Several modern Free Trade Agreements (FTAs) contain a so-called ‘outward processing’ exception to their rules of origin (ROO). FTAs require that for a good from a Party to enjoy preferential treatment in another Party the good must be made without interruption in the FTA territory. An exception to this territoriality principle is the outward processing scheme. Under this exception, a producer in a Party may send materials to a non-Party for outward processing and re-import the processed goods for finishing. Final products can then enjoy the FTA preference in the importing Party provided that relevant conditions are met.
This article examines various outward processing schemes under current FTAs concluded by, inter alia, Israel, the EU, European Free Trade Association (EFTA), Singapore and South Korea, and compares them with neighbouring regimes (i.e., third-country content and third-country materials rules). This article also assesses the scheme from economic-political and legal viewpoints. Finally, this article suggests some solutions for overcoming problems with the scheme.Journal of World Trade