TWN Info Service on WTO and Trade Issues (May10/05)
10 May 2010
Third World Network

General Council asked to complete work on Rules of Origin
Published in SUNS #6919 dated 6 May 2010 

Geneva, 5 May (Kanaga Raja) -- India, China and Pakistan asked the WTO General Council on Tuesday to set up an urgent deliberative process to complete the work on harmonization of non-preferential Rules of Origin - an unfinished agenda of the Uruguay Round and something that the rules-based World Trade Organization was mandated by the Marrakesh Treaty to take up and complete and enforce by 1998.

This promise at Marrakesh to provide clear rules of the road and signals for the smooth flow of traffic of world commerce, as part of the rules-based multilateral trading system, and taken up at the WTO in Geneva in the Committee on Rules of Origin and a Technical Committee meeting at Brussels (where the World Customs Organization and Customs Council are located), has remained stalemated and bogged down in some unresolved so-called technical, but essentially political, mercantilist issues, that some major industrialized countries protecting their domestic sectors have thrown up as roadblocks.

In a proposal tabled before the General Council, the WTO governing body in between Ministerial Conferences, the three Asian countries asked the General Council Chair to oversee the "deliberative process" to discuss all outstanding issues, and prepare the ground for "a formal decision in the next Ministerial Conference as provided for in Article 9.4 of the Agreement on Rules of Origin."

The India-China-Pakistan proposal was supported by several developing and industrialized countries, including the EU, Norway, Indonesia, the Philippines and Sri Lanka . However, Australia, New Zealand and Canada opposed it, arguing that the issue should continue to be dealt with by the Committee on Rules of Origin.

The United States, one of the largest markets for imports of goods, has perhaps the most complex of rules of origin creating difficulties and problems for exporters from around the world.

In other actions, the General Council agreed to set up a Working Party on Syria's application for acceding to the World Trade Organization, and reviewed and discussed a report from the Chair of the Trade Negotiations Committee (WTO Director-General Pascal Lamy) on the Doha talks. (See separate story.)

At the Doha Ministerial Conference in 2001, India succeeded in a decision under the implementation issues for the work programme on Rules of Origin to be taken up and completed by the end of 2001.

However, some of the major industrial countries continued to stall the work in the Committee on Rules of Origin, and the Technical Committee at Brussels, and the deadlines have been extended from year to year (with no early solution in sight).

At the General Council Tuesday, under the agenda item on "Harmonization Work Programme under the Agreement on Rules of Origin: The Way Forward", India tabled its proposal (WT/GC/W/622), co-sponsored by China and Pakistan.

In its proposal, India said that the importance of Rules of Origin for global commerce was obvious. Issues such as grant of tariff preferences, application of anti-dumping and countervailing duties, administration of tariff quotas and other quantitative restrictions etc. all depended on clear determination of the source of imports.

Compilation of accurate trade statistics is also not possible without first determining the correct source of imported and exported products.

It added: "Clear and predictable rules of origin provide greater certainty for the conduct of world trade and help facilitate trade flows. Conversely, if these rules are not framed properly, and are not implemented in a uniform, impartial and reasonable manner, they can hamper trade. Rules of Origin can also serve as a means of protectionism alongside tariff and non-tariff barriers."

The importance of Rules of Origin has grown significantly due to globalization of production, said India. Much of global production of goods takes place in stages, using materials and components produced in different countries. Origin determination in such cases is not an easy job. While there is an agreement among Members that the country of origin status has to be given to the country where "the last substantial transformation" has taken place, there is no common understanding regarding the term "last substantial transformation".

Members are using their own criteria to determine the source of goods of multi-country origin, i. e. where more than one country is involved in the production process. Consequently, origin rules vary widely, said the Indian proposal.

"The multiplicity of rules has given rise to a situation where the same product could be required to meet the value added criterion in one country, manufacturing or processing operations criterion in another and tariff change criterion in a third country. The manner of application of these rules in a large number of cases conveys the impression that these rules are increasingly being viewed as trade policy instruments per se, instead of as a device to support trade policy instruments," it added.

The Agreement on Rules of Origin (ARO) aims at harmonization of non-preferential rules of origin, and seeks to ensure that such rules do not themselves create unnecessary obstacles to trade. The Agreement sets out a Harmonization Work Programme (HWP) for harmonization of the Rules of Origin, to be completed within three years of initiation, based on certain principles including that these rules should be objective, understandable and predictable and that they should be administrable in a consistent, uniform, impartial and reasonable manner.

"Another fundamental principle is that Rules of Origin should not be used as instruments to pursue trade objectives directly or indirectly," stressed India.

The document noted that the HWP began in July 1995 and the work is being conducted both in the Technical Committee on Rules of Origin (TCRO) in Brussels and the Committee on Rules of Origin (CRO) in Geneva.

