Towards Inclusive Rules of Origin

November 21, 2016

On November 21-22, 2016, the ICTSD in partnership with the Inter-American Development Bank (IDB) organised a dialogue on inclusive rules of origin (RoO). The meeting represents the first in a series of RTA Exchange dialogues set to take place over the course of 2016 and 2017 to systematically explore possibilities for coherence and best practice between trade agreements at the the regional and global level, with the aim of ultimately contributing to a more inclusive global trade system that delivers sustainable development for all. RTAs have been a driving force behind recent trade liberalisation efforts and the formation of many global value chains (GVCs). However, RTAs also create limitations for both countries inside and outside a trading block due to their rules of origin. The complexity and variety of RoO that exist today represents a challenge for many firms seeking to participate in production networks across various trade agreements. Empirical evidence suggests that strict rules of origin often result in the sub-optimal functioning of value chains by disincentivising the use of cheaper parts and materials from third countries. Complex and diverse sets of RoO have also affected the ability of developing countries including least developed countries (LDCs) to fully benefit from the enhanced market access granted through preferential schemes or negotiated under their RTAs.

Agenda: Link



Dialogue Report and Background Materials

During the two day meeting twenty trade policy experts discussed the role of RoOs in the international trading system and identified the bottlenecks that arise in their application, especially in the cases where they impact trade of developing countries. The discussion focused on analyzing recent trends in RoO, different sectoral approaches and harmonization models as well as ways forward to ensure inclusive RoO regimes worldwide.


Building Inclusive Rules of Origin in the 21st Century

This is an overview report of the Rules of Origin Dialogue held November 21-22, 2016. The report report provides an analysis and evaluation of rules of origin in the context of RTAs and the multilateral system. The number of bilateral and plurilateral trade agreements, and preferential trading schemes has increased dramatically over the past two decades. These agreements effectively enable today’s international production-sharing possibilities and are at the centre of developments in supply chains and the fragmentation of value-addition. The rules of origin contained within RTAs therefore have significant implications in the way firms choose the locations in which they set up segments of their production. Consequently, strict RoO can result in economically sub-optimal functioning of value chains by disincentivising the use of cheaper parts and materials from third countries. Strict and diverse RoO also affect the ability of developing countries – especially the least-developed countries – to fully benefit from the enhanced market access granted through RTAs.

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Addressing Origin Operational Challenges

This paper reviews reciprocal and unilateral preferential rules of origin, including the possibility of introducing expanded cumulation flexibilities to show why they are seemingly resistant to harmonisation and simplification efforts. It explains, from a practitioner’s perspective, several of the main administrative and structural challenges faced by large and small producers, and in particular small and medium-sized enterprises, in both developing and developed economies. It then proposes some policy options and practical solutions to address these challenges.

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Towards Convergence on Rules of Origin Between Trade at the Regional and Multilateral Level

The ongoing stalemate on the Harmonization Work Programme (HWP) with respect to non-preferential rules of origin (RoO) has left business trade negotiators and customs officials negotiating free trade agreements (FTAs) in a “no man’s land.” Progress is clearly needed to ensure trade facilitation, not only for least-developed countries (LDCs), but all states in the period ahead. This paper examines some of the current limitations on RoO and the causes of deadlock. It also reviews lessons learned thus far in the implementation of RoO to put forward recommendations concerning cumulation, administration, and the need to take into account services in the manufacturing process.

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The Preferential Origin Regime and Global Value Chains

Access to preferential import tariffs under a free trade agreement (FTA) is governed by clearly defined rules of origin designed to prevent non-members from enjoying the benefits. However, a company’s ability to trade under preference even when it meets these rules, is subject to a number of other conditions and requirements. In particular, the documentary evidence required to demonstrate compliance with rules of origin can create an unintended second layer of protection and act as a non-tariff barrier to trade. This paper examines the current rules of origin requirement and how it applies to global value chains. It puts forth several recommendations for improvements in implementation.

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