The Financial Express

LDCs\' 10 questions on rules of origin

| Updated: October 23, 2017 14:00:31

LDCs\' 10 questions on rules of origin

Flexibility introduced in the rules of origin (ROO) by the World Trade Organisation (WTO) in its last ministerial conference has emerged as a major gain for the Least Developed Countries (LDCs).  
The outcome of the ministerial conference, held in the Kenyan capital Nairobi in last December, is known as the Nairobi Package. It addressed the issue of ROO which is a mechanism to identify the economic nationality of a product.
Rules of origin is actually a set of laws, regulations and administrative procedures which determine the country of origin of products.  It provides the criteria to distinguish between originating and non-originating goods. Generally, customs authorities are responsible to check and determine whether imported products comply with the rules of origin. These rules vary from country to country. It is critical for preferential treatment in the international trade. But determining the origin of product is a complicated exercise as raw materials and intermediate goods, used as inputs to final products, now move across the world.    
There is an agreement on rules of origin in the WTO. The agreement asks the members to ensure transparency in their rules of origin and not become trade restrictive, distorting or disruptive.  The long-run aim of the agreement is to frame a set of common or harmonised rules of origin for all the WTO members, except some preferential trade arrangements. The Committee on Rules of Origin (CRO) in the WTO and a Technical Committee in the World Customs Organisation are working in this regard. "The outcome will be a single set of rules of origin to be applied under non-preferential trading conditions by all WTO members in all circumstances."
REACPPPING NAIROBI: Nairobi Ministerial Declaration categorically mentioned that LDCs' products would be eligible for preferential market access if these contain 25 per cent value addition from the local sources. It said that the preference giving members shall "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 per cent 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."
The provision is, however, not applicable for those "who do not use the ad valorem percentage criterion as their main method for the determination of substantial transformation."  Nevertheless, the value addition threshold is very crucial for the LDCs.
Nairobi decision also stressed on flexibilities in cumulation process and documentary requirements. It also asked to avoid requirements which impose a combination of two or more criteria for the same product.
Developed countries, giving preferential treatment to the LDCs, are legally bound to implement the relaxed rules of origin while it is still optional for the developing countries. If any developing country declares that it is in a position to provide relaxed rules of origin, only then the Nairobi decision will be obligatory for the country.
It, however, takes a prolonged effort of the LDCs including Bangladesh to bring such a favourable outcome finally. Now, challenge lies on implementation of the decision in an effective manner.  
10 QUESTIONS: In the last month (April, 2016), the issue of implementing the Nairobi decisions on rules of origin was discussed at a meeting in the WTO secretariat in Geneva. It was the first meeting since Nairobi conference where LDC co-ordinator Benin tabled 10 questions regarding the implementation of the preferential rules of origin.
The first two questions are related with how the developed and developing countries will comply with the deadline of December 31, 2016 to implement the decision.
Again, developed countries have to notify the WTO secretariat on their initiatives to implement the decision by the end of this year. In this connection, LDCs wanted to know "how have preferential rules of origin been notified to the WTO?" and  "are the Members that are yet to notify their preferential rules of origin going to do so before the next meeting of the CRO?" The next meeting of the committee on rules of origin (CRO) will be held on September 22, 2016.
It is also important to know the extent of imports under the preferential arrangements. In many cases, LDCs are not able to utilise preferential treatment due to stringent rules of origin like higher value addition at local level. So, Nairobi package asks the member countries to submit detailed data of imports including import under preferential arrangements. WTO secretariat is also assigned to calculate the utilisation rates. So far, few members have provided such data while few have provided incomplete data and some have yet to submit any data.
Against the backdrop, LDCs rightly wanted to know the procedure of complying with the annual data submission and the measures to collect such data before the next meeting of the committee on rules of origin "so that the LDCs could analyse the utilisation rates under the different preferential arrangements."
Moreover, LDCs have asked the secretariat to provide a report on current status and also wanted to know on the work method on "developing modalities for calculation of utilisation rate."
As the committee is mandated to develop a template for the notification of preferential rules of origin, the LDC group itself is now studying to develop such a template. The group is optimistic to present the format in the September meeting of CRO. Meantime, LDCs wanted to know the views of the preference granting countries on the template or format. The countries also requested the secretariat for sharing their experience. The submission of Benin said: "What are the experiences and lessons learned that the WTO Secretariat may draw from the current notifications of preferential rules of origin in favour to LDCs made to the Secretariat so far?"     
SKETCHY RESPONSE: According to the WTO press statement, few countries assured the LDCs that they are "currently underway or already completed to bring their practices in line with the Nairobi Decision." These countries are: Switzerland, the United States, China, Canada, the European Union, Japan and Chile.
The EU mentioned that it always notified all regulations on rules of origin in the context of its Generalized System of Preferences (GSP) programmes and that it submits relevant import data on a regular basis. The US was of the view that it considered "its preferential rules of origin well-positioned in terms of consistency with the Nairobi Decision". China stressed on effective implementation of the Nairobi Decision and observed that it would help LDCs' integration into global value chains along with enhanced exports.
One thing is clear from the responses: no concrete affirmation was made by most of the preference-giving countries on compliance with the deadline and other issues raised by the LDCs.
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