Implement Bali Rules of Origin decision, say LDCs

11 May, 2015

TWN Info Service on WTO and Trade Issues (May15/03)
11 May 2015
Third World Network

Published in SUNS #8015 dated 5 May 2015
Geneva, 4 May (Kanaga Raja) -- The Least Developed Countries (LDCs) group at the World Trade Organisation (WTO) has called on WTO members to move forward on implementing the Bali Ministerial Decision of 7 December 2013 on preferential rules of origin for the LDCs.
This call came at a meeting of the WTO Committee on Rules of Origin (CRO) on 30 April.
According to trade officials, Bangladesh, on behalf of the LDCs, presented an elements paper for a discussion on preferential rules of origin for LDCs. The paper outlines six questions for the preference-giving countries aimed at better understanding how they are considering addressing the various elements in the Bali Decision.
The aim of the paper, according to the LDC Group, is to stimulate a discussion by putting forward to Members a set of questions as to how they are responding to the guidelines adopted at the Bali Ministerial Conference, with the ultimate objective of identifying possible measures for further facilitating market access for LDC products.
The elements paper recalled Paragraph 1.1 of the Bali Decision on Preferential Rules of Origin for LDCs which provides that "Members should endeavour to develop or build on their individual rules of origin arrangements applicable to imports from LDCs in accordance with the following Guidelines". (The guidelines are laid out in the Bali Decision.)
In its paper, the LDC Group recognised that no single form of Rules of Origin (RoO) used by preference-giving countries to determine origin is necessarily better than the other.
However, it said that the LDC submission to the CRO last October shows unequivocal evidence that under certain conditions the reform of RoO reflecting global value chains and commercial reality generates a market response in LDCs.
"The reforms in Canada and the EU adapted the RoO to the industrial context resulting in an increase in utilization rate, relocation of factories to LDCs, increased manufacturing capacity, more skilled jobs creation as well as backward linkages," said the LDC elements paper.
It recalled Paragraph 1.3 of the Bali Decision which provides that "it is desirable to keep the level of value addition threshold as low as possible" and "notes that the LDCs seek consideration of allowing foreign inputs to a maximum of 75% of value in order for a good to qualify for benefits under LDC preferential trade arrangements".
The first question posed by the LDC group in its elements paper is: "How preference-giving countries that are currently adopting different percentages are moving towards the adoption of a lower percentage requirements in case of percentage calculation of domestic content or a greater allowance of non-originating materials to allow the insertion of LDCs into global value chains?"
The paper noted that certain preference-giving countries are still maintaining a value-added calculation while lessons learned demonstrated that a value-of-materials calculation is easier to comply with in terms of calculation, transparency and predictability.
The LDCs also asked: "How these preference-giving countries using a percentage criterion are intending to move towards a methodology based on a value of materials calculation taking into account the lessons learned and the evolution of their rules of origin?"
Paragraph 1.5 of the Bali Decision provides that: "In the case of rules based on the change of tariff classification criterion, a substantial or sufficient transformation should generally allow the use of non-originating inputs as long as an article of a different heading or sub-heading was created from those inputs in an LDC...".
The LDCs note that preference-giving countries using the change of tariff classification criterion provide, in certain cases, for a series of exclusions of the use of materials classified in other chapters heading or subheadings such as the following rule for certain products of chapter 16: Manufactured from products other than those of Chapter 1, 2, 3, 5, 10, 11, 16 or 19.
The third question posed by the LDCs is: "How preference-giving countries using a change of tariff classification are considering to further simplify their rules of origin by eliminating or reducing the restriction on the use of certain non-originating materials classified in certain HS chapters, heading or subheadings?"
Paragraph 1.6 of the Bali Decision provides that "In the case of rules that allow a specific manufacturing or processing operation for the purpose of conferring origin, such rules should, as far as possible, take into account the productive capacity in LDCs".
While the LDCs note that some preference-giving countries have made considerable progress in the textile and clothing sector by allowing a single-stage process (i. e. from non-originating fabric to finished garment), a number of rules in other sectors like steel and metals still demand double processing requirements that are not matching LDC productive capacity or are not reflecting their industrial operations.
The fourth question posed by the LDCs is: "How preference-giving countries using RoO based on specific working or processing requirements consider moving towards a single working or processing operations reflecting substantial transformation?"
The elements paper recalled Paragraph 7 of the Bali Decision which states that: "Cumulation should be considered as a feature of non-reciprocal preferential trade."
The LDCs note that many preference-giving countries are "graduating" out of their preference schemes some developing countries or are concluding FTAs with developing countries that are members of the same regional trade integration group with LDCs.
