WTO Members Discuss Implementation of Preferential
Rules of Origin for LDCs
The WTO’s Committee on Rules of Origin continued on 13 November
its review of efforts by preference-granting members to implement a 2015 commitment
to ensure that preferential rules of origin applicable to imports from least developed
countries (LDCs) are transparent and simple, and contribute to facilitating market
access.
At its
biannual meeting, the committee once again addressed implementation of the Nairobi Decision on Preferential
Rules of Origin for LDCs, which set out for the first time multilaterally
agreed guidelines to facilitate LDC exports that qualify for preferential market
access granted by WTO members.
Speaking
for the LDC Group of WTO members, Tanzania said that while some improvements have
been made by preference-granting countries to align their rules of origin to the
Nairobi Decision, there has not been substantial progress to implement the core
part of the Nairobi Decision, specifically with regards to 1) requirements for the
assessment of sufficient or substantial transformation, 2) cumulation,
and 3) documentary requirements.
Substantial
transformation refers to the principle that - excluding goods entirely obtained
in one country - a product's country of origin be determined as the territory where
foreign materials have undergone substantial or sufficient transformation resulting
in a new product. The necessary level of transformation can be defined in different
ways. Cumulation is a flexibility which
allows LDCs to combine foreign materials without losing the originating status of
the materials and thus meet more easily the minimum substantial transformation requirements.
The LDC
Group noted it has made several submissions to the committee identifying reforms
that the preference granting members should undertake in order to align their rules
of origin to the Nairobi Decision and make the use of trade preferences more effective.
The group also called on members to revitalize the mandate of the committee and
establish a work programme that would focus on issues
such as evaluating whether preference-granting members' rules of origin conform
with the 2015 Nairobi Decision and identify best practices
for a simple and transparent administration of rules of origin.
Under
the same theme, the LDC Group presented a joint technical paper (G/RO/W/202) focusing
on the issue of substantial transformation for determining product origin, in particular
the use of the ad valorem percentage criterion. The LDC Group called attention to
the practices of a few preference-granting members that it said were not in conformity
with the spirit and the letter of the Nairobi Decision. The main concern, the group
said, was the use by these countries of a methodology based on "value added
calculation by addition", which it said is not a best practice, rather than
the "value of material methodology" used in most free trade agreements.
A number
of the preference-granting members contested the suggestion that their practices
were not in line with the Nairobi Declaration.
Several said the LDC Group was insisting that preference-granting members
adopt a method of calculation for substantial transformation based on the value
of non-originating materials whereas the 2015 decision allows these members to continue
applying other methods.
The chair
concluded by noting that all members agree that implementing the Nairobi Decision
is a shared responsibility, that the committee has made substantive progress in
facilitating implementation of the 2015 decision, and that the best way forward
is for LDCs and preference-granting members to enter into dialogue and identify
what the next steps should be.
Members
discussed a WTO Secretariat note analysing the utilization
of tariff preferences by LDC exporters with regards to the minerals and metals sectors,
and examining how rules of origin possibly impact their use (G/RO/W/203). In
2018, LDCs exported minerals and metals to nine key preference-granting members
totalling US$ 40.7 billion. While most of the products
were exempt from duties, around a quarter (US$ 10 billion) were otherwise dutiable
but covered by preferential tariff arrangements.
The Secretariat
found that under-utilization of trade preferences in the minerals and metals sector
was surprisingly high, with only about a third of all preference-eligible imports
receiving a tariff preference in practice. The study also found wide disparity in
preference utilization among preference-granting members, among LDC exporters, as
well as among the covered products.
The reasons
for under-utilization are not clear, the Secretariat said, but some factors such
as low preferential margins, the complexity of products (whether raw materials or
more processed goods) and origin criteria do not seem to influence utilization.
Other possible causes should be further studied, the Secretariat said, in particular:
direct consignment rules (whether goods are shipped directly or were transhipped); variations in obligations related to origin certification
(not yet examined); and awareness among economic operators that a preference is
available.
Members
once again discussed a joint proposal for enhancing transparency in non-preferential
rules of origin, which aims at introducing a template to notify rules of origin
used in the application of most-favoured-nation (MFN)
treatment and other non-preferential commercial policy instruments, as well as any
other practices with respect to certification of origin for non-preferential purposes.
While
the proposal received broad support from members, two delegations said they still
had reservations. The committee chair will hold further consultations to address
the concerns.
The Secretariat
noted that several WTO members have taken steps to temporarily ease rules of origin
requirements in response to the COVID-19 pandemic and the need to ensure essential
goods can enter their markets quickly. Argentina,
the European Union, the Eurasian Economic Union and Japan have taken steps such
as allowing electronic submissions where paper documents were required, allowing
copies of documents instead of originals, and providing retrospective issuance of
certificates. Canada and India took the floor to note steps they have taken to facilitate
trade and ensure rules of origin requirements were not a barrier to trade in essential
goods.