Question

3. What is a rule of origin? Why is it important to the operation of a free trade area?

Answer 1

Rule of origin represents the origin of a product for the purpose of international trade. The rule of origin informs about which country or state the product belongs to. There is no internationally agreed rule of origin and every geographic region used its own rule of origin.

The operation of a free trade depends on the generosity of the rule of origin. If the rule of origin in generous then it will encourage trade and promote economic development. The rule of origin can be a barrier to the free trade because it can have negative impacts on both utilization of preferences and trade flows. The product of specialized products has led to the increase in the international trade and the countries have developed the rule of origin in order to control the trade. They have developed a preferential trade agreement that tells about how much local processing that is required in order to develop that product fully and make it available to the exporting country. So it basically acts the regulatory factor that controls how the free trade is done.