Congress May Want to Examine Consequences of Rules of Origin in FTAs, CRS Says
An update to the Congressional Research Service's report on rules of origin notes that some in the trade community believe that more restrictive rules of origin, such as those that will be part of the NAFTA rewrite for autos, raise compliance costs for traders and may lead companies to avoid using the free trade agreement because the rules are so onerous. Because of those critiques, Congress may want to consider that in future FTAs, the report said.
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But the report, updated March 3, looks at rules of origin more broadly, such as the lack of predictability on what substantial transformation entails. The report's authors noted that in an effort to standardize rules of origin enforcement outside of NAFTA or other FTAs, CBP suggested back in 2008 that it could use NAFTA marking rules for all products imported outside trade agreements.
“In a 2018 survey by consulting firm Ernst & Young, a majority of trade professionals indicated origin rulings are inconsistent across customs authorities and cited a need for ROO harmonization,” the report said, but international negotiations on harmonization stalled years ago. The report asks if the U.S. should take a leading role to push for the completion of the Harmonization Work Programme at the World Trade Organization. And they asked if the process of determining country of origin for imports outside FTAs could be standardized.
It's not clear whether future free trade negotiations will be influenced by the way USMCA treated rules of origin in autos. But the report noted that when stakeholders submitted comments about the U.S.-Japan free trade deal, the steel manufacturers association called for higher regional value content and steel and aluminum requirements in motor vehicles than is in USMCA. The American Apparel and Footwear Association asked for cumulation provisions -- for instance, if clothing made in Mexico from American materials was exported to Japan, it should benefit, since Japan and Mexico are trading partners.