"WE WILL SEE WHAT WE CAN DO" ON ORIGIN RULES

Dec 18, 1985

"WE WILL SEE WHAT WE CAN DO" ON ORIGIN RULES – OECD.

GENEVA, DECEMBER 14 (IFDA/CHAKRAVARTHI RAGHAVAN)— The Western Industrial countries have agreed to go home, reflect, and see "what we can do" to improve the origin rules of their respective schemes of generalised system of preferences to enable greater utilisation by the beneficiary Third World countries.-

This assurance came Friday at the conclusion of a week long meeting of the working group on rules of origin for GSP schemes, with spokesmen of regional groups unanimous in their appreciation of the usefulness of exchange of views and experiences, in an atmosphere of goodwill and cordiality.-

In undertaking the first major review for four years of the rules of origin under the various generalised schemes of preferences, the working group was also carrying out a mandate for fresh initiatives on further liberalisation and harmonisation and simplification of the rules, improvement in the cumulation provisions, and with special attention to the problems of the Least Developed Countries (LDCs).-

The generalised system of preferences were introduced by the industrial countries in 1970-71, on an initiative of UNCTAD, benefiting the Third World countries.-

Under the various schemes, exports from the Third World get duty-free treatment, provided the exported goods satisfy the requirements of the rules of origin under the particular GSP scheme of the preference-giving country.-

Apart from products originating completely from the exporting country, all other exports, to get GSP benefit, have to undergo "substantial transformation" - the extent to which the materials imported by a country of origin has been processed into a different product.-

Some of the preference-giving countries (EEC, Western Europe and Japan), adopt a "process criteria", which specifies the extent of transformation needed, changing the imported product from one heading of the CCCN (Customs Cooperation Council Nomenclature) code to another heading.-

Other countries, notably Australia, Canada, U.S.A., New Zealand, and the Socialist countries, adopt a "percentage criteria", which specifies that a percentage of the ex-factory cost of the product seeking GSP benefit should be attributable to labour and materials of the country seeking the GSP benefit.-

Over the years, changes in the rules of origin introduced by each preference-giving country has resulted in a complex situation, where often a product satisfying the rules of one country would not satisfy another, and the basic purpose of the GSP itself has been undermined.-

Another complicating factor is that most countries will be switching from the CCCN code to the Harmonised System (HS), which is due to become effective from January l, 1987.-

Both the UNCTAD’s Special Committee on Preferences, and UNCTAD-VI at Belgrade, have called for simplification and harmonisation of the various rules, and their liberalisation, so as to enable increased use of the GSP benefits.-

It has been estimated that overall only about 40-50 percent of the products eligible for GSP benefits actually get the benefit, because of the complexities of the rules of origin.-

According to UNCTAD estimates, in 1984 some 40 billion U.S. dollars worth of trade entered the industrial countries under the GSP schemes, compared with 12 billion in 1976.-

The agreed conclusions of the working group on Friday, at the end of the session, did not produce any new initiatives, to enable greater utilisation of the GSP schemes by Third World exporters.-

However, the frank and detailed exchange of views and experiences, of both the preference-receiving and the preference-giving countries, helped to put the problems of each side better known to the other.-

At the end of the plenary of the working group, after adoption of the agreed conclusions, the Swedish delegate, Tore Gabrielsson, who was speaking for the OECD group of countries, said: "we will go home and reflect on what has been said here, and see what we can do".-

Third World participants said in this matter there was not only differences in the approaches among the Group of 77, but also within the OECD countries.-

The European Community was said to be "positive" but so cautious as to amount to little. The U.S. representatives reportedly made clear that in the current climate on foreign trade in the U.S., the most they could do was to enable continuance of GSP, and any effort to improve might result in its abrogation by the Congress.-

The Socialist countries have implemented most of what the Third World is seeking, and what UNCTAD secretariat has suggested.-

Some of the other OECD countries are willing to do more, but their markets are not large enough to make a material difference to the Third World exporting countries.-

In the agreed conclusions, the working group said that the ideal to be strived for should be "the adoption of a uniform and clear definition of the concept of substantial transformation", and that further consideration should be given in pursuit of this objective.-

The working group took note of the expressed intention of the preference-giving countries, using the process criterion (the EEC, EFTA and Japan mainly), to introduce important simplification in the presentation of their rules in changing over from the CCCN to the HS system.-

The working group took note in this connection of the conclusions of the Special Committee on preferences that in such a change over, the overall level of GSP benefits should be maintained.-

In the discussions in the working group, a number of preference-receiving countries had sought liberalisation of the percentage criterion, by increasing the permitted proportion of imported inputs.-

In the course of the discussions, a number of preference-receiving countries gave concrete examples of the negative impact of lack of harmony among the various origin rules.-

Sri Lanka called for abolition of the process criterion and adoption of percentage criterion by everyone. This view was supported by Bangladesh, which suggested a 35 percent minimum value added as a criteria, with this reduced to 20 percent for LDCs.-

Thailand underlined the need for preference-giving countries, using the percentage criteria, in harmonising the methods and elements involved in the calculations. Ball-bearings made in Thailand that qualified for GSP in U.S.A. and Japan, the Thai delegate complained, did not do so in the EEC.-

Nikolai Semin of the Soviet Union, speaking for the Socialist countries, noted that within his group full harmonisation had been achieved, and a single value-added criterion, permitting import content of 50 percent, had been evolved.-

The working group took note of the requests of the beneficiary countries that in schemes prescribing percentage criteria, steps should be taken to liberalise this criterion through an increased in the permitted portion of the imported inputs.-

The working group agreed to consider this proposal further.-

Preference-giving countries had also requested that in calculating the percentage criterion, the FOB export prices should be taken into account.-

While some of the preference-giving countries already do sol others expressed doubts about the benefits of such a change-over.-

A major question that came up repeatedly in the speeches of the preference-receiving countries, was the complaint that the countries applying the process criterion, had prescribed "an unduly restrictive five percent limit" on imported inputs in respect of manufactured goods falling under chapters 84 to 92 of the CCCN code.-

The goods referred to are mostly electronic consumer goods like radios, TVs, and other such products, where many of the third world countries do not make all the components but import them from elsewhere.-

The five percent limitation on imported inputs in respect of these products in effect prevents them from import and assembly of such products for exports - a necessary stage before production of components can be established.-

The preference-giving countries applying this rule however considered this particular rule as "a minor adjunct" to the basic origin rules that provide for higher levels of imported inputs.-

On the request for the concept of "donor country content" (which would qualify to meet the percentage criteria), some of the preference-giving countries (like Japan) already applied such provisions. Others have promised to give further consideration to this.-

Another persistent issue was the request for "full and global cumulation" - the part processing of a product in any of the preference-receiving countries could be added up and qualify for GSP benefit at the time of the final export of the product from a country of origin. -

Some of the preference-giving countries, but mainly the Socialist countries of Eastern Europe, already do this.-

The other OECD countries, who apply this rule to regional groupings, noted the significant improvements in respect of these that had been recently introduced, but believed that "full and global cumulation would present serious and burdensome administrative and legal problems".-

In respect of the LDCs, the preference-giving countries indicated their willingness to give sympathetic consideration to particular difficulties of the LDC concerned, and agree to a derogation to permit significant increases in the proportion of imported goods.-

The agreed conclusions also took note of a number of improvements being effected in respect of administrative procedures, and in regard to GSP exports passing in transit through third countries.-

In welcoming the outcome, the G77 spokesman, Mahmoud Assran of Egypt, said that the efforts of the working group, and the exchange of views this week, had been useful. But a great deal more remained to be done.-

Assran hoped that the various suggestions and requests could be pursued further at the next meeting of the working group (excepcted to take place in 1987, perhaps after UNCTAD-VII, and after the new HS system has come into effect).-

Nicolai Semin of the Soviet Union, speaking for the Socialist group, expressed satisfaction at the outcome, but agreed that more remained to be done to achieve the objectives set out in the consensus resolution of UNCTAD-VI at Belgrade in 1983.-

The chairman of the working group, Daniel Vujicic of Yugoslavia, expressed satisfaction at the outcome of the meeting - both in the agreed conclusions, and the useful and derailed exchange of views and experiences among the participants.-

The exchange of views, he said, had given a clearer picture to everyone and showed where there were real and serious problems, and new solutions or answers were called for.-