Determining the correct rules of origin for goods shipments is one of the most important, yet most challenging, aspects of customs classification.
This matters because many goods are only eligible for a range of preferential tariff benefits if they meet certain requirements. These can be tricky to calculate, especially for manufactured items with components sourced from around the world.
What's more, in 2025, firms are facing a range of new challenges, including regulatory changes, stricter enforcement by customs authorities and digital compliance requirements. With established trading relations also set for upheaval, affecting preferential rates for many key products, understanding the different origin criteria, proper documentation, and best practices is essential to avoid penalties and disruptions.
The complex criteria for determining rules of origin
The first step will be identifying the correct country of origin for a product. This is not as simple as it may seem, as there are various criteria that are used around the world when assessing where an item is considered to have originated.
While the specifics vary by jurisdiction and trade agreement, in general, there are three main categories goods may fall into for rules of origin purposes. These are:
Wholly obtained or produced: This applies to goods that are entirely sourced or produced within a single country, with no foreign materials used. Common examples include agricultural and mining products farmed or extracted completely within a country's territory.
Substantial transformation: This refers to items that have been significantly altered through activities such as manufacturing. While they may contain materials from multiple countries, the territory where final processing takes place is often considered the country of origin. For example, a box of cookies may contain ingredients from multiple countries, but the final packaged product is considered a 'new' item when it is made.
However, within this, there are a variety of rules that must be adhered to. For instance, in some cases, a final product will need a new HS classification code, or require a minimum percentage of its value to be locally sourced in order to qualify for preferential treatment, known as regional value content (RVC).
Cumulation rules: This is particularly relevant for parties to a free trade agreement (FTA) or those trading with such areas. It means that materials originating from another participating country are regarded as if they were originating from another member's territory when determining the origin of a product for further export. This can apply to both bilateral trade deals and multilateral agreements. In many cases, goods are required to undergo a substantial transformation to be eligible for cumulation rules.
Meeting documentation requirements
Managing these criteria can be tricky. Firms need to understand exactly which rules will apply to their goods if they are to remain in compliance with RVC or processing rules. Essential documents firms must collect as part of this include certificates of origin and supplier declarations. If importers are audited, they will need to present this to demonstrate they are assigning the correct classifications.
Gathering this information can be a complicated and time-consuming process. However, firms can take advantage of comprehensive customs management software that can automate many of these activities, such as automatically requesting the necessary documentation from suppliers.
Emerging challenges in 2025
The high level of uncertainty in world trade in 2025 makes it more important than ever to have the most accurate, up-to-date information to hand when determining rules of origin requirements. For example, the prospect of new tariffs and changes to agreed FTAs such as the US-Mexico-Canada agreement could mean significant changes in the rules businesses are expected to follow.
Any business seeking to diversify its operations in order to avoid disruption - whether from tariffs, supply chain disruptions or geopolitical tensions - is likely to have extra requirements to learn and new processes to follow. Keeping pace with new regulations - such as the EU-UK trade agreement increasing its RVC requirements for electric vehicles, for example - will also require firms to pay close attention to their processes and documentation.
Having the right software tools will therefore play a key role in maintaining compliance with increasingly complex rules of origin demands. At the same time, this can help free up employees' time by automating key processes and reduce the risk of errors such as misclassifications.