TWN 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 LDCs.

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 of origin.

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 largely non-operationalized."

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 enterprises.

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 development indicators.

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 access opportunities.

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 limit.

* 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 agreement.

* 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 said.

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 point.

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 provisions.

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 concerns.

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 in Nairobi.

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 and transparent.

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 proposal.

According to trade officials, the larger open-ended meeting would be convened once the facilitator has progress to report in the small-group discussions. +