Info Service on WTO and Trade Issues (Oct15/19)
27 October 2015
Third World Network
LDCs table new proposal on Rules of Origin
Published in SUNS #8118 dated 22 October 2015
Geneva, 21 Oct (Kanaga Raja) -- The Least Developed Countries (LDCs)
group at the World Trade Organisation (WTO) on Tuesday tabled a new
proposal aimed at building upon the existing guidelines for preferential
rules of origin applicable to imports from LDCs.
The proposal was presented at an informal open-ended consultation
on preferential rules of origin, facilitated by Mr Steffen Smidt.
In presenting their proposal, the LDC group expressed the hope that
this proposal could become part of the "package" of initiatives
for the LDCs for the upcoming tenth WTO Ministerial Conference, taking
place in Nairobi, Kenya from 15-18 December.
According to trade officials, the LDC proposal seeks to go beyond
the 2013 Bali Ministerial Decision on preferential rules of origin
for the LDCs, which the group said "remained largely non-operationalized."
According to the proposal, submitted by Bangladesh on behalf of the
LDC group, Rules of Origin are an integral part of duty-free and quota-free
market access schemes undertaken by Members in favour of LDCs. The
over-riding objective of the duty-free and quota-free market access
is to facilitate and promote the trade of least-developed countries.
The LDCs said that this objective cannot be attained if the rules
of origin associated with the preferential market access schemes are
designed in a manner that does not take into account the level of
development of LDCs.
The proposal noted that the challenges of the LDCs in complying with
the rules of origin under the different preferential schemes have
been at the basis of the elaboration and evolution of the LDCs' proposals
on rules of origin.
The 9th WTO Bali Ministerial Decision on Preferential Rules of Origin
for LDCs provided guidelines for Members to develop or build on their
individual rules of origin arrangements applicable to imports from
This was premised on the fact that although LDCs are accorded preferential
market access through various schemes, they have not been able to
take full advantage of the opportunities due to often stringent rules
The adopted guidelines provide some elements for Members to draw upon
as they develop or improve their rules of origin frameworks applicable
for imports from LDCs.
The LDCs said that given that no substantive efforts have been made
by preferences-granting members to streamline their preferential rules
of origin in line with the Bali guidelines, "they have remained
According to the LDCs, their submission, which is built on the Bali
guidelines, is intended to assist both preference-granting countries
and LDCs to operationalize these guidelines with a view to attaining
effective market access for LDCs on a lasting basis.
The LDCs said that the significance of Rules of Origin lies in the
fact that they can affect the sourcing and investment decisions of
Adoption of restrictive Rules of Origin is more likely to constrain
rather than to stimulate economic development and can also undermine
preferential trade arrangements. It is under this consideration that
preference granting countries should take into account the level of
development, industrial capacity, scarcity of resources, human resources
constraints, manufacturing capabilities and administrative challenges
of LDCs, when putting in place their Rules of Origin.
In addition, said the proposal, the aspect of global value chains,
wherein production is fragmented and companies are inclined to source
goods from efficient sources, should be considered.
This calls for the consideration of LDCs in the different stages of
production with their labour endowment, and benefits accrued through
employment generation, women empowerment and enhancement of other
Therefore, said the LDCs, preferential Rules of Origin should be further
streamlined and simplified by the preference granting countries to
make them development friendly so that they do not act as barriers
to LDCs but rather enable them to fully utilize the provided market
On the elements for a decision on preferential rules of origin for
the LDCs for adoption at the Nairobi Ministerial, the LDC proposal
called on members to adhere to the following in framing their legislation
on preferential rules of origin:
* In case of using ad valorem percentage criterion to determine substantial
transformation: (i) adopting method based on value of non-originating
materials for making it simple and transparent and enabling LDCs to
easily comply with the rules of origin requirement; (ii) adopting,
when using the above-mentioned ad valorem calculation, a level of
percentage of at least 75% or more as the maximum value of non-originating
materials; (iii) allowing, when using the above-mentioned ad valorem
calculation, the deduction of cost of freight and insurance from the
value of non-originating materials.
* In case of using change of tariff classification criterion to determine
substantial transformation: allowing the use of any non-originating
inputs as long as an article of a different heading or sub-heading
is created in an LDC from those inputs. In such cases, provision for
limiting use of inputs from certain headings and sub-headings shall
be avoided and at the same time, use of inputs from same heading or
sub-heading of final products must be allowed within permissible tolerance
* In case of using specific manufacturing or processing operation
criterion to determine substantial transformation: adopting a single
transformation requirement to determine substantial transformation
as follows: (a) for clothing of chapter 61 and 62 of the Harmonised
System nomenclature when fabrics are assembled into finished garments;
(b) for chemical products: a chemical reaction rule; (c) for agro-processing
products when raw agricultural products are transformed into agro-processed
products; and (d) in machinery and electronics when the assembly of
parts results into finished products.
