Country of origin is the country of manufacture, production, or growth from which an article or product originates. Designation of the country of origin is implemented for two reasons. The first is that such information is sought by consumers and traders who regard such designations favorably: For example, the engineering products of a particular country may be renowned for their reliability and technical specification; similarly, clothes produced in another country may be especially prized because of their sophistication. Within this category may also be mentioned the administration of “buy national policies.” The second reason is administrative. Designation of country of origin is required for the imposition of duties, import restrictions, and for the compilation of national trade accounts. This second category could be extended to include measures to protect local or “infant” industries, and as an extension of political policy where sanctions are applied.
Rules governing country of origin have been longstanding, especially where the imposition of tariffs has been concerned. Examples include the Australian Customs Tariff Act, 1908, which accorded preference to United Kingdom exports; section 304 of the United States Tariff Act, 1930, which required imported products to be marked with the country of origin, and the British Import Duties Act, 1932, by which duties were levied on non–British Empire products. Since 1945, rules of origin marking have become important as a consequence of the spread of regional trading agreements: Between 1947 and 1995, 98 regional trading agreements were notified to GATT (General Agreement on Trade and Tariffs). This meant that accurate designation of country of origin was important if the exports of particular countries were to avoid tariffs.
Global-level awareness of the issues generated by country of origin were raised during the formation of GATT in 1947, but no specific regulation was effected on origin matters and the countries that acceded to this agreement were free to determine their own rules of origin. A GATT proposal required that the nationality of goods resulting from materials and labor of two or more countries would be that of the country in which such goods last underwent a substantial transformation, but it was left to individual countries to determine the processes which would satisfy this condition.
The International Convention on the Simplification and Harmonization of Customs Procedures (Kyoto Convention) was agreed in 1973. This Convention stipulated that the origin of goods should be determined by the last country in which a “substantial transformation” occurred. But the rules determining “country” of origin were nonbinding. Much of the Convention’s work was limited to clarifying different criteria to apply in the determination of origin. In fact, the first binding multilateral agreement on country of origin did not occur until the Uruguay Round Agreement on Rules of Origin. This agreement established a three-year program to harmonize rules of origin among GATT (subsequently World Trade Organization) members. This program was not completed by the set deadline of 1998, and currently there is still no global harmonization of country of origin requirements.
Increasing globalization has affected the accuracy of country of origin designations. For example, when all stages of production, from raw material to ready-for-sale product occur in one country, the origin of an import is completely unambiguous. But when the various stages of production occur in different countries (for example, by trade in intermediate products) determining country of origin becomes more complicated. In this case, a single country of origin designation becomes meaningless. A further factor has been the rapid growth in foreign direct investment (FDI): Multinational companies transfer semi-processed products within their global supply chain networks.
Other economic distortions that have arisen from country of origin marking schemes are that they create a bias toward the concentration of final-stage production (usually the highest value-added stage) in particular countries. This issue becomes more intractable in cases where the final production stage is no more than a simple assembly stage and does not, therefore, represent substantial transformation. Where origin rules are predicated on specific components, production according to comparative advantage may be undermined. Restrictive origin regulations can distort investment flows toward major importing countries. These flows can, in turn, undermine indigenous manufacturers.
These economic distortions can also influence the tariff policy adopted by particular countries or countries belonging to a free trade area. For example, it may be more appropriate that a tariff structure should not depend on the price of the imported article but the value outside the free trade area. Alternatively, because vertically related processing occurs in a number of different countries, it may be more accurate to implement multicounty tariffs: In this case the tariff rate to be imposed on a particular product would be the sum of the tariff rates levied on each country component of the value added.
Until there is a binding global agreement on country of origin designations, especially with respect to preferential origin rules (those that determine the duty to be imposed on imported goods from specific countries), the pattern of global trade and the location of production may be distorted. This is further complicated by the fact that different bilateral free trade agreements use different criteria to set rules of origin: Goods processed partly or fully in a third country may obtain duty-free access under a bilateral agreement by being reexported with just enough processing to satisfy rules of origin requirements.
In late 2008 supermarkets in the United States became required to label the country of origin for meat, produce, and certain kinds of nuts. However, it was uncertain what effects that might have.
- Sadrudin A. Ahmed and Alain d’Astous, “Antecedents, Moderators, and Dimensions of Countryof-Origin Evaluations,” International Marketing Review (v.25/1, 2008);
- Greg R. Bell, Curt B. Moore, and Hussam A. Al-Shammari, “Country of Origin and Foreign IPO Legitimacy: Understanding the Role of Geographic Scope and Insider Ownership,” Entrepreneurship Theory and Practice (v.32/1, 2008);
- Christian Bluemelhuber, Larry L. Carter, and C. Jay Lambe, “Extending the View of Brand Alliance Effects: An Integrative Examination of the Role of Country of Origin,” International Marketing Review (v.24/4, 2007);
- Michael Chattalas, Thomas Kramer, and Hirokazu Takada, “The Impact of National Stereotypes on the Country of Origin Effect: A Conceptual Framework,” International Marketing Review (v.25/1, 2008);
- David Kesmodel and Julie Jargon, “Labels Will Say If Your Beef Was Born in the USA,” Wall Street Journal (September 23, 2008);
- Hina Khan and David Bamber, “Country of Origin Effects, Brand Image, and Social Status in an Emerging Market,” Human Factors in Ergonomics in Manufacturing (v.18/5, 2008);
- Vermulst, P. Waer, and J. Bourgeois, eds., Rules of Origin in International Trade: A Comparative Study (University of Michigan Press, 1994).
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