TWN Info Service on WTO and Trade Issues (Oct16/05)
6 October 2016
Third World Network

LDCs, other DCs voice concerns on core Rules of Origin issues
Published in SUNS #8320 dated 27 September 2016

Geneva, 26 Sep (D. Ravi Kanth) -- Several least-developed countries - Benin, Tanzania, and Cambodia among others - voiced their concern at the World Trade Organization on 22 September over the lack of progress in addressing their core issues such as the simplification of preferential rules of origin as promised in the Nairobi ministerial declaration (NMD), several participants told the SUNS.

During a meeting of the WTO’s Committee on Rules of Origin (CRO), the LDCs reminded the preference- granting developed countries as well as the developing countries declaring themselves in a position to do so to notify the measures they are required to undertake for simplifying the preferential rules of origin under the Nairobi ministerial declaration of December 2015.

Concerns were also voiced at the meeting by other developing countries over lack of progress on long overdue harmonization of non-preferential Rules of Origin, mandated by the WTO agreement at Marrakech to be completed by 1998, a failure that would make a mockery of claims of the Trade Facilitation Agreement (TFA).

Expressing sharp concern, the LDCs said the preference-granting developed and some developing countries have not submitted any notification as to what they intend to undertake as per the paragraph 4.2 of the Nairobi ministerial declaration.

That paragraph calls on the major preference-granting developed countries along with those developing countries to “inform the Committee on Rules of Origin (CRO) of measures being taken to implement” the simplification of preferential rules of origin.

The Nairobi ministerial declaration provided non-binding and incremental changes for addressing the preferential rules of origin, which is a major non-tariff barrier that the poorest countries encounter when they export their goods, particularly leather and textile products, to major industrialized countries, especially the United States.

It called for ensuring “that preferential rules of origin applicable to imports from LDCs are transparent and simple, and contribute to facilitating market access.”

The paragraph 4.2 of the Nairobi ministerial declaration states: “No later than 31 December 2016 each developed Preference-granting Member, and each developing Preference-granting Member undertaking the commitments in accordance with paragraph 4.1 up to that date or thereafter, shall inform the Committee on Rules of Origin (CRO) of the measures being taken to implement the above provisions.”

Until now, none of the developed or developing countries in a position to do so have notified about the proposed measures they are willing to adopt for simplification of preferential rules of origin.

In a report on preferential rules of origin which will be submitted to the General Council on 3 October, the CRO acknowledged that “no preference-granting member had yet notified the Committee about the measures being made to implement the provisions of the 2015 (Nairobi) Decision. Developed countries must submit such notification by 31 December 2016.”

Both developed and developing countries in a position to undertake commitments are required to notify measures for the assessment of sufficient or substantial transformation for preferential rules of origin.

The Nairobi ministerial declaration had proposed the following criteria to determine substantial transformation:

When applying an ad valorem percentage criterion to determine substantial transformation:

(i) Preference-granting Members shall:

(a) Adopt a method of calculation based on the value of non-originating materials. However, Preference-granting Members applying another method may continue to use it. It is recognized that the LDCs seek consideration of use of value of non-originating materials by such Preference-granting Members when reviewing their preference programmes;

(b) Consider, as the Preference-granting Members develop or build on their individual rules of origin arrangements applicable to imports from LDCs, allowing the use of non-originating materials up to 75% of the final value of the product, or an equivalent threshold in case another calculation method is used, to the extent it is appropriate and the benefits of preferential treatment are limited to LDCs;

(c) Consider the deduction of any costs associated with the transportation and insurance of inputs from other countries to LDCs.

According to the Nairobi ministerial declaration, for applying a change of tariff classification criterion to determine substantial transformation, Preference-granting Members shall:

(a) As a general principle, allow for a simple change of tariff heading or change of tariff sub-heading;

(b) Eliminate all exclusions or restrictions to change of tariff classification rules, except where the Preference- granting Member deems that such exclusions or restrictions are needed, including to ensure that a substantial transformation occurs;

(c) Introduce, where appropriate, a tolerance allowance so that inputs from the same heading or sub-heading may be used.

Further, for applying a manufacturing or processing operation criterion to determine substantial transformation, Preference-granting Members shall, to the extent provided for in their respective non-reciprocal preferential trade arrangements, allow as follows:

(a) if applied to clothing of chapters 61 and 62 of the Harmonised System nomenclature, the rule shall allow assembling of fabrics into finished products;

(b) if applied to chemical products, the rule shall allow chemical reactions that form a new chemical identity;

(c) if applied to processed agricultural products, the rule shall allow transforming of raw agricultural products into processed agricultural products;

(d) if applied to machinery and electronics, the rule shall allow assembling of parts into finished products, provided the assembly of parts goes beyond simple assembly.

The NMD also said that Preference-granting Members shall, to the extent possible, avoid requirements which impose a combination of two or more criteria for the same product.

If a Preference-granting Member still requires maintaining a combination of two or more criteria for the same product, that Preference-granting Member remains open to consider relaxing such requirements for that specific product upon due request by an LDC.

As regards the development of cumulation possibilities in relation to the rules applied to determine sufficient or substantial transformation, the NMD said “preference-granting Members are encouraged to expand cumulation to facilitate compliance with origin requirements by LDC producers using the following possibilities:

(a) cumulation with the respective Preference-granting Member;

(b) cumulation with other LDCs;

(c) cumulation with GSP beneficiaries of the respective Preference-granting Member; and

(d) cumulation with developing countries forming part of a regional group to which the LDC is a party, as defined by the Preference-granting Member.

Against this backdrop, Benin, on behalf of LDCs, expressed sharp concern over lack of engagement and progress in addressing the preferential rules of origin by preference-granting countries. Benin also called for more dedicated sessions.

Tanzania said that the preference-granting countries must sincerely implement the Nairobi commitments failing which the exports of LDCs will continue to suffer.

In a strong statement, Cambodia’s trade minister Pan Sorasak drew attention to the continued failure on the part of major developed countries to implement preferential rules of origin since the Nairobi ministerial meeting.

The Cambodian minister called for convening of a dedicated meeting for addressing various concerns on rules of origin that remain a major hurdle for their exports.

The LDCs called for convening a dedicated session in February 2017, but several countries - Canada, Chile, and India - expressed their scepticism on grounds that they would need an approval from their respective governments.

In short, the prospects for addressing preferential rules of origin despite the Nairobi ministerial declaration seem grim and it is highly unlikely that the major preference-granting countries will adhere to their commitments, a LDC participant told the SUNS.

The meeting also witnessed a strong demand for reverting to the unfinished work on the harmonization of non- preferential rules of origin that was required to be “completed” by 1998 but remains deadlocked because of continued opposition from the United States.

The main objective of the RoO under which “WTO members have to extend any advantage granted to a product originating in one country, to all like goods originating in all other WTO members” aims at harmonizing non- preferential rules of origin of thousands of tariff lines.

To cover up the continued obstacles for addressing harmonization of rules of origin, several industrialized and some developing countries are now increasingly resorting to so-called “education” exercised by private companies during the regular RoO committee meeting for driving home the message that RoO remain important for global value chains.

The work on harmonization of non-preferential rules of origin remains deadlocked for almost 20 years because of opposition from one major industrialized country, said a trade official after the meeting last week.

At a time when the WTO’s director-general Roberto Azevedo made grand pronouncements at the United Nations General Assembly meeting that “the WTO’s Trade Facilitation Agreement will make a big difference” by cutting trade costs, the failure to harmonize non-preferential rules of origin since 1998 exposed the false claims that are propagated by him and major industrialized countries such as the US, according to an African trade official.

After all, the rules of origin impose burdensome requirements and escalating costs that deny market access for the poorest and developing countries in major industrialized countries.

If anything, the TFA is not worth the paper on which it is signed as long as the harmonization of non-preferential rules of origin remain un-addressed, the official added.

During the committee’s meeting, Switzerland said that lack of harmonization of non-preferential rules of origin impose burdensome requirements on small and medium enterprises for integrating into the global value chains. Further, the delay in arriving at non-preferential rules of origin could also severely under-cut the Trade Facilitation Agreement.

South Africa and India said educational workshops on issues involving rules of origin by private sector must be held separately on an informal basis but not as part of the regular committee meetings, said a participant from a developing country.

In a nutshell, as attempts are made to hijack the development agenda from addressing the core issues in the global trading system such as the trade-distorting domestic agriculture subsidies in major industrialized countries or harmonization of non-preferential rules of origin, the poorest and developing countries must join hands to ensure that their bread-and-butter problems in international trade are not given short-shrift, the participant added. +