Keeping rules of origin aligned with changing tariff codes

Outdated tariff codes can make it harder for businesses to benefit from free trade agreements. This ICC policy paper sets out practical recommendations to keep rules of origin – the criteria used to determine where a product is made and whether it qualifies for trade preferences – aligned with updates to the global system used to classify traded goods, known as the Harmonized System. Doing so helps preserve negotiated trade commitments and reduce compliance costs for businesses.

Updating HS references, a process known as technical rectification, should preserve the agreed origin requirements without changing the substance of negotiated commitments.

With HS 2028 set to enter into force on 1 January 2028, this ICC policy paper sets out four practical principles to help customs administrations keep rules up to date, preserve the benefits of free trade agreements and reduce burdens on businesses.

The economic cost of misalignment is significant.

Across all the world’s free trade agreements, more than 50,000 product-specific rules of origin (PSRs) may need to be aligned when the HS is revised.

In 2022, around US$1 trillion of trade eligible for preferential treatment did not benefit from it. Outdated HS references in free trade agreements is a key contributing factor to them being underutilised – a burden which falls particularly heavily on micro-, small- and medium-sized enterprises (MSMEs) and businesses operating across multiple FTAs.

When customs declarations and rules of origin use different HS editions, businesses must reconcile the two to determine whether their goods qualify for preferential treatment. This adds complexity, cost and uncertainty.

HS 2028 presents a timely opportunity to act

HS 2028 presents an opportunity to close the gaps and put in place a more systematic approach to future revisions. The new nomenclature will enter into force on 1 January 2028, offering customs administrations a clear window until the end of 2027 to align the rules of origins of FTAs with the revised HS classification.

Acting now will ensure free trade agreements continue to work as intended, enabling businesses to benefit from tariff preferences as classifications change.

Four priorities for keeping FTAs fit for purpose

ICC calls on customs administrations to:

• keep technical rectification neutral, updating HS references without changing the substance of negotiated origin requirements;
• build dedicated capacity, working with the private sector;.
• make full use of existing tools, transparency and technology;.
• integrate technical rectification mechanisms into the design of future FTAs.