The main work was carried out by TCRO in 18 formal sessions held between July 1995 and May 1999 and the results of the work were presented to CRO in June 1999 in the form of agreed rules (Basket 1) for endorsement, and unresolved issues (486) for decision. The CRO in various meetings endorsed the Basket 1 decisions and also resolved a large number of unresolved issues referred to it by TCRO.

"However, due to the technical and voluminous nature of work and trade policy considerations for several issues, the work has remained incomplete till date."

In November 2001, said the Indian paper, the Ministerial Conference at Doha took note of the progress on the HWP and, in its decision on implementation-related issues and concerns, urged the CRO to complete its work by the end of 2001. The General Council, in July 2002, extended the deadline for completion of the HWP to the end of 2002. The CRO had also submitted to the General Council in July 2002, 94 core policy issues for discussion and decision.

The General Council, at its meeting in December 2002, extended the deadline to July 2003 and thereafter, yearly extensions were granted until 2007.

The CRO Chair, on behalf of the Chair of the General Council, held consultations on the 94 core policy issues, and reported the final package for 83 product-specific rules of origin to the General Council in July 2006 and the machinery package in July 2007. In the July 2007 meeting of the General Council, the Chair had recommended that the work on the "implications issue" and the "dual-rule approach" for machinery be suspended pending receipt of guidance from the General Council on these two issues.

The Chairman of the General Council proposed that Members should take some time to reflect on this matter and in the meantime, the CRO may continue its work with a view to resolving all technical issues, including technical aspects of the overall architecture, as soon as possible. The General Council approved this proposal, said India.

"Based on the General Council's decision, the CRO is presently examining the product-specific technical issues, including technical aspects of the overall architecture. The progress however, has been very slow. The same issues are being discussed again and again with no solution in sight," complained India.

The HWP requires reaching an agreement on specific rules of origin for 2,739 products. Out of this, the CRO has reached consensus on 1,528 products. The Chair has reported that 55% of the work has been completed and that only 45% of the work remains to be completed. Included in the latter category are the outstanding 94 core policy issues (that include the "implications" issue), "dual-rule approach" for machinery; overall architecture of the rules; chapter-specific "primary" and "residual rules"; and origin of fish caught in an EEZ of a country, said India.

It may be recalled that the 94 core policy issues were referred to the General Council for decision in 2002, added India.

The HWP is an unfinished agenda of the Uruguay Round. It is a matter for reflection among Members that the work remains incomplete after nearly 15 years of intense negotiations. Rules of Origin are the basic underpinnings of global commerce and the WTO, as the premier rule-making body for global trade, ignores such issues at its peril, India said.

According to the Indian proposal, it is essential that a fresh impetus is provided to the deliberations in the CRO to enable it to complete work on the HWP within the shortest possible time. For this to happen, the General Council has to address two issues: (a) The General Council has to deliberate on and decide the 94 core issues and the "dual-rule approach" for machinery which have been referred to it by the CRO; (b) As the CRO has completed work on 1,528 products, a decision may be taken to implement the harmonized rules for these products at an early date.

India has proposed that: (a) A deliberative process be established under the chairmanship of the Chair of the General Council to discuss the above issues with the objective of preparing the ground for a formal decision in the next Ministerial Conference as provided for in Article 9.4 of the Agreement on Rules of Origin; (b) The CRO may resolve the other technical issues, including technical aspects of the overall architecture and transposition of the agreed rules into HS 2007 by July 2011.

According to trade officials, several countries including the EU, Norway, Indonesia, the Philippines and Sri Lanka supported the Indian proposal. However, some countries including Australia, New Zealand and Canada said that this issue should stay in the Committee on Rules of Origin (CRO).

Australia said that it preferred to ask the CRO Chair to consult on how to proceed before giving this issue to another body. It said that it favours the CRO to do the stocktaking so that there is a common understanding of where the work stands.

New Zealand said that it was not sure whether the deliberative process in the General Council is the answer. There is need for a common understanding, it said, suggesting that the Committee undertakes the stocktaking to reach this understanding.

Canada also said that the CRO Chair should undertake the stocktaking exercise.

According to trade officials, the US said that it is still reviewing the Indian proposal. It further said that the work is highly technical, and it does not make sense for the General Council to take on these issues. It however suggested that the Chair of the General Council should consult on how to proceed.

The EU said that there is a need for a higher level guidance and therefore there is a role for the General Council.

It supported the proposal to address some of the more political and economic issues (as opposed to the technical issues that are being handled in the CRO).

Norway voiced concern that there has been no agreement, and supported the proposal for the General Council to work in parallel with the technical work in the CRO.

According to trade officials, India responded that the unresolved issues are more than just technical. +