Why Rules of Origin Are the Hidden Risk in Trade Agreements

By Catherine Truel

When organisations think about customs compliance, they often focus on tariffs, duties, and documentation. Yet one of the most decisive, and frequently underestimated, elements of global trade is the rules of origin.

These determine where a product is “from” in a legal and trade sense. In today’s world of globalised supply chains, that question is rarely straightforward.

The Complexity Behind a Simple Question

At first glance, rules of origin appear to be a technical detail. In practice, they decide:

• Whether your product qualifies for reduced tariffs under a free trade agreement.
• If your supply chain is aligned with trade regulations, or exposed to costly disruption.
• How regulators interpret your compliance posture during audits or disputes.

The complexity arises because global supply chains mean that a product may be designed in one country, assembled in another, and incorporate components from many more.

Why This Matters to Business Leaders

For CFOs, tax directors, and operations managers, the impact is direct:

• Financial risk: Misapplication of rules of origin can lead to penalties, back duties, and loss of preferential treatment.
• Operational risk: A single error in origin classification can delay shipments, disrupt customer commitments, or block market access.
• Strategic risk: Trade agreements are negotiated at the highest levels, but their business value often rests on correct application of these rules.

The Current Gap

Despite their importance, rules of origin are often treated as a compliance afterthought. Many companies delegate responsibility to customs brokers or rely on incomplete guidance. This creates gaps between legal requirements and business practices, leaving organisations exposed.

Towards Better Practice

What is needed is a shift in how businesses approach rules of origin:

• Integration into strategy: Treated not as paperwork but as a factor in sourcing, pricing, and trade negotiations.
• Cross-functional knowledge: Finance, operations, and supply chain leaders should all understand the implications.
• Independent expertise: In complex cases, external analysis ensures both regulatory soundness and practical feasibility.

Conclusion

Rules of origin are often invisible until something goes wrong. Yet for organisations that engage with them proactively, they can also be a source of competitive advantage enabling access to preferential trade routes, reducing costs, and building resilience.

As global trade agreements continue to evolve, the ability to navigate rules of origin effectively is becoming not just a compliance issue, but a strategic necessity.

About the Author
Catherine Truel is the author of A Short Guide to Customs Risk and an independent expert on customs compliance. Her current work focuses on rules of origin and their impact on business strategy.