As a result of these evolutions, developing countries members of the same regional trade integration group of LDCs may be excluded from the scope of cumulation granted to LDCs. This may reduce substantially the scope of cumulation for LDCs and may have significant adverse effects, they said.
The fifth question posed by the elements paper is: "How preference-giving countries are considering measures to remove or alleviate the adverse effects that may diminish the value of cumulation for LDCs once developing countries member of the same regional trade integration group are graduated from GSP schemes or become no longer eligible for cumulation since they are part of an FTA with the preference-giving country?"
The paper cited Paragraph 1.8 of the Bali Decision dealing with administrative requirement of rules of origin: "The documentary requirements regarding compliance with the rules of origin should be simple and transparent. For instance, requirement to provide proof of non-manipulation or any other prescribed form for a certification of origin for products shipped from LDCs across other Members may be avoided. With regard to certification of rules of origin, whenever possible, self-certification may be recognized".
The LDCs note that under the Trade Facilitation Agreement they are requested to engage on a number of trade reforms to facilitate trade while many preference-giving countries are still requiring documentary evidence of non-manipulation that is particularly challenging for landlocked and island LDCs.
"Progress has been made by some preference-giving countries towards accepting self-certification. However, the LDCs are not benefiting from particular technical assistance for administering self-certification that may be particularly demanding during the transition phase."
Finally, taking into consideration the demands that the Trade Facilitation Agreement may pose to LDCs: (a) How preference-giving countries are considering the elimination of documentary evidence of "non-manipulation"?; (b) What measures are being considered by preference-giving countries to implement self-certification by LDCs?; (c) What measures and programmes of technical assistance are being considered by preference-giving countries when moving to accept self-certification or other similar administration like registered exporters?
According to trade officials, Nepal, Cambodia, Tanzania, Yemen and Laos, who are members of the LDC Group, expressed support for Bangladesh.
Nepal underlined that work on preferential rules of origin is one of the priorities for LDCs in the WTO's post- Bali work. It said that the variety of schemes currently in place create many "hassles" for LDC exporters.
Laos said that not much has happened on the issue since the Bali Ministerial Conference of 2013 and that it was time to think about making the Decision operational.
Yemen also said that there has been no meaningful implementation of the 2013 Bali Decision.
According to trade officials, Tanzania expressed concerns over what it said were the high LDC-origin content requirements in the Generalised System of Preference (GSP) schemes of the United States and Japan.
Cambodia voiced concerns about the changes that were introduced in the European Union's GSP system in 2014 which disadvantage certain Cambodian exports such as bicycles.
According to trade officials, the US questioned the conclusions of the LDC Group's October 2014 paper citing decisions by companies to relocate production to LDCs based on changes in the rules of origin schemes of the EU and Canada. It asked whether other factors affecting these decisions were taken into account.
The US maintained that the decline in US-bound LDC exports claiming GSP benefits cited in the October 2014 paper was due to the expiration of the US GSP programme in July 2013 as well as the suspension of Bangladesh's GSP benefits in September 2013 in the wake of the Rana Plaza disaster.
It recalled that the Senate Finance Committee and House Ways and Means Committee both recently approved legislation that would renew GSP and other preferences.
According to trade officials, the EU said that it would soon send its answers to the six questions posed in the elements paper and that it did not see changes to its GSP system posing any problems for Cambodia.
Canada said its rules of origin system was generally consistent with the Bali Decision guidelines.
According to trade officials, China noted that changes in the scope of product coverage under its duty-free benefits for LDC imports which took effect in the beginning of 2015 had already led to a 27% increase in LDC imports (volume terms) through the month of March.
According to trade officials, the WTO secretariat made a presentation on existing non-preferential rules of origin as well as the current state of play in the WTO's harmonisation work programme, which has not moved since 2007.
Forty-four members have informed the WTO that they apply their own non-preferential rules of origin while 50 members said they do not.
According to trade officials, China and Chinese Taipei highlighted the importance of reviving efforts to establish globally harmonised rules of origin while Australia, Canada and the US questioned the need for such harmonisation.
[Article 9.2 of the Agreement on Rules of Origin mandated a work programme to establish globally harmonised rules of origin, to be taken up soon after entry into force of the WTO and completed within three years of its initiation. Thus, this work, initiated in 1995, and to be undertaken in cooperation with the Customs Cooperation Council, should have been completed by 1998, but has been stalled by the major developed countries. Some of the issues referred by the Customs Cooperation Council to the General Council for decision remain stuck there, with the US and others questioning the need under the special plea of global value chains and other concepts. SUNS] +