As simple a question as “Which countries need a certificate of origin?” is, the answer seems deeply embedded in the reason why a certificate of origin is even required. Once you understand the concept of why a certificate of origin is required, we began to ask ourselves how do some countries require a certificate of origin while others do not. Finally, we realize that the answer to which countries need a certificate of origin becomes crystal clear.
This is exactly how we intend to approach this question.
A country requiring a certificate of origin is actually not to add to the burden of the international traders but to facilitate global trade and spur economic growth. The way a CO facilitates trade is by reducing the cost of importing goods.
Table of Contents
What is a Certificate of Origin?
Simply Put: –
A certificate of origin is a document for the customs officer can ascertain that the products you import are produced by the exporting country.
Free Trade Agreement and Certificate of Origin
Free trade agreements are the cornerstone of international trade. A standing free trade agreement between the two countries will allow a lower tariff rate for the cargos imported and exported between them.
Additional Reading: What is a Tariff Code?
Duty tariffs are charged as a percentage of the cargo invoice value, which contributes to the country’s income. Each country will have a different average tariff rate, depending on the country’s trade policies.
|Average Tariff Rate
A lower tariff rate between participating countries in a free trade agreement will have a desired effect of: –
- Promote international trade between participating countries
- Enhance the country’s price competitiveness as compared to other non-participating countries
- Create new employment opportunities
- Capitalize on developing the country’s lower cost of production
The net effect desired, of course, is an increase in productivity and wealth for the participating nations.
So Why Do We Need a Certificate of Origin?
As we mentioned, a certificate of origin is a document that steps in to prove to customs officers, the country’s gatekeeper.
What the customs officers do not what is for an imported cargo that originates from a country without any existing free trade agreement, but arrived from a port of lading that has a free trade agreement with them.
As an example, the USA’s NAFTA (North America Free Trade Agreement) has 3 participating countries: –
- The USA
If a cargo originated from Shanghai, China was subsequently exported to Ottawa, Canada, and then finally discharged in Port of Los Angeles, USA under the guise that the country of origin is Canada, the cargo does not qualify to acquire a certificate of origin.
It is however not entirely feasible that to qualify for a certificate of origin, your product needs to be made 100% in-house, the Rule of Origin sets certain guidelines to ascertain whether your product is actually produced locally.
To qualify by the rule of origin’s standard, you need to have a certain percentage of the cargo made by the exporting country. Or, your imported cargo needs to have a certain percentage of production made by the exporting country. We won’t dwell deep into all the rules of origin, this would require an entire blog post to explain.
Which Countries Need a Certificate of Origin
There are 195 known countries in the world, this will give us a combination of 18,915 different pairs of countries. It also means that potentially speaking, 18,915 pairs of countries can enter into a bilateral trade agreement to reduce import tariffs. That’s an insane number of combinations!
This is why instead of looking into all of the 195 countries and the countries they have free trade agreements with, we can focus on the top 10 countries by trade value. Those countries are: –
|Percentage Trade Value (2017)
52% of the total trade value in 2017 is from these to 10 countries. In other words, almost half of the global economy relies on the economic activities of these 10 countries. These are the economic superpowers of modern times.
With that said, we also can surmise that almost half of the world’s imports or exports will be either from those 10 countries or to those 10 countries.
We have tabled down the countries where these top 10s have an active free trade agreement with, here is the table: –
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From the top 10 countries, we collected a list of 234 total bilateral and multilateral trade agreements, to answer the question of “which countries need a certificate of origin”, we will treat a multilateral trade agreement as one specific agreement between the country pair.
United States of America
The United States of America contributes 7.7% to the global trade value.
Although we are not economists, there is a strong argument that the introduction of free trade agreements has contributed to the dwindling trade dominance in the USA.
This has spurred the USA private sectors to capture the benefits of the free trade agreement by erecting their manufacturing businesses in countries with preferential trade agreements with the USA. The reduction of labor costs far outweighs the additional transportation cost of goods.
Hence, the USA’s global position in international trade value is by no means an indication of the USA’s economic strength.
As we listed in the table above, there are currently 20 countries that have one or more free trade agreements with the USA, which extends to the fact that a certificate of origin is required to benefit from the preferential duty rates.
If we look into the top 10 countries the USA imports from, it is quite similar to the top 10 exporting countries of the world, which validates our choice of only looking at 10 top exporting countries.
|Percentage of Total Imported Value (2017)
From our data collection, one gaping fact surfaced is that of the countries that have the highest trade flows with the USA, the European Union and China both do not have a standing free trade agreement with the USA. So, a trade involving the USA and the 20 countries listed above would require a certificate of origin.
However, if you are importing/exporting from/to the EU or China, you won’t be needing a certificate of origin.
Interestingly, despite China and the USA’s dominance in international trades, they have a relatively smaller number of free trade agreements when compared to the European Union.
This is a signal of the EU’s foreign policy strength. With 143 active free trade agreements, which is a whopping 73.3% of the world, from Albania to Zambia, that has one or more free trade agreements with the EU nation.
Whether you are exporting or importing to/from the EU nations, you can benefit from preferential tariffs with a certificate of origin.
Side note: It is remarkable to think that the United Kingdom collectively decided to leave the EU. The negative impact on the productivity of the United Kingdom can be catastrophic.
China needs no introduction of its significance as an economic powerhouse, as it contributes 15% to total trade value.
Extrapolating from the information we have collected; 20 countries enjoy a preferential tariff rate when exporting to or importing from China.
China’s foreign policy also paints a picture of its relationship with the other two economic powerhouses, the USA and the European Union. We noticed that there is no standing free trade agreement between all three entities.
In our opinion, this suggests that there is a visible struggle for economic dominance between the USA, China, and the European Union.
We like to point out another misnomer from our findings.
Only South Korea has active trade agreements with the three powerhouses (the USA, EU, and China). It seems like South Korea is the popular kid in kindergarten where all the other popular kids want to play with.
At this point, you already know now that if an international import/export occurs between: –
- South Korea – The USA (US-Korea Free Trade Agreement)
- South Korea – China (Asia Pacific Trade Agreement)
- South Korea – European Union (EU-Korea Free Trade Agreement)
A certificate of origin is required in order to get a preferential tariff rate on the cargo.
At the start, we intend to just list down the active free trade agreements between the top 10 countries in trade value. But by peering into the information we gathered, we gain more insight and understanding on the landscape of free trade agreement is, and ultimately, we are shown a rough guide on which countries need a certificate of origin.
It is our hope that you have enjoyed our findings as much as we did in researching the information.