TWN Info Service on WTO and Trade Issues (Sept13/04)
26 September 2013
Third World Network
 
LDCs table proposal on preferential rules of origin
Published in SUNS #7657 dated 19 September 2013 
 
Geneva, 18 Sep (Kanaga Raja) - The Least Developed Country (LDC) Group at the World Trade Organisation (WTO) has tabled an abridged and revised version of a detailed proposal submitted earlier in May on preferential rules of origin.
 
The proposal was submitted by Nepal on behalf of the LDCs as part of the LDC package for the upcoming Bali Ministerial Conference this December, and focuses "on some core elements which the LDCs would like preference granting Members to implement."
 
The LDC proposal of 17 September 2013 recalls the "Decision on Measures in Favour of Least-developed countries" (Annex F of the Hong Kong Ministerial Declaration), which states that: "Developed-country Members shall, and developing-country Members declaring themselves in a position to do so should: ... (b) Ensure that preferential rules of origin applicable to imports from LDCs are transparent and simple, and contribute to facilitating market access."
 
According to the proposal, the availability of duty-free and quota-free market access for LDCs, in order to be meaningful, must be accompanied by simple and transparent rules of origin.
 
"Only a combination of the two, and improvements on both fronts, will deliver effective new market access opportunities for the LDCs, thus helping them integrate into the multilateral trading system," it said.
 
The LDCs said that they recognise that better rules of origin may be achieved in many different ways and that an assessment of the benefits of a particular set of rules would depend on the specificities of each Member and each product.
 
The Members of the WTO would recognise that two issues are of critical importance for LDCs to effectively enjoy the preferential access provided by the WTO member countries.
 
First, the LDCs said, is the criteria for determination of origin of the product, which should match with the level of industrial development of the countries for which preferential treatment is offered, and second is the cost of compliance with the rules of origin associated with documentation requirement and administrative procedures, which should be kept as low as possible so that exporters are encouraged to avail of the opportunity.
 
"The LDCs therefore propose to consider these two key elements for rules of origin to be applied by all preference-granting Members. The LDCs do not propose a single set of rules but seek simplicity, transparency and coherence, not harmonisation," the proposal stressed.
 
In their proposal, the LDCs said that as a general rule, preference-granting Members shall design their preferential rules of origin with a view to providing effective market access for LDCs.
 
They should therefore take into account the productive capacity of LDCs and the LDCs' ability to meet rule-of-origin requirements. This may translate in the following:
 
Rules of origin should be as simple as possible; avoiding wherever possible different product-specific rules.
 
In the case of rules based on the change in tariff classification criterion (CTC) or in specific processes (SP), the rule must require compliance with simple operations.
 
For instance: (a) For agro-processing products, substantial transformation shall be recognised when raw agricultural products are transformed into agro-processed products; (b) For chemical products, substantial transformation shall be recognised when a chemical reaction takes place; (c) For articles of apparel and clothing, substantial transformation shall be recognised when fabrics are assembled into finished garments; and (d) For machines and electrical and electronic goods, substantial transformation shall be recognised when parts are assembled into a finished product.
 
In the case of rules based on local content or value added (VA), the minimum content added in the LDCs must be realistic given the productive capacity available in the LDCs.
 
The proposal therefore said that:
 
(a) LDCs may use foreign inputs up to a maximum of 75% of the ex-work price of their exports eligible for preferences (that is, the value of non-originating materials must not exceed 75% of the ex-work price of a product);
 
(b) The method identified for the calculation of such value must allow for the deduction of the costs related to freight and insurance of foreign inputs;
 
(c) When the rule requires minimum content from LDCs, that requirement must not exceed 15% of the ex-work price of their products (that is, the value of originating materials must be at least 15% of the ex-work price of a product);
 
(d) The method identified for the calculation of such value must allow for the inclusion of national or regional inland transportation costs. Because transportation costs are high in LDCs, particularly for landlocked LDCs, the inclusion of these costs in the calculation of local value content would allow the LDCs to meet more effectively this rule;
 
(e) The methods for the calculation of value must be simple.
 
The proposal further stated that "LDCs shall be able to cumulate with other countries to meet rules of origin requirements. In other words, inputs sourced from certain countries and used to manufacture products in the LDCs should not be deemed as foreign inputs (that is, non-originating materials)."
 
The LDCs should therefore be allowed to cumulate with: (a) Other LDCs; (b) Preference-granting countries; (c) Other Members with whom they form a regional group; and (d) Other Members with whom the preference-granting countries have signed a free trade agreement.
 
The LDC proposal asserted that the documentary requirements regarding compliance with the rules of origin must be simple and transparent.
 
"In particular, there shall be no requirement to provide a proof of non-manipulation or any other form of certification for products shipped from LDCs across other countries. Whenever possible, certificates of origin signed by LDC exporters shall be recognised (self-certification). Mutual customs co-operation could complement compliance and risk-management measures."
 
It stated that preference-granting Members shall notify their preferential rules of origin to the Committee on Trade and Development and a factual presentation of such rules shall be made in that Committee.
 
"This would promote an exchange of experiences, make the rules better understood and more transparent as well as favour the mainstreaming of best practices," it explained.
 
"The Committee [on] Trade and Development shall annually review the progress made in the implementation of these measures and report to the General Council," stated the proposal.