How can companies exploit rules of origin to get around hefty Trump tariffs? With US President Donald Trump introducing varying tariff rates on imports from different countries, businesses have been on the lookout for tactics to avoid increased costs and global supply chain disruption stemming from the trade war the US leader launched in the past months. As a result, loopholes in rules of origin have, to some extent, been shown to be a good way to “cheat the system,” Financial Times reports.

SOUND SMART- The rules of origin — put in place by the World Trade Organization — provides simple guidelines to help determine where a product comes from, especially after it crosses borders. The rules are essential to determine tariffs and to decide whether or not an item qualifies for special treatment under trade agreements. The rules are a way to ensure rules of origin are transparent and “don’t obstruct, suppress, or disrupt global trade.”

So, how can they be taken advantage of? Companies can shift their entire supply chains to countries subject to lower Trump tariffs as a way to “exploit the system,” trade policy lead at consultancy firm Flint Global Sam Lowe told the FT. He explained that products must see a substantial transformation in the export country for it to qualify for the lower tariff imposed on the export country. As the FT puts it, raw vegetables won’t qualify for lower tariffs — even if they get chopped up, frozen, or packed in the export country — while butter, flour, and milk would if they are transformed into cakes and cookies in the export country.

What could it all mean for Egypt? Since Egypt was slapped with only the blanket 10% duty — making it one of the least affected countries — it could potentially become a more attractive investment destination for international manufacturers looking to maintain access to US markets without the hefty tariffs. Some industry insiders we previously spoke to appear too optimistic, with one expecting around USD 2 bn in new investments in the ready-made garment industry as a result of the move.

Some don’t think the hassle is worth it: Despite potential savings, many companies may opt to bear the tariffs over exploiting this loophole because being able to prove that a product has been transformed in the export country is uncertain, with the final say lying with the US Customs.

What’s next? With the knowledge of how unpredictable Trump and his administration tend to be, many companies are adopting a wait-and-see approach, founder of Trade and Borders consultancy Anna Jerzewska told the salmon-colored paper.

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