Value added criterion
Origin rule based on the percentage of locally created value, requiring a minimum share of the product's value to be generated in the manufacturing country.
Definition and principle
The value added criterion (or ad valorem criterion) is an origin rule that determines the originating status of a product based on the share of value created in the manufacturing country. It can be expressed either as a minimum percentage of local value added (e.g., 40% minimum of the ex-works price) or as a maximum percentage of non-originating materials (e.g., 60% maximum of the ex-works price).
Legal framework
The value added criterion is widely used in EU free trade agreements, often as an alternative or complement to the tariff classification change criterion. The origin rule lists annexed to the origin protocols of each agreement specify the applicable thresholds product by product. The reference price is generally the ex-works price, defined in the origin protocols.
Practical calculation
- Build-up method: add the value of originating materials + manufacturing value added, and verify the total reaches the required threshold
- Build-down method: subtract the value of non-originating materials from the ex-works price, and verify the result reaches the threshold
- The ex-works price includes all manufacturing costs and the manufacturer's profit, but excludes transport costs after leaving the factory
- Exchange rate fluctuations can affect the result — use rates at the time of manufacture
Advantages and limitations
- Advantage: reflects the economic reality of transformation better than classification change alone
- Limitation: sensitive to raw material price variations and exchange rates, which can flip a product's originating status from one period to another
- Requires precise cost accounting to justify the declared values