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“Made in” labels do more than identify where a product comes from. In trade, the Country of Origin (COO) is the critical pivot that determines which national laws apply to a product, what tariff rate it faces, and if it qualifies for preferential trade agreements. In an environment where global supply chains are being restructured for resilience and diversification, understanding and substantiating COO is the key to navigating trade wars, unlocking cost savings, and protecting your margins.
What is Country of Origin?
COO identifies a product's legal nationality—the country where it is officially deemed to have been produced, grown, or manufactured. Because this determination is the foundation for applying tariffs and trade policies, it relies on stringent Rules of Origin (ROO) that vary significantly across international agreements. COO is defined by two primary scenarios:
- Wholly Obtained (WO) Goods: Products that are entirely sourced and produced in a single country (e.g., extracted minerals, harvested crops, livestock).
- Goods Produced in More Than One Country: For goods incorporating materials from multiple countries, the origin is conferred by the country where the product underwent the last “substantial transformation."
The precise criteria for proving "substantial transformation" are typically based on one of the following technical methods:
- Change in Tariff Classification (CTC): The manufacturing process must result in a fundamental shift in the product’s HS Code at a specified level (e.g., 4-digit heading), proving that significant work has taken place.
- Regional Value Content (RVC): A minimum percentage of the product’s final cost (including labour, materials, and overhead) must be added or incurred within the originating country.
- Specific Processing Rule: The ROO mandate that a specific, non-reversible manufacturing operation (such as a chemical reaction, weaving, or printing/dyeing of fabric) must occur in the country for origin to be conferred, as this process is deemed to fundamentally change the product’s character.
Why COO is the Strategic Trade Pivot Today
COO determination is now directly linked to core business strategy, especially given the recent trade policy climate:
- Mitigating Geopolitical Tariff Impacts: COO is the sole determinant of exposure to supplemental tariffs (e.g., US-China duties). Businesses must strategically map and restructure their supply chains to ensure final origin confers the most favourable tariff treatment—a core aspect of supply chain restructuring and diversification advisory.
- Maximising FTA Benefits: Accessing the preferential tariffs offered by agreements like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) or the Regional Comprehensive Economic Partnership (RCEP) hinges entirely on the product meeting the FTA’s specific, stringent ROO. Without correct COO verification, potential duty savings can be lost.
- Compliance and Risk Management: Correctly documenting and substantiating COO is fundamental to customs compliance, allowing businesses to move forward with trusted execution across borders.
Common Pitfalls
The complexity of tracing inputs across jurisdictions makes COO determination one of the most common areas of non-compliance, leading to severe penalties and retrospective costs.
- Misinterpreting Rules of Origin: A frequent mistake is assuming that basic processing, simple assembly, or final packaging is sufficient to change the product's origin without meeting the specific CTC or RVC thresholds. This often leads to the denial of preferential tariffs, forcing the importer to pay the full Most Favoured Nation (MFN) duty rate.
- Insufficient Traceability: Companies often have limited visibility across their global supplier networks, making it impossible to validate the origin of critical inputs and components. This failure to retain comprehensive documentation (such as Bills of Material or process flows) results in audit failure and severe penalties during a COO verification process.
- Lack of Documentation: Even if companies have a good understanding of their supply chain, they fail to obtain documentation from suppliers to substantiate origin. This may result in non-compliance with country-of-origin regulations leading to customs delays, penalties, loss of preferential tariff treatment, or supply chain disruptions.
- Assuming COO is Static: Companies do not periodically review their COO qualifications to determine if there have been supplier or formula changes or new production steps. This negligence can result in unknown changes to COO that could potentially disqualify products from FTA benefits and lead to retrospective duty assessments, incorrect VAT treatment or loss of origin-based tax incentives.
Trade compliance today is no longer just about avoiding penalties. It’s about building supply chains that are compliant, agile, and strategically aligned. Accurate COO determination is the critical final step in building a resilient supply chain.
At RSM Singapore, we provide advisory solutions that help businesses navigate the evolving trade landscape, optimise trade strategies, and stay competitive in a rapidly evolving global environment.
