Several modern free trade agreements (FTAs) contain a so-called 'outward processing' exception to their rules of origin. FTAs require that for goods from a Party to enjoy preferential treatment in another Party, the goods should 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 from the importing Party provided that relevant conditions are met.
This paper examines various outward processing schemes under current FTAs concluded by, inter alia, Israel, the EU, EFTA, Singapore and South Korea, and compares them with neighbouring regimes (i.e.,
third-country content and third-country materials rules). This paper also assesses the scheme from economic-political and legal viewpoints. Finally, this paper suggests some solutions for overcoming problems with the scheme.