Revisiting the Principle of Territoriality in Preferential Rules of Origin: Are Territoriality Requirements Obsolete?

Abstract

The article revisits a cornerstone in preferential rules of origin (ROO) – the principle of territoriality. In essence, the principle requires manufacturing processes for the purpose of acquiring originating status to be carried out without interruption in the territory of one or several contracting parties to a preferential trade agreement (PTA). Territoriality requirements are found to be at odds with recent developments in global trade and production practice, particularly the emergence of global value chains (GVCs) since they hinder the fragmentation of production. Moreover, the requirement of uninterrupted production in one single country also contravenes the objective of liberalizing preferential ROO through the introduction of full cumulation because the notion of counting all working and processing carried out in various eligible countries would prove impossible. In addition, the principle of territoriality may affect the precise determination of origin because it fails to accord equal treatment to conventional and unconventional inputs for production. For trade-facilitating origin regimes to be effective, territoriality requirements need to be revisited and relaxed. rules of origin, territoriality, global value chains, cumulation, PTA, servicization