DRAFT REPORT (2024) OF THE COMMITTEE ON RULES OF ORIGIN

TO THE General COUNCIL on Preferential Rules of Origin

for least developed countries

1._       This report is being submitted by the Committee on Rules of Origin (CRO) to the General Council as required by the 2013 (Bali) and the 2015 (Nairobi) Ministerial Decisions on preferential rules of origin for Least-developed Countries (_WT/L/917 and _WT/L/917/Add.1 respectively). According to the provisions of these Decisions, the Committee on Rules of Origin (CRO) "shall annually review the developments in preferential rules of origin applicable to imports from LDCs" and report to the General Council.

2._       Topics related to preferential rules of origin for LDCs constituted a significant part of the agenda of the CRO during the two formal meetings of the Committee in 2024. The minutes of these meetings are contained in documents _G/RO/M/82 (meeting of 29 April) and _G/RO/M/83[1] (meeting of 21-22 November).

1  Transparency (notifications)

-_             Three Members have not yet submitted to the CRO the preferential rules of origin applied in their non-reciprocal trade preferences for LDCs: Armenia, Iceland and Morocco.[2] In addition, the following delegations have submitted updated notifications on preferential rules of origin for LDCs: Canada (_G/RO/LDC/N/CAN/2/Rev.1) and the United Kingdom (_G/RO/LDC/N/GBR/1/Rev.1). Document _G/RO/W/163/Rev.13 provides an overview of the notifications received.

-_             Based on these notifications, product specific rules of origin and other preferential origin requirements can be accessed, at the tariff-line level, through the WTO, ITC and WCO "Origin Facilitator" (www.findrulesoforigin.org).

-_             As far as preferential tariffs and import statistics are concerned, Members took note of the fact that data availability has considerably improved over the past few years (document _G/RO/W/163/Rev.13 contains a comprehensive overview of such notifications). However, certain Members have yet to notify the required data series, which affects the availability of complete import statistics in the Secretariat's records.

-_             These notifications, including preferential import statistics, can be accessed through the WTO Preferential Trade Arrangements (PTA) database (http://ptadb.wto.org).

2  Recent developments and utilization of preferences by LDCs

-_        European Union: The Committee heard a presentation about the EU's three preferential trade schemes and their utilization (_RD/RO/111). It was noted that the majority of imports into the EU under LDC specific schemes fell into the category of clothing and footwear (83%). Recent drops in overall trade using LDC schemes could be attributed to the fact that, following the signing of a free trade agreement, Viet Nam was no longer eligible under the EU GSP. Overall utilization of preferences in the EU stood at 91.6%, with significant variations across sectors. According to the EU, low utilization in some sectors was counterintuitive because European regulations allowed for the use of up to 70% of foreign content. In this regard, the EU questioned if one possible explanation was that the most favoured nation (MFN) rate was too low, and the related compliance costs, for instance to proofs of origin, were relatively high, such that importers preferred to use the MFN rate. Furthermore, it was reported that the EU Commission had not received bilateral requests for any relaxation of the EU's product specific rules, nor bilateral requests for an extension of cumulation. The EU would soon be reviewing its cumulation flexibilities and was still analysing the possibility of introducing the deduction of freight and insurance from local content requirements. Finally, the EU noted that it allowed for self-certification.

-_        United States: Members also heard a report about the utilization of the US' trade preferences. The representative of the United States outlined that five preferential programmes were available with overlapping beneficiaries, different product coverage, different expiration dates, and different rules of origin (_RD/RO/109). The rules of origin for non-textile products required at least 35% of originating content, while textile products could benefit from more lenient fabric sourcing rules under programmes like the AGOA. It was noted that the utilization of the US programmes was generally high, but that preferences were not used at times, including for products and sectors for which origin was straightforward, such as some mineral products. This could relate to compliance costs outweighing tariff benefits. At the same time, the US noted that studies had shown that the limited uptake and utilization of preferences could be explained by relatively low trade values, and hence little incentive to gain knowledge about the preferential rule of origin. Another possible answer related to the small export base of certain LDCs. Finally, it had also been found that LDCs that had implemented a national trade and export strategy had been better able to seize preferential opportunities than those that had not done so.

