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Revised Preferential Rules of Origin on LDC Exports Could be Part of WTO Package

Monday, October 26, 2015
Sandler, Travis & Rosenberg Trade Report

Least-developed countries circulated at the World Trade Organization this week a proposal to reform preferential rules of origin for LDCs in an effort to help them take better advantage of duty-free, quota-free treatment by many of the world’s economies. The proposal could be part of a package of initiatives for LDCs that WTO members are likely to focus on at their Dec. 15-18 ministerial conference in Nairobi, Kenya.

The reform proposal would go beyond the guidelines set forth in a 2013 WTO ministerial decision. According to a WTO press release, that decision recognizes that each country granting trade preferences to LDCs has its own method of determining rules of origin and invites WTO members to draw upon the elements contained in the decision when they develop or build on their individual rules. The decision also requires members to notify their preferential rules of origin for LDCs to the WTO to enhance transparency, make the rules better understood, and promote an exchange of experiences as well as mainstreaming of best practices.

While this decision was intended to make it easier for LDC exports to qualify for preferential market access, the group of LDCs introducing the reform proposal said the decision remains “largely non-operationalized.” As a result, the proposal seeks to address real-world problems LDCs are facing by making the following changes.

- adopting simple and transparent methods for determining qualification through substantial transformation (e.g., when using ad valorem percentage criterion, this would include adopting a maximum percentage of non-originating materials of at least 75 percent in the total value of the final qualifying good and allowing for the deduction of freight and insurance costs)

- providing LDCs with cumulation of working and process operations and materials with other LDCs, with preference-granting countries, with Generalized System of Preferences beneficiaries, with countries that are members of the same regional grouping, and with countries with which the preference-granting country has concluded a regional trade agreement

- abolishing certain requirements such as certificates of non-manipulation or any other form of certification for products shipped by LDCs across other countries, and recognizing self-certification of rules of origin

The press release states that reaction to the proposal was mixed. Some countries said it appears too ambitious, particularly with the little time remaining until the ministerial meeting. Others expressed concern that it appears to call for binding rules whereas the 2013 ministerial decision granted countries flexibility in the application of the preferential rule of origin guidelines. Nearly all the countries that spoke underlined the steps they have already taken or are in the process of adopting to conform to those guidelines.

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