What is a 'rule of origin' and how does it affect tariff preferences?

• A. A rule of origin determines the shipping route chosen for a product.
• B. A rule of origin determines the country where a product is wholly obtained or substantially transformed; it affects eligibility for preferential tariffs under trade agreements.
• C. A rule of origin is a guideline for labeling products with the country of origin for marketing purposes.
• D. A rule of origin sets the maximum tariff rate allowed for a product.

Answer: (A)

A rule of origin identifies the country where a product is wholly obtained or substantially transformed, and it’s used to decide if that product qualifies for tariff preferences under a trade agreement. Only goods that meet the rule can receive reduced or zero duties under the agreement; if they don’t, they pay the standard tariffs. The rule also prevents manipulation—such as routing through other countries or performing minor processing to claim a preferable origin. It’s not about shipping routes, product labeling for marketing, or setting the maximum tariff rate—that’s handled by other aspects of trade agreements and tariff schedules.