-_        Canada: Members also considered updates made to the Canadian preferential rules of origin (_G/RO/W/220). Despite the fact that 70% of Canada's tariff lines were duty free on an MFN basis, preferences were available under specific programmes, such as the General Preferential Tariff (GPT) and Least Developed Country Tariff (LDCT) programmes, which had been comprehensively reviewed and renewed until 2034. In the apparel sector, for example, new rules had been adopted which would allow greater flexibility in sourcing non-originating materials, significantly liberalizing the requirements. In addition, from 2025, the process rules for apparel would require only cutting and sewing in the LDC, removing the origin requirements for fabric and yarn, meaning that the materials could then be sourced from any other country. Furthermore, Canada's direct shipment requirements were also flexible: despite calling it "direct shipment", the regulations did allow for transhipment through non beneficiary countries and supporting documents only had to be presented upon request, not systematically. In this connection, it was reported that, from 2025, a wider array of documents would be added to prove non manipulation.

-_        United Kingdom: The representative of Niger, on behalf of the LDC Group, provided an overview of the United Kingdom's preferential rules of origin, including trends concerning the utilization of trade preferences from 2021 to 2023 (_G/RO/W/228). The LDC Group noted that, despite a slight drop in import values, the UK had remained a significant import market for LDCs (mainly Asian LDCs, such as Bangladesh and Cambodia). At the same time, it was noted that utilization rates remained generally high (86.7% of all imports originating in LDCs received tariff preferences in 2023). However, a few products showed lower utilization (almost USD 1 billion of LDC exports were paying MFN duties, despite being eligible for preferences, mainly in the garments sector). In this regard, the LDC Group recommended a wider dissemination of information about preferential opportunities under the Aid for Trade umbrella to foster the fuller utilization of trade preferences granted to LDCs.

-_             [To be completed in light of the discussions held during the formal meeting of 21 and 22 November.]

3  Implementation of the Bali and Nairobi Ministerial Decisions

-_        Members considered section 7 "Conclusion and Next Steps" of the 2023 Report of the CRO to the General Council (_G/RO/99) and discussed how to take forward the work of the Committee in the coming years. Among the ideas proposed, several Members expressed the desire to have greater involvement by the private sector in the Committee's discussions. Several delegations thought that the input from businesses could help illustrate more specifically possible bottlenecks related to the utilization of trade preferences and rules of origin. The LDC Group also proposed that preference-granting Members shared their experiences related to rules of origin with a view to discussing and identifying possible best practices.

-_        In connection with next steps, Members also considered a work programme prepared by the LDC Group enumerating topics for discussion in 2024-2025 (_JOB/RO/118). Following consultations on the matters, Members agreed to structure discussions around a series of topics as proposed by the Chairperson (_ICN/RO/7).

4  Other issues considered

-_             Convergence of preferential rules of origin: Members heard a presentation by Senegal on behalf of the LDC Group on a paper (_G/RO/W/229/Rev.1) about the gradual convergence of preferential rules of origin for LDCs and the potential it carried to accelerate the diffusion of trade facilitating practices, reducing the variety of origin-related requirements and, therefore, reducing trade costs for LDCs (_RD/RO/116). He explained that convergence could be sought in relation to both the format of the rule (how the rule was drafted) and the content of the rule (what substantive requirements it contained). The presentation noted that several useful trends could already be observed in regional trade agreements of preference granting Members (for instance, the use of a method of calculation based on the value of non-originating materials; the application of the non-manipulation principle instead of the direct consignment requirement; and the deduction of freight and insurance costs from value calculations).

-_             [To be completed in light of the discussions held during the formal meeting of 21 and 22 November.]

5  Annual review of implementation

-_             [A draft of this report was considered by the CRO on 21-22 November 2024. The draft was subsequently completed, amended and adopted through written procedures.]

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