* Avoiding application of combination of two or more criteria for
one product but rather keeping option for using alternative criterion.
* Provide LDCs with cumulation of working and processing operations
and materials with: (i) Other LDCs; (ii) Preferences granting countries;
(iii) GSP beneficiaries (including those whose illegibility expired
in GSP) of a given preference-granting country; (iv) Countries that
are members of the same regional grouping; and (v) Countries with
which the preference-granting Member has concluded a regional trade
* On documentary evidence: (i) Abolishing the requirement of a certificate
of non-manipulation or any other form of certification for products
shipped by LDCs across other countries; (ii) Recognizing self-certification
of rules of origin; and (iii) Waiving requirement of certificate of
origin for consignment not exceeding US$2,000.
In presenting the proposal on behalf of the LDC group, Bangladesh
said that rules of origin were an integral part of the duty-free,
quota-free treatment provided by preference-granting countries and
that the proposal was based on existing best practices and drafted
to reflect the real-world problems that LDCs were facing in benefiting
from such schemes.
Bangladesh said that it looked forward to credible outcomes on this
issue at the Nairobi Ministerial Conference in December.
According to trade officials, Cambodia, Rwanda and Tanzania, all of
them LDCs, spoke on specific aspects of the proposal and the justifications
for the measures sought.
Tanzania, referring to the paragraph in the proposal on documentary
evidence, said that for some preference-granting members, some requirements
have existed for half a century without review.
According to trade officials, Tanzania said that this has restricted
trade and does not reflect modern business set-up and practices which
have been affected by technological advances.
While all the countries that spoke said that they were ready to work
with the LDC group on the issue in a constructive manner, several
said that the proposal appeared to be too ambitious, particularly
with the little time remaining until the Nairobi meeting, trade officials
According to trade officials, other members said that they were concerned
that the proposal appeared to call for binding rules whereas the 2013
Bali Ministerial decision granted countries flexibility in the application
of the guidelines.
Brazil said that several elements of the LDC group proposal went beyond
the Bali decision (such as the more than 75% maximum value for non-originating
material) or would require changes in its national system (such as
self-certification) which it was not in a position to offer at this
According to trade officials, Japan said it was concerned that the
proposal seemed to create legally-binding obligations.
Korea said that the little time remaining until Nairobi meant that
members must set a realistic level of ambition by focusing on a few
items that were achievable.
Canada noted the differences in what the LDC group was proposing and
what was covered by the Bali decision.
According to trade officials, the European Union said that the proponents
needed to approach the issue with realism and perhaps prioritize elements
in the proposal that were doable.
Australia said it would be difficult to reach consensus on binding
The United States said that it questioned the wisdom of disregarding
the recipe for success (flexibility) which led to the adoption of
the Bali decision.
Norway said that it was ready to discuss the ideas set out in the
LDC group proposal, while Switzerland voiced agreement with the EU
in highlighting the need for the proponents to prioritize their demands.
China said that it was studying the proposal carefully with a view
to exploring, with other members, feasible ways to address the LDC
According to trade officials, India reminded members that the Bali
Decision (which references the 2005 Hong Kong Ministerial Declaration)
distinguished between developed and developing country members with
regards to the commitment to ensure that preferential rules of origin
for LDCs are transparent and simple.
India said that it is strongly committed to granting meaningful market
access to the LDCs. It noted that its rules are synchronised to what
the LDCs are seeking in their proposal, but does not exactly match
in detail the level of ambition in the proposal.
India said that it is willing to engage and have a meaningful outcome
According to trade officials, Yemen and Nepal both stressed the importance
of the proposal to the LDCs.
Nepal underlined that the idea was not to drag any WTO member to dispute
settlement but to ensure that preferential rules of origin are simple
According to trade officials, the facilitator Steffen Smidt said that
he would continue with the discussions, starting first with a smaller
group of members (mainly those who intervened at the meeting).
The first small-group meeting would take place on 27 October and would
take place each week thereafter and possibly twice a week.
The talks would initially focus on what members hoped to achieve in
Nairobi, the questions regarding the binding nature of the measures
being proposed, as well as a paragraph-by-paragraph review of the
According to trade officials, the larger open-ended meeting would
be convened once the facilitator has progress to report in the small-group