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._       Items 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: 29 April (_WTO/AIR/RO/19 and _JOB/RO/13) and 21-22 November (_WTO/AIR/RO/20 and _JOB/RO/14). The minutes of these meetings are contained in documents _G/RO/M/82 and _G/RO/M/83[1], respectively.

1  Transparency (notifications)

3._       The following points were noted in relation to 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 updated their 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. Morocco has provided extensive preferential imports for the first time. However, certain Members have yet to notify the required data (document _G/RO/W/163/Rev.13 contains a comprehensive overview of such notifications).

-_             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

4._       The following Members made presentations or reported developments in relation to their preferential rules of origin for 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 were 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 Generalized System of Preferences (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 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 African Growth and Opportunity Act (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.

The LDC Group later presented their views about possible reforms to the rules of origin used in the preferences of the US (_RD/RO/125) and urged the US to renew its GSP (which had expired in 2020) and extend the AGOA (which was set to expire in 2025). The Group asked the US to consider, among others, adopting a method of calculation based on the value of non-originating materials and expanding the scope of cumulation. The US noted that all its preference programmes used a method of regional value calculation based on originating content.

-_             Canada: Members also considered updates made to the Canadian preferential rules of origin (_G/RO/W/220). Even though 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 to source 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 allowed 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 and _RD/RO/117). 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. In response, the UK welcomed LDCs contribution on DCTS. The UK highlighted that earlier engagement from the LDC group on this work would enable more thorough analysis. The UK also indicated that given the lack of available time series data it is still too early to compare DCTS with other GSPs but, as more data becomes available, the UK will share its findings with the Committee.

-_             Japan: Japan described its GSP for LDCs (_RD/RO/127) and presented an overview of utilization of its preferences. Japan's GSP had been in operation since 1971 and that it was valid until 2031. It offered duty-free treatment for approximately 98% of tariff lines for LDCs. This scheme had significantly contributed to economic development in LDCs, supporting the export of a wide range of essential goods to Japan. The utilization of Japan's preferences had remained consistently high, averaging 90% over the last four fiscal years. For tariff lines that showed low utilization rates, it was noted that many LDCs could benefit from alternative duty‑free access, including under Most-Favoured-Nation (MFN) or Regional Trade Agreements (RTA). For example, Togo had a utilization rate of 0% of the GSP but 99.9% of Togo's exports had entered Japan duty free under MFN conditions. The same was true of other LDCs that also used Japan's RTAs. In relation to the concerns which had been raised by the LDC Group, it was noted that most tariff lines showed utilization rates above 80%, including the 52 tariff lines identified by the LDC Group as having strict rules. This suggested that the LDCs had the capacity to meet current requirements in Japan's preferential rules of origin.

In response, the LDC Group argued that the utilization of FTAs and of GSP preferences should be calculated separately, not lumped together, since, by definition, FTAs only benefitted few LDCs whereas a simplification of GSP requirements would benefit all LDCs (_RD/RO/129). This point was also reiterated by the LDC Group in their response to a Secretariat note on the modalities used in the Committee for the calculation of utilization rates (_G/RO/W/161/Rev.2 and _RD/RO/130).

-_             China: the Committee was informed that China's Electronic Issuance System on Certificate of Origin for Special Preferential Treatment would be updated on 25 November. After the update, besides acquiring blank Certificates of Origin (COs) for the Special Preferential Treatment (China's CO for LDC-PTA) from Chinese embassies in their countries, LDCs' issuance bodies could also apply for using this system to issue the CO online, and the data could be automatically and digitally transmitted to China's customs database for clearance procedure. China encouraged LDCs' issuance bodies to use the system to issue China's LDC-PTA, as the enterprises could benefit from the easier and faster clearance procedure thanks to its electronic data transmission mechanism.

3  Implementation of the Bali and Nairobi Ministerial Decisions

5._       Members discussed how to take forward the work of the Committee in light of section 7 "Conclusion and Next Steps" of the 2023 Report of the CRO to the General Council (_G/RO/99). Among the ideas, some Members thought that it may be useful to have greater input from the private sector to 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 identifying possible best practices.

6._       In connection with next steps, Members also considered a work programme proposed by the LDC Group for 2024-2025 (_JOB/RO/118). Following consultations, Members agreed to structure discussions around a series of topics as proposed by the Chairperson (_ICN/RO/7). During the meeting held in November, Members began the consideration of the proposed items with 6 presentations prepared by the LDC Group. Each of the presentations highlighted what the Group believed were best practices or trade-facilitating practices and formulated requests for reform or additional information concerning:

(i)_           Setting Level of Thresholds Percentages in the ad valorem percentage requirements (_RD/RO/120);

(ii)_          Methodology to Calculate Ad Valorem Percentages and the use of Ad Valorem Percentages in Origin Determinations (_RD/RO/119);

(iii)_         Substantial Transformation Using Change of Tariff Classification Criterion (_RD/RO/121);

(iv)_         Documentary Evidence of Direct Consignment (_RD/RO/124);

(v)_          Proof of Origin and Small Consignments (_RD/RO/123);

(vi)_         Cumulation Provisions (_RD/RO/122).

7._       After each presentation, Members discussed the individual topics. In some instances, preference granting Members corrected or clarified the information presented by beneficiaries. Some preference granting Members noted that what constitutes a "best practice" may vary by programme and beneficiary.

4  Other issues considered

8._       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.

9._       In response, some Members expressed reservations about a CRO workstream on convergence and clarified that the Nairobi Decision did not require preference-granting Members to align their preferential rules of origin.

10._    The Committee also heard two additional presentations one concerning convergence of rules of origin in major RTAs globally (presented by UNCTAD) and another in the Asia-Pacific region (presented by Asian Development Bank, invited on an ad hoc basis). UNCTAD and the ADB presented ongoing research that compared product-specific rules of origin used in several major RTAs. The presenters noted that despite differences in language used to draft such rules (form) and lack of coordination, the content of the rules was either identical or very similar (substance). That observation opened opportunities for diminishing the variety of rules of origin and hence reducing the costs of compliance with such requirements for businesses. They argued that the CRO could consider the simplification of rules of origin and the use of increasingly common, trade-facilitating rules of origin. They also clarified that the research and any possible conclusions did not specifically concern preferential rules of origin for LDCs. 

11._    In response, one Member expressed reservations about the capacity of the CRO to undertake work on convergence of ROOs at this time, noting its existing workload and other priorities.

5  Annual Report to the General Council

12._    A draft of this report was considered by the CRO on 21-22 November 2024. The draft was subsequently completed and amended by the Secretariat and circulated for consideration. It was revised on 19 December in light of comments received. In the absence of comments, the report was adopted through written procedures on 20 December 2024.

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