LDCs encourage WTO members to design more effective preferential Rules of Origin

1 December 2014

The Least Developed Countries Group at the WTO (LDCs Group) presented a report to the multilateral organization’s Committee on Rules of Origin on 30 October, calling for a more effective design of preferential rules of origin.

In the report, the LDCs Group encourages WTO members to allow for changes in their  Rules of Origin (RoO) by taking into account the needs of low-income countries to source foreign inputs in today’s global value chains and the trade challenges faced by landlocked and island developing countries.

RoO confer an economic nationality on products traded across borders, defining how much processing must take place locally before goods are considered to be the product of the exporting country and benefit from preferential treatment.

LDCs have repeatedly voiced concerns that these preferential RoO are often too restrictive and impose onerous compliance burdens, making it difficult for LDCs to take full advantage of existing preferential margins. Furthermore, they say, such rules are currently designed on a unilateral basis, without any harmonised standard.  

In the report, the LDCs Group underscores that existing preferential RoO are old and have not followed evolutions in world trade.

“The present rules were initially drawn up in the 1970s and they have not materially changed much since, whereas the commercial world has,” the paper says, while referring to the emergence of global value chains.

The report also explains that preferential margins have been eroded as a result of the proliferation of trade agreements, whereas the costs of compliance with RoO have increased significantly. These two factors combined render “preferences unattractive.”

In their paper, the LDCs use the examples of RoO reforms in Canada and the EU to illustrate how a shift towards more lenient and flexible RoO is conducive to development in preference-receiving countries.

Consequentially, the paper calls upon WTO members, particularly the United States and Japan as major LDC trading partners, to review the substance and form of their RoO systems which “have not materially changed” since the 1970s.  

In this context, the document states that “simple and transparent rules of origin for LDCs are those rules of origin permitting a full utilisation of trade preferences.” In subsequent paragraphs, the report discusses how the EU and Canadian RoO reform efforts impacted trade with LDCs.

Concerning US preferential RoO, the report highlights that “the US rules of origin seem to have been so far unable to trigger a diversification of exports and the value of trade covered by the US GSP is abysmally low.”

Among other proposals, and in light of the increasing global fragmentation of value chains, the report argues for greater flexibility for LDCs to source inputs from abroad.  

Specifically, the group said that LDC exports should be conferred domestic origin by preference givers even when these exports feature a share of non-originating materials as high as 85 percent.  

Sources familiar with the CRO meeting indicate that when presented with the report and the above-mentioned reform proposals, Brazil, India, Switzerland, Canada, and the EU were among those who welcomed the effort but asked for additional time to study the document in detail.

ICTSD reporting.

 

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