Rules of Origin – a Comparative Analysis – (September 2014_Issue 1)

September 8, 2014, by Junayed Chowdhury

In an ever developing globalization, determining the country of origin of goods is of utmost importance with regard to international trade. This is because the origin of the product has a direct bearing on tariff concession i.e. reduced rate of customs duty. In Bangladesh, the Standard Rules of Origin, 1977 (“the 1977 Rules”) governs the provisions relating to tariff preferences granted by our country to products produced or manufactured abroad.


However, despite the fact that export and import oriented sectors of Bangladesh contributed to 54% of the country’s national income in the year 2011, the law relating to a major branch of this area is yet to be updated.


The 1977 Rules needs immediate revision. This is evident from the fact that there are serious gaps between the structure and wording of the 1977 Rules and the World Trade Organization (WTO) Rules of Origin (“WTO Rules”). The WTO in its pursuit of regulating trade between participating countries formed the Agreement on Rules of Origin (“the Agreement”) with an objective to ensure that whatever system member countries adopt is transparent and impartial.


Under Article 3(b) of the Agreement, the country to be determined as the origin of a particular good is either the country where the good has been wholly obtained or, where more than one country is concerned in the production of the good, the country where the last substantial transformation has been carried out. The difference between the 1977 Rules and the WTO Rules lies in the absence of any form of acknowledgement in the 1977 Rules of a manufacturing process that occurs in a number of countries. Although the 1977 Rules apply to both bilateral and multilateral agreement with beneficiary countries, it takes no consideration of the modern methods of production of goods where different locations in multiple countries may be involved in the production process.


Rule 2 of the 1977 Rules provides that if the cost of international products used by the beneficiary country does not exceed 50% of the FOB value, then the country may retain its identity as the country of origin. This provision has most certainly outlived its purpose as this can be illustrated by an example. The multinational corporation Apple manufactures the iPhone and although designed by Apple in California, the components required to manufacture the iPhone come from all over the world including Mongolia, Korea, China and Taiwan. Moreover, it is widely known that Apple relies on manufacturers in China to assemble its iPhones. Thus, if one is to ascertain the country of origin of an iPhone under our domestic law, the outcome would be a dire failure since the law does not cater to such situations at all. In a world where multi-billion dollar contracts rest on the very existence of outsourcing hundreds of thousands of manufacturing jobs, Bangladesh is yet to fully recognize it in the law governing its international trade.


The second aspect of this unfortunate reality is that the Customs wing will be inept in ascertaining the origin of the goods that can lead to a catastrophe in relation to the duties or tariffs and taxes. The extent of customs duty on goods originating from Belgium, for instance, will vary from that originating from China.


Hence, Bangladesh government must revise and amend the Standard Rules of Origin, 1977 that will keep us at par with the modern methods of trade.


Written by Junayed Chowdhury, Managing Partner  


† Disclaimer: The opinions and comments expressed in this Blawg are not to be regarded or construed as legal advice by and from Vertex Chambers or any of its members. It is highly advisable that any person should seek independent legal advice before relying on any of the contents of this Blawg.