A Brief Note on Preferential Rules for LDCs

Least Developed Countries (LDC) are low-income countries that face significant structural challenges to long-term development. They are susceptible to environmental and economic shocks, and their human capital/assets are limited.

Hence, we can say that the criteria for LDC are –

• Extensive poverty

• Human resource fragility

• Economic vulnerability 

Every three years, the Committee for Development (CDP) reviews the record of the Least Developed Countries and takes a decision accordingly. 

Despite accounting for around 12% of the world’s population, LDCs account for less than 2% of global GDP and just about 1% of worldwide products trade. Their involvement in the global service trade is significantly lower. The World Trade Organization (WTO) panel acknowledges that the LDCs require particular consideration and assistance to accomplish their development and trade goals.

What are the Rules of Origin? 

The criteria to determine where a product is created are the rules of origin. The determination of rules of origin is crucial in implementing trade preferences since they specify the requirements that a product must meet to qualify for preferential treatment.

Preferential and Non-Preferential Rules

Preferential rules of origin are those that apply in reciprocal trade preferences (e.g., regional trade agreements or customs unions) or non-reciprocal trade preferences (e.g., free trade agreements).

The general regulations of Annex II of the Agreement on Rules of Origin must be followed by the rules of origin that apply under regional trade harmony or reciprocal trade preferences.

Non-preferential rules of origin apply when no trade preference exists, i.e., trade is conducted on a most-favoured-nation basis. Not all countries have particular legislation governing non-preferential origin restrictions. Some trade policy measures, such as quotas, anti-dumping, or “made in” labelling, may, nevertheless, need a determination of origin and, as a result, non-preferential regulations.

Help by UNCTAD and the Work of WTO

Several programmes and agreements provide LDCs special tariff treatment in developed and developing country markets. The United Nations Conference on Trade and Development (UNCTAD) has aided governments in formulating preferred rules of origin (RoO) from its founding, beginning with the RoO from the Generalised System of Preferences. UNCTAD’s technical assistance has recently concentrated on implementing the WTO’s 2005 Hong Kong ruling on duty-free, quota-free market access and comprehending and drafting RoO.

One-on-one training sessions, the authoring of advising memoranda, and the production of background materials, briefing notes, and presentations are all made available by UNCTAD.

During their 2013 Ministerial Conference in Bali, Indonesia, WTO members endorsed a Ministerial Decision on preferential rules of origin for LDCs. For the first time, the Bali Decision establishes a set of multilaterally agreed-upon rules to assist LDC exports in qualifying for preferential market access. The Decision recognises that each country offering trade preferences to LDCs has its own system of determining rules of origin. It welcomes members to use the provisions in the Decision as a starting point for developing or improving their own rules of origin arrangements for LDCs.

Building on the 2013 Bali Ministerial Decision, the Nairobi Decision offers more precise guidance on issues such as establishing whether a product is “manufactured in an LDC” and when contributions from other sources can be cumulated into the origin consideration. The Decision, for example, recognises that “significant change” might be defined in a variety of ways. It also includes components that, if accepted, would make it simpler for LDC manufacturers to meet origin standards.

Preference-granting members should also consider other ways to streamline customs operations, such as allowing self-declaration or reducing documentation requirements for small consignments.

The WTO’s Committee on Rules of Origin shall examine and report to the General Council on developments in preferential rules of origin applicable to imports from LDCs on an annual basis, in accordance with the Nairobi Decision. The WTO Secretariat will provide an annual report on the review’s findings to the Sub-Committee on LDCs.

Conclusion

The organisation’s and Committee’s work has concentrated chiefly on harmonising non-preferential rules of origin since the ratification of the Agreement on Rules of Origin. WTO countries have lately started working on preferential rules of origin, namely the rules of origin employed under trade preferences for LDCs. Mr Sulaiman Satari is the current chair of the Committee on Rules of Origin (Afghanistan).

For the past few years, the WTO Committee on Rules of Origin has focused on connections between rules of origin and use of preferences (with emphasis on LDCs).