Rankling ROs Denying Benefits Of GSP

Written by Malcolm Subhan | Brussels, Feb 1: | Updated: Feb 2 2004, 05:30am hrs
If you thought that it was high tariffs which kept your goods out of European markets, then think again. The barrier youre really up against is probably rules of origin (ROs). Even if your goods are entitled to duty-free entry under the generalised system of preferences (GSP) scheme operated by the 15-nation European Union (EU), you may still be denied GSP benefits because of the ROs.

This was the message that was put across by speaker after speaker at the 2-day conference on ROs organised earlier this week by the Brussels-based World Customs Organisation (WCO), which represents 162 Customs administrations from around the globe.

Restrictive ROs have limited the value of preferences granted by the EU, US and other industrialised countries, Paul Brenton, a senior economist with the World Bank, told the conference. And the potential benefits of trade agreements amongst developing countries can be undermined if those agreements contain restrictive ROs, he added.

Ask garment exporters in Bangladesh. Bangladesh has emerged as one of the major garment exporters to the EU, with exports of some $2.5 billion in 2002, as compared to $2.4 billion for India. Because it enjoys duty-free and quota-free entry into the EU as a least developed country, you might think.

The fact is that only 11% of Bangladeshs exports of woven garments to the EU actually enjoyed duty-free entry; the remaining 89% paid the full tariff. Bangladeshs garment manufacturers largely fail to meet the EUs ROs, because they import fabrics from countries excluded by these rules.

Bangladesh garments would enjoy duty-free entry if they were made from cloth imported from India or Pakistan - or from EU countries. This is because the EUs ROs provide for cumulation. In other words, intermediate products (cloth or zippers) imported from another South Asian Association for Regional Co-operation (Saarc) country make the final product eligible for duty-free entry.

But for a variety of reasons Bangladeshs garment manufacturers prefer to import from elsewhere in Asia. Meanwhile the countrys nascent textile industry is trying to supply the local garment manufacturers the cloth they need, in order to meet the EUs ROs.

As tariffs come down (in the framework of the Doha Development round of negotiations, for example) ROs may become stricter. These rules are already stricter in the EU for agricultural products and textiles, as compared to other manufactured products. The EU could well maintain its more restrictive rules for garments, in order to off-set the elimination of textile and garment quotas after January 1, 2005.

The European Commission, the EUs executive arm, is currently reviewing its ROs, which were drawn up in the early 1970s, in a different geopolitical, economic and technological context to that of today, according to Mrs Lopez-Jorrin, the Commission official managing these rules.

She told the WCO conference that the rules originally were determined more with the aim of protecting domestic industry while very little consideration was given to the beneficiary countries. Since then the EU had concluded a number of preferential agreements. Their implementation had resulted in growing tensions, due mainly to the need to satisfy contradictory objectives or contradictory economic interests.

The time had come, Mrs Lopez-Jorrin noted, for the EU to rethink the current framework for determining, managing and supervising preferential origin. To this end the European Commission had launched a wide-ranging debate by publishing a consultation document, together with a questionnaire. Both are available on the Commissions website.

As for the likely thrust of the future ROs, the European Commission is maintaining a discreet silence, pending the conclusion of this public debate (the last date for replies is March 1). Mrs Lopez-Jorrin told the conference that the rules needed to be clear, predictable and easy to understand and apply, and in line with the objectives they are supposed to serve.

These objectives were clear in the early 1970s, when the EU first introduced its GSP scheme. The key objective was to encourage the industrialisation of developing countries, by granting them duty-free entry as far as possible. The scheme provided for duty-free entry for textiles and garments, for example, but within fixed quotas.

Since then the EU has entered into a growing number of bilateral and regional free trade agreements with both developed and developing countries. The aims can be political as much as commercial. The EUs historic ties with Africa led it to grant preferential treatment to its former colonies in the 1960s. It is negotiating regional free trade agreements with countries in Latin America in competition with the United States. Here the aim is to strengthen political ties as much as promote trade and investment.

Political as well as economic considerations underpin the very ambitious network of bilateral and regional free trade agreements which the EU is negotiating with its neighbours to the south and east. The aim is the creation of a Pan-Mediterranean free trade area covering some 35 countries when completed, with the 25-nation EU at its centre but including Egypt and Israel as well as Tunisia and Morocco.

The EU is following a policy of harmonising its ROs for all its preferential regimes, in order to make it easier for its own producers to take advantage of the export opportunities free trade agreements offer them. Harmonised ROs would also make it easier for customs authorities to clear imports.

The fact is that complicated ROs make life difficult not only for traders but also customs officials. The WCO conference was aimed primarily at customs authorities, of course. But as many of the speakers made clear, the profusion of preferential agreements of all kinds could turn out to be counterproductive, hampering the smooth flow of international trade. The result could be a return to multilateralism, as represented by the WTO, and a determination to make a success of the Doha Development round of negotiations.