Simplifying the Rules of Origin

There is, apparently, no debate over the positives from relaxed rules of origin (RoO) on increased exports. The case is more aptly so when it comes to the least developed countries (LDCs) which, for the most part, are constrained to raise their exports to desired levels due to difficulties in complying with RoO norms -- often found too stringent by such economies. This is precisely why, LDCs have been clamouring on the issue given a chance in the multilateral forum of the World Trade Organisation (WTO).
Recognised as one of the key tools of market access, the rules meant to determine the origin status of products from exporting countries are not just about tracing where (the country) the products originate from.
In respect of the bulk of the natural -- agricultural and aquatic - products, it is the source of origin that fulfils the RoO requirements by way of recognising these as wholly obtained products. But in case of the manufactured products, it is by way of determining the required value addition that constitutes the compliance norms.
Depending on the nature and terms of trade agreements among countries - bilateral or regional - the requirements of the RoO vary. However, because of supply-side constraints in most LDCs, especially in respect of manufactured products requiring inputs from third-country sources, these countries are generally offered comparatively relaxed conditions for their products to qualify for market access and preferential duty in the desired overseas destinations under the Genearlised System of Preferences (GSP) or Regional Trade Agreements (RTAs).
The reason why RoO features as one of the long-drawn issues of the LDCs is that many of these countries contend that the developed and developing countries alike often resort to using the RoO as protectionist barriers to shield their domestic markets from competition.
At a discussion meeting jointly organised by the Metropolitan Chamber of Commerce and Industry (MCCI) and the Bangladesh Foreign Trade Institute (BFTI) in the capital recently on 'Bali Decision on Preferential Rules of Origin for LDCs: Issues for Bangladesh', speakers spoke of RoO as  trade-restrictive, denying access of the country's products to various overseas markets, and called upon the government to team up with the LDC group in a concerted way towards further liberalising and relaxing the qualifying norms under the rules of origin regime.
In recognition of the fact that RoO is crucial to the LDC exports, the Committee of Rules of Origin at the WTO reviews the developments time to time in line with proceedings of the global trading practices.
The issue came up prominently at the WTO Bali Ministerial. It was agreed there that in line with the WTO Work Programme, subsequent negotiations on RoO will require a proactive engagement on the part of the LDCs. This goes to imply that much of the ongoing demands for simplified and flexible rules of origin will depend on how the LDCs themselves pursue and advance their common cause through future trade negotiations on the matter.
Rules of Origin have been under consideration by the WTO since its inception in 1995, but a consensus is yet to be arrived at. The main reason for lack of consensus could well be that different Members of the WTO expect RoO to serve different functions.
Now, looking at the issue too simplistically might offer misleading results. True, simplified rules of origin (with no twists to be abused otherwise by importing countries) will immensely benefit LDCs like Bangladesh. In fact, it is the relatively relaxed rules of origin (in the European Union, for example) that has helped countries like us over the past decades to thrive, despite the looming threats to prospects of export growth. Further relaxation of RoO has ramifications that are to be taken into account.
There can be no denying that given an environment of minimum value addition, say of 15-20 per cent, exports, including of manufactured products, will definitely be easier for many countries. But in the process, there may be little or no expansion in the linkage industries. This is believed to be the general principle governing the whole issue, and truly so.
On the other hand, simplification of RoO is not about lowering value addition only. There is a definite need for simplification in other aspects as well -- as demonstrated in the EU GSP scheme. It has been found that as a fallout of the simplification of the EU GSP, exports from Bangladesh to the EU grew around 16 per cent between 2011 and 2013. It has also helped the growth in the export of diversified products.
Given the dynamics governing RoO, there is the definite need for the LDCs to get together in order to firm up their stand on how to go about in future negotiations on the issue for their collective benefit. Bangladesh, needless to say, has a key role to play in this.
wasiahmed.bd@hotmail.com