A Certificate of Origin is a formal document that authenticates the country of origin of merchandise. The Certificate of Origin (CO) is an import document; the import authority of a country establishes the requirements for it. While Certificates of Origin vary across countries, they have a common set of elements. The certificate has a variety of functions that relate directly to the trade agreements between the importing and the exporting nations: Determining whether merchandise has restricted entry, validating compliance to quota arrangements, or establishing the correct duty of inbound merchandise. Trade regions like NAFTA and the EU require Certificates of Origin to determine whether merchandise should receive the preferential treatment accorded member nations. To be valid, an officially sanctioned organization as determined by the importing country must issue the Certificate of Origin.
Certificates of Origin, despite broad variations across countries, have a set of common elements: Buyer and seller information, an indication whether the exporter is the manufacturer of the goods, the actual country of origin of the goods, a description of the goods, and the Harmonized System (HS) code for the goods. The HS code is a universal commodity code like the standard industrial classification codes (SIC). It functions as a standardized classification system for coding transactions across borders in order to track information and simplify compliance with trade agreements, e.g., collecting tariffs. It is important to note that the descriptions and amounts on the CO must match the comparable entries on the invoice. Discrepancies on certificates can delay or deny entry of goods and result in substantial costs to the exporter.
In order to enforce trade agreements, countries need to have an accounting system for trade. The data for this accounting system comes from trade documents like the Certificate of Origin. There are three common uses for Certificates of Origin. First, they can signal to an import authority that an importer is attempting to bring restricted goods into the country. Restricted entry problems can easily occur when there are more than two countries involved in the trade and when the countries have different trade regimes. Canadians, for example, can import Cuban cigars into Canada; U.S. firms may not import Cuban goods. To prevent a company in Canada from importing Cuban cigars and then reexporting them to the United States, the importer requires a Certificate of Origin. Similarly, import authorities use Certificates of Origin to maintain quota systems. A country may require that a prearranged percentage of an assembled auto may come from foreign parts. This requires a complicated accounting system to assure auto assemblers meet this standard.
Most commonly, nations use Certificates of Origin as the basic documentation tool for tariffs. For some trade partners, goods may enter the country duty free (U.S. goods enter Canada without duty). It is important to the importing country that only goods from approved trading partners in pre-approved HS codes enter without paying duties.
Some countries participate in complex multilateral trade agreements like the European Union or the North American Free Trade Agreement (NAFTA). In these agreements, internal member nations receive preferential treatment relative to nonmembers. This preferential treatment usually includes the minimization or elimination of tariffs and quotas. These trade agreements often require a specialized form like the NAFTA Certificate of Origin. The NAFTA CO is an especially complicated trade document. It requires delineation of origination materials (raw materials or assemblies that come from within NAFTA), nonoriginating materials (similar to above but that come from outside NAFTA), and regional value content— in essence, the percentage of a good that comes from origination materials. Companies that purposely provide false information can receive fines from $10,000 to $100,000 in addition to paying the required tariffs.
Each importing country designates an officially sanctioned organization to issue certificates. The official body may be a governmental organization such as a national customs bureau or a nongovernmental organization like a chamber of commerce.
- Anson et al., “Rules of Origin in NorthSouth Preferential Trading Arrangements with an Application to NAFTA,” Review of International Economics (2005);
- Brenton and M. Manchin, “Making EU Trade Agreements that Work: The Role of Rules of Origin,” The World Economy (2003);
- M. Finger, “The Political Economy of Administered Protection,” American Economic Review (1982);
- Foley, The Global Entrepreneur, 2nd ed., (Jamric Press, 2004);
- G. Hinkleman, International Trade Documentation (World Trade Press, 2002).
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