Rules of Origin

Rules of Origin (ROO) serve as the legal framework to identify the "economic nationality" of a product. These rules prove that a good actually belongs to a specific country. This identification matters because it determines if you pay the standard tax rate or a discounted rate under a trade deal. Governments also use these rules to enforce trade quotas, collect statistics, and manage anti-dumping duties. Understanding ROO is essential for importers looking to take advantage of the Philippines' Free Trade Agreements.

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Two Categories of ROO

• Non-preferential ROO - These apply to general trade actions like "Made in" labeling, trade statistics, and government buying.
• Preferential ROO - These allow a product to qualify for lower or zero taxes under specific trade agreements between countries, such as ACFTA, AKFTA, AIFTA, and others.

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Two Ways to Prove Origin

Identifying the Country of Origin becomes complex when global supply chains move parts across many borders. Laws fix this with two main tests:

A. Wholly Obtained

This applies to products that occur naturally or are made entirely within one country. Under the ASEAN Trade in Goods Agreement (ATIGA), this includes agricultural crops harvested within the country, animals born and raised there, minerals extracted from the local soil, scrap or waste from local manufacturing, and products taken from the sea by domestic vessels.

B. Substantial Transformation

If your product uses foreign materials, it must undergo a major change in your country to claim origin. It must become a new item with a different name, character, or use.

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Methodology of Transformation

Regional Value Content (RVC)

You calculate the local value added to the product as a percentage of its total cost.

• Indirect/Build-Down Formula (Focus on Non-Originating Materials): RVC = (FOB - VNM) / FOB x 100%
• Direct/Build-Up Formula (Focus on Originating Materials): RVC = (VOM + Direct Labour + Direct Overhead + Profit + Other Cost) / FOB x 100%

Change in Tariff Classification

This means the final product falls under a different tax category code than the foreign parts used to make it. Correct HS Code classification is essential for this test.

Specific Process Rule

You must perform a specific manufacturing step defined by the trade agreement.

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Special Trading Rules

• The Accumulation Rule - In ASEAN trade deals, you can count parts made in one member country as "local" when you use them to make a finished good in another member country. This helps you meet the RVC requirements.
• De Minimis - Even if a small amount of your foreign materials (usually 7% to 15%) fails the classification test, your product might still qualify as local.
• Indirect Materials - Items like fuel, tools, and safety gloves used during production are always treated as local, even if they were bought from abroad.
• Insufficient Working - Simple acts like painting, sorting, slicing, or just putting a label on a box do not count as "manufacturing" and will not change a product's origin.

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Certificate of Origin (CO)

The Certificate of Origin acts like a passport for the product. The exporter fills it out, and an authority like the Bureau of Customs (BOC) certifies it. Importers must present this document to customs to get tax discounts. The correct form depends on which trade agreement you are using:

• AANZFTA - Form AANZ
• ACFTA - Form E
• AHKFTA - Form AHK
• AIFTA - Form AI
• AJCEPA - Form AJ
• AKFTA - Form AK
• ATIGA - Form D
• GSP - Form A
• PJEPA - Form JP

For a complete list of documents required during importation, including the Certificate of Origin, see our Import Documentation Checklist.

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Why ROO Matters to Business

Correctly identifying the origin of goods provides three major advantages:

• Lower Costs - Pay less for imported materials. Understanding ROO helps you maximize savings on import duties and taxes.
• Competitive Pricing - Exports become cheaper for foreign buyers.
• Market Access - Sell products in more countries under better terms.