the authority to bring a request for such an advance ruling. Council Regulation 802/68 on the common definition of the origin of goods, art. 13 (O.J. L139/6 (as amended 1971) (stating that the Committee on Origin will consider questions regarding application of the Origin regulation if brought by

the Chairman or by a representative of a member state). Once a ruling was issued, it was reviewable only in member-state courts after that state has applied the determination to the good. This left firms seeking to reverse adverse origin determinations through judicial review only with the time-consuming, expensive option of seeking review in several different member state courts with the hope for a reference to the European Court of Justice and the risk of inconsistent judgments by the national courts if no reference was issued. See Vermulst, Revisited, supra note 4, at 76 (citing the Yoshida litigation in 1978 and the ongoing Brother litigation as examples of these problems and risks). Recently an informal advance ruling procedure has evolved where an exporter would voluntarily submit information to the Commission and the Origin Committee in hope of receiving an informal consensus decision on its products' origin. Id. at 75-76.

[89] Origin Agreement, supra note 4, at art. 2(j); art. 3(h); Annex II(3)(f).

[90] Id.

[91] Id. at art. 9(2)(b). See also id. at art. 9(d) (stating that the rules of origin "should not themselves create restrictive, distorting or disruptive effects on international trade.")

[92] This increased certainty will result in a loss of flexibility as national custom administrators will not be able to adapt the rules to changes in technological or manufacturing processes or to circumvention of the rules. Instead, any changes in the harmonized rules to accommodate technological change or unforeseen abuses will have to occur multilaterally in the Technical Committee.

[93] Origin Agreement, supra note 4, at Annex II(3)(c).

[94] Id. at Annex II(3)(a,d,f).

[95] Id. at Annex II(3)(e).

[96] See Vermulst, Revisited, supra note 3, at 100-1 (setting out a flow chart of how a ruling procedure could be designed to implement this goal).

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