Rules of Origin: The Private Sector’s Perspective in the EAC

Rules of Origin (RoO) are the criteria used to determine a product’s nationality in order to apply duties and restrictions based on the source. They refer to laws, regulations and administrative determinations of origin of goods. RoO are used on those imports that are not exclusively grown, harvested or extracted in one single country or produced using materials obtained from outside of the exporting country’s territory. The WTO Agreement on RoO calls for transparency, predictability and consistency both in the preparation and application of RoO. Countries have various requirements to determine RoO. Most consider ‘substantial transformation’ of the product, while some apply the ‘change in tariff classification’ criterion, others the ‘ad valorem percentage’ criterion, while others use the ‘manufacturing/processing operation’ criterion.

Private Sector’s perspectives on RoO

At the meeting, country-based stakeholders presented the findings of five country update notes undertaken in consultation with the private sector, with a view to inform their delegates’ positions at the WTO. They brought out the issues traders, particularly exporters, face with regard to RoO, as well as the issues foreign exporters face while exporting to the EAC, in order to counter the offensive negotiation positions of countries that have market interest in the EAC.

Challenges surrounding Rules of Origin range from lack of one stop window services, manual issuance of Certificate of Origin to cumbersome and complex procedures that result in delays and additional cost. In particular, the following