EU to Ease Trade Rules for Poor Countries

By Isolda Agazzi Reprint | | Print |

Isolda Agazzi

GENEVA, Oct 5 2010 (IPS) - The EU is due to adopt a simplified set of rules of origins for developing countries exports. Particular relaxations are foreseen for the least developed countries (LDCs), but the rules may mainly profit the strongest of them.

In today’s global supply chain, determining the origin of a pair of jeans — that may be designed in Italy, with denim tissue from Pakistan, yarn from Tunisia, the zip from France, final production in Lesotho, manufacturing in Tunisia and recycling in China — is a real headache.

Industrialised countries have granted preferential trade regimes to developing ones mainly by reducing import tariffs. But the latter have not been able to fully benefit from these arrangements because of other non-tariff barriers. Among these, rules of origin are a particularly difficult hurdle, but the European Union (EU) is on its way to changing its system.

“Right now we are not exporting one single textile to the EU,” a diplomat from an African LDC told IPS in an interview, “but rather to the U.S. because the AGOA scheme (the African Growth and Opportunity Act, that grants preferential market access to African exports) is much more relaxed in terms of RoO, among others. But maybe with the new European regime we will see more investors coming in.”

“Since 2003, the EU wanted to overhaul and simplify all RoO on its preferential trade regimes, starting with the Generalised System of Preferences (GSP),” says Andreas Julin, first counsellor at the EU delegation in Geneva.

The GSP is a preferential trade regime accorded by the EU to 176 developing countries that grants them entry into the European market at lower tariff rates. For LDCs, it foresees duty-free and quota-free market access for all their products under the ‘Everything but Arms’ initiative.

The new regulations should be adopted at the end of October. One of the major novelties is the simplification and relaxation of the appropriate rules for determining the origin of a product, that will be adapted to each sector.

For processed goods, what counts is the place where the substantial transformation has taken place, that is, the last country where it emerged from a given process with a distinctive name, character or use.

One way of determining that is to simplify the classification of products according to their tariff headings. Another is to look at the value added, and here “one of the major breakthroughs is that we have specific rules for LDCs,” said Andreas Julin. “We will require only 30 percent of local content on processed agricultural products, compared to 50 percent to 70 percent before.” The third way is to identify specific processing techniques goods have to go through to qualify for a preferential rule of origin.

“All ways can be used and the industry can chose the method it prefers,” Julin added.

Another pillar concerns the cumulation of origin, that maintains the possibility for regional cumulation, but with relaxed rules. “This is a way to support regional integration,” Julin told IPS.

“In specified regions, like ASEAN (Association of South East Asian Nations), you can cumulate within the region. A Bangladeshi bicycle producer, for example, can buy parts from other countries in the region and his bicycles will still count as originating from Bangladesh. But if he buys his parts from Africa, normal rules will apply. We have tried to simplify; before there was a value addition threshold. But for the system to work, countries within the region have to make sure that there is administrative cooperation in place.”

The EU will also establish more efficient procedures. The new system will be based on self-certification — exporters themselves declaring the originating status — whereas under the current one the export had to go to an authority and get an origin certificate.

“GSP rules apply across the board, but specific rules for LDCs are more relaxed than for other developing countries,” Julin said. “What is of interest for them, now and in future? Textiles and clothing. Here we have gone from double to single transformation, whereas for normal developing countries we have kept the double transformation.” Double transformation means that garments must be made from fabric produced in the region and the fabric must be made from yarn produced in the region.

“The EU’s revised rules of origin are a positive development given the slow progress in this critical area of global trade,” Gayatri Kanth, acting deputy executive director of the Agency for International Trade Information and Cooperation (AITIC) in Geneva told IPS. AITIC is an intergovernmental organisation that advises developing countries on trade negotiations.

“At a time when many industrialised countries are somewhat averse to embark on harmonisation of rules of origin, the EU’s move will send a strong message that it cannot be delayed. Clearly, these rules will have to be examined by each country, particularly LDCs in Africa, to assess how they would impact — positively or adversely — on their trade with EU-member countries.”

The African diplomat sees benefits, but he still has doubts: “The new system may bring in some benefits,” he told IPS, “but competition among LDCs, particularly from different regions, will be an issue. In Bangladesh, the textile industry is locally owned and strongly supported by the government. In Africa, investments often come from Asia, they are footloose industries that can leave at any time.

“Already now, under the crisis, we have industries leaving our country and relocating in Vietnam, where it is much easier to produce at lower costs.”