The European Commission on 18 November 2010 adopted a regulation revising rules of origin (RoO) for products imported under the generalised system of preferences (GSP). This regulation relaxes and simplifies rules and procedures for developing and least developed countries wishing to access the EU’s preferential trade arrangements, while ensuring the necessary controls are in place to prevent fraud. The new rules of origin will apply from January 01, 2011.
The Regulation adopted by the Commission will considerably simplify the rules of origin so that they are easier for developing countries to understand and to comply with. The new rules take into account the specificities of different sectors of production and particular processing requirements, amongst other things. In addition, special provisions are included for Least Developed Countries (LDCs) which would allow them to claim origin for many more goods which are processed in their territories, even if the primary materials do not originate there, the EU statement said.
In the textiles and clothing sector, which is of particular importance to many beneficiary countries but in particular LDCs, single-stage processing (manufacture from fabric) is allowed for LDCs instead of the two stages of processing (manufacture from yarn) required by the previous rules. That means clothes made in Bangladesh from January 2011 will have duty-free access to the EU market even if they are made of imported fabrics. Duty in the EU market on woven and knit RMG is on average 12% and 12.5% respectively.
The Generalised System of Preferences (GSP) is a preferential trade arrangement which gives preferential tariff treatment (i.e. reduced or zero import duty) to imports from developing countries. It is a unilateral arrangement (i.e. granted autonomously by the Community, and not reciprocal). It includes the so-called Everything But Arms (EBA) arrangements, which grants duty- and quota-free access to all goods except arms originating in the least developed countries (LDCs).
Rules of Origin (RoO) are the means by which it is determined that goods really were produced or manufactured in the beneficiary country to which the preferential tariff treatment is granted. To be considered as originating in the beneficiary country concerned and thus to be able to benefit from the preferential treatment, goods must be wholly obtained (e.g. grown, mined) there or, where this is not the case, have undergone sufficient processing there.
The threshold of value addition for other industrial products will be reduced to 30 percent from a previous 70 percent — so that even with up to 70 percent of foreign input, a product could still be viewed as originating in Bangladesh, the EU release said.
The original purpose of the RoO was to encourage beneficiary countries such as Bangladesh to develop backward linkage industries in order to ensure compliance with the RoO requirements under the EC GSP scheme. But having remained largely unchanged since 1970, EU textiles and clothing rules were the subject of frequent criticism and were widely regarded as being out of touch with global dynamics prevailing in this sector. EU RoO have traditionally considered textiles and clothing production in a very structured and somewhat outdated manner. The revised RoO takes a more globalized outlook and will provide the products originating in the least developed countries a better utilization benefit and should result in increased exports from them, the EU release observed.
Presently, GSP utilization is roughly 90% for knit and 25% for woven.
“It is a big development for our exports. It will definitely give our exports, especially the woven items, a further boost to the EU market,” President of the Bangladesh Garment Manufactures and Exporters Association (BGMEA) Abdus Salam Murshedy told in his instant reaction to the EU’s new regulation.
Abdul Hai Sarker, president of Bangladesh Textile Mills Association, said the backward linkage industry is fully equipped to take on the challenge, at least for knitwear.
Mustafizur Rahman, executive director of Centre for Policy Dialogue (CPD), sees the new move as a boon for Bangladesh. Apparel exports to the EU will increase manifold for the new move.
He, however, thinks the domestic backward linkage industry, especially woven, will face slight competition because the backward linkage industry is not strong like knitwear and many manufacturers import fabrics from other countries, especially China.
Rahman suggested the government continue an adequate supply of gas and power to the backward linkage industries so that they can produce fabrics and yarn in time to tackle competition.
Additionally on the procedural side, the current system of certification of origin by the authorities would be replaced by statements of origin to be given directly by registered exporters (REX). However, the introduction of a registered exporter system has been deferred until 1 January 2017 at the earliest precisely because of the need to ensure trouble-free technical implementation. Until 2017 and beyond this date for beneficiary countries not then in a position to apply the new system, transitional rules concerning the procedures and methods of administrative cooperation should be laid down streamlined with the new rules. In particular, those transitional provisions should provide for the issue of proof of origin by the competent authorities of the country concerned, EU statement said.
The main principles for the new regulation, namely, simplification and development-friendliness, were laid down in a Communication on the future of rules of origin in preferential trade arrangements adopted by the European Commission on 16 March 2005 following a wide-ranging debate initiated by a Green Paper of 18 December 2003. The final proposal was elaborated after two years and a half of discussions within the Community Customs Code – origin section committee.