A guide on Rules of Origin, and the basic steps to take to qualify a product for duty-free or reduced-duty benefits. This information is taken from "A Basic Guide to Exporting" provided by the U.S. Commercial Service to aid in the export process.
Last Published: 10/25/2016
The Important role of Rules of Origin
One of the key ways to take advantage of the Free Trade Agreement (FTA) is to understand the Rules of Origin (ROOs). Put simply, to qualify for the reduced-duty benefit, the product exported must originate from an FTA party or must contain a specified percentage of U.S. inputs and components. Each FTA has its own Rules of Origin that describe how exported goods shipped to a country or a region may qualify for duty-free or reduced-duty benefits. Because the ROOs are FTAspecific and product-specific, they need to be followed carefully.

The next section presents a general overview of the steps that must be taken before a good can be qualified for an FTA benefit. The different types of ROOs are examined, and the specific ways products may qualify for FTAs are explained. These include the concept of substantial transformation and product-specific and percentage-based formulas used in qualifying products for FTAs. How the ROOs are applied to specific FTAs is explained, and the ROOs for textiles, chemicals, and agricultural products, as well as the de minimis provision, fungible goods, and shipping spare parts and accessories, are all discussed.

To receive preferential treatment under an FTA, the exported good:
  1. Must be made in the FTA territory
  2. Must meet the appropriate Rule of Origin pertaining to specific products and the specific FTA
  3. Must be documented as originating via appropriate certifications or information provided to the importer or its representative broker

Each FTA contains a specific chapter on Rules of Origin Procedures and lists all product-specific ROOs by Harmonized System (HS) numbers. The final texts of all FTAs can be found at  1.usa.gov/1ph6Np9.


Basic Steps to Qualify a Product for Duty-Free or  Reduced-Duty Benefits

1. Obtain the product’s HS classification number by locating the Schedule B code at uscensus.prod.3ceonline.com, and use the first six digits of the Schedule B to convert it into the HS number.
  • Note: The product must be made in an FTA country and shipped directly to be considered for an FTA benefit.
2. Determine the duty (tariff) rate. See if there is a duty difference between the standard (Most-Favored-Nation, or MFN) and preferential rates by searching the Customs Information database at export.customsinfo.com, or the FTA Tariff Tool at 1.usa.gov/1wsnrTj.  
  • If there is no duty advantage— that is, the duty rate is already set at “zero,” or if the FTA rate is equal to or higher than the MFN rate—there is no need to qualify the good (unless the importer specifically requests it, in which case the product still needs to “qualify for an FTA preference”).
  •  Use standard shipment procedures (i.e., regular export documents apply without the need to fill out the NAFTA certificate).
  • Note: For larger shipments to Mexico or Canada, even if there is no tariff advantage, you may still want to qualify a good for NAFTA, since goods accompanied by the NAFTA certificate would get a “break” on the merchandise  processing fee.
  • If there is a duty advantage, proceed to qualifying your product for an FTA (step 3).
3. Qualify your product for an FTA.
  • If the product contains all FTA originating inputs and your product qualifies, proceed to certifying the origin (step 6).
  • If the product contains any nonFTA inputs (or unknown origin inputs), identify HS codes for all these inputs and proceed to identifying the specific ROO (step 4).
4. Identify the specific ROO for the final product that you are exporting by consulting the USHTS General Notes or visiting export.gov/fta and locating a ROOs chapter in the final text of a relevant FTA agreement (the ROOs are listed by HS codes).

5. Determine if the foreign content meets the ROO—that is, if it meets the tariff shift (TS) or regional value content (RVC) rule. You may also determine what content does not meet the ROO and consider making changes so it meets the ROO.
  •  If a TS-based rule is the only option for qualifying origin, check if all non-FTA inputs make the required change in HS classification (tariff shift) as they are incorporated into the final product. If not, check if the non-FTA originating inputs make up less than the required de minimis threshold (generally 7 to 10 percent of the invoice value). If you meet the TS-based rule or the de minimis exception, proceed to certifying the origin (step 6).
  • Use the RVC-based rule if necessary. If the TS-based rule cannot be applied or the product does not qualify under the TS or the de minimis exception, see if an RVC percentage part of the rule may apply (assuming it is allowed). This part of a rule will require calculating a minimum percentage of FTA content using a specific formula (transaction value, net cost, buildup, or builddown). A costed bill of material will be necessary to calculate the RVC. If you determine that the product does not meet the ROO, consider changing it so it can qualify for an FTA.
  • Note: Other rules can be used to qualify a product or an FTA preference (e.g., fungible goods, sets, chemical reaction rules, etc.).
6. Certify the origin for your product. Fill out an FTA-specific Certificate of Origin (COO), or provide required data elements in a free-form format to the requesting party (e.g., the buyer/ importer, broker/freight forwarder, customs). The COO must include information on how the good qualifies for an FTA preference—that is, state the preference criterion or include a statement explaining how the good qualifies. This varies among FTAs. Shipments with a low value do not need a COO. It may state on the commercial invoice that a good qualifies.
  • Note: To obtain a sample COO and information on how to fill out a Certificate of Origin or certification information, visit export.gov/fta and select “FTA country”.
7. Retain information on how the product was qualified in case of a customs audit. Most of the FTA agreements require retention of the documents for up to 5 years. 

U.S. FTA Exports by Country (USD Millions 2012-14)
 
Each FTA has its own ROOs that describe how exported goods may qualify for duty-free or reduced-duty benefits.




Rules of Origin Free Trade Agreements