Dec 12, 1985
LIBERALISATION OF GSP RULES OF ORIGIN ADVOCATED.
GENEVA, DECEMBER 10 (IFDA/CHAKRAVARTHI RAGHAVAN)— The rules of origin governing imports under various GSP schemes have considerable scope for further harmonisation and simplification, as well as liberalisation, according to the UN conference on trade and development.-The UNCTAD assessment is in a report to the working group on rules of origin for Generalised Scheme of Preferences (GSP).- In allowing duty-free imports of goods from preference-receiving Third World countries, preference giving industrial countries generally have rules of origin for the imports, whose main purpose is to prevent deflection of trade.- All such rules generally have two concepts of origin.- One is the "wholly-obtained" concept, or for the goods to be entirely the product or manufacture of one preference-receiving country.- The other concept is of goods produced in the preference-receiving country from materials etc obtained from outside, but which undergoes "substantial transformation" in the exporting country.- This "substantial transformation" is interpreted either in terms of the "process" criteria or process of manufacture resulting in change in classification of the imported materials under the customs cooperation council nomenclature (CCCN), or the percentage criteria prescribing the maximum amount of imported material that may be used or the minimum amount of domestic content that must be used in the product.- The process criterion is used by preference giving countries of West Europe and Japan, while the percentage criterion is used by Australia, Canada, New Zealand, U.S.A., Bulgaria, Czechoslovakia, Hungary, Poland and USSR.- The five Socialist countries have fully harmonised their percentage criteria rules with each other. But those applied by Australia, Canada, New Zealand, and the U.S. differ from each other, and those of the Socialist countries.- This makes it very difficult for an enterprise to produce a product that could be exported to different countries.- One of the tasks of the working group is to consider concrete proposals for changes and improvements in the rules, including greater harmonisation and simplification.- UNCTAD notes that over the decade, while some progress has been made in harmonisation of the process criterion, differences of substance continue between Western Europe and Japan, over levels of percentages set for imported materials or originating products or in the processes prescribed.- UNCTAD notes that origin rules were intended to ensure that the benefit of preference is given only to products which are the bona fide manufacture of a preference-receiving country, thus excluding products of Third World countries that merely transit or undergo superficial transformation in the receiving country.- Origin rules also help create a favourable climate for expansion of export trade, encouragement of foreign investment, process of industrialisation, and growth of employment and raising living standards in the receiving country.- Extremely liberal rules encourage a high proportion of Third Country materials in manufacture of GSP exports, and thus result in very limited manufacturing in country of origin.- However very strict rules only benefit those countries that posses or could attract foreign interest for broad-based manufacturing industry using a high proportion of domestic content.- UNCTAD suggests that GSP origin systems are not balanced between these two extremes.- Few preference-receiving countries at early stages of development could satisfy the process criteria in various schemes.- In regard to percentage-criterion, the low labour costs that attract foreign investment in many Third World countries, become a disadvantage in fulfilling the percentage of value added in processing before exports.- Despite efforts at harmonisation and simplification over the last decade, apart from the considerable difference in methods of interpreting "substantial transformation" (process or percentage criteria), there are widely differing interpretations within each criterion also.- A product manufactured to suit rules of the U.S., might not qualify for Australia, New Zealand or Canada, leave aside EEC or Japan.- And when two markets are adjacent, as U.S.A. and Canada, the exporter is at even greater disadvantage, specially when the receiving country is at the stage of infant or small-scale industry.- UNCTAD notes that in respect of trade between the EEC and the European Free Trade Association (EFTA) countries, the process criterion rules were seen as complex even for sophisticated and advanced industrial countries, and simple alternative percentage rules were introduced.-In calculating the percentage costs of production, the variations in the costs allowed in some preference-giving countries and not allowed in others also creates problems of exporters.- The correct separation of costs required, by the U.S. rules, UNCTAD notes, has been reported as "impossible for small scale exporters".-UNCTAD notes that after the post-Tokyo Round tariff cuts, which have brought down most-favoured-nation duties to very low levels, fears of deflection of trade, underlying strict rules of origin for GSP, no longer was important.-In suggesting some liberalisation measures, UNCTAD suggest that an increase in the proportion of Third Country materials used in GSP eligible products, would reduce the protectionist element in the present rules and a reduced degree of restrictiveness more appropriate to Third World countries.-It would also give a better opportunity for preference-receiving countries at an early stage of development to obtain a fairer share of the trade.- In case of countries using the percentage criteria, UNCTAD suggests an adjustment of the percentage figures currently prescribe in respect of use of third country material.- In the case of those using process criteria, the liberalisation could be to provide that 20 percent of the imported materials need not undergo this change.- The derogation from application of rules of origin, now provided by the EEC to LDCs, UNCTAD suggests, could be more useful if derogation approvals are granted for long periods of time, long enough to establish production, establish markets and ensure return on investment.- In UNCTAD’s view the rules applied by EEC, Japan and West Europe countries for fishery products are "particularly severe".-To qualify, the products of sea-fishing should be by vessels registered in the preference-receiving country, sailing under its flag, owned by at least 50 percent of its nationals or by a company with head office in the country and at least 75 percent of the crew, and captain and officers of the ship being nationals of the country.- "There are unlikely to be many vessels and crew available in most preference receiving country to satisfy such rigorous conditions", UNCTAD points out.-Another area of liberalisation, UNCTAD suggests, could be in cumulation arrangements, whereby the producer of the final product is enabled to have a wider choice of materials and components from any of the other GSP beneficiaries.- Japan and eight other preference-giving countries regard any material originating from their own country, and used in the final product, as "originating" in the country of the final product.-Such a rule, if applied by others, could assist in the development of sophisticated industries in preference-receiving countries, UNCTAD suggests.- The EFTA rules, whereby raw materials and some manufactures could be treated as goods from within the area, whatever their origin, could be usefully included as a concept in various GSP rules of origin, and could be an alternative to global cumulation. For LDCs, apart from general measures of liberalisation, there should more radical and specific measures.- The current "substantial transformation" required in both processes and percentage criteria are beyond the capability of a single LDC, and probably even if cumulation was permitted between all LDCs, UNCTAD feels.- The basic materials concept of the EFTA, or direct introduction of specially liberalised rules of origin for the LDCs, UNCTAD suggests, should be applied by all preference-giving countries.- UNCTAD has also made several suggestions for harmonisation and simplification of the various rules of origin, the rules relating to consignment of goods via third countries, and in the documentation requirements.-