RULES OF ORIGIN

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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.

WTO note on preference utilization: minerals and metals

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.

Enhancing transparency in non-preferential rules of origin

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.

COVID-19

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.

Next meeting

The next meeting of the Committee on Rules of Origin will take place on 20 May 2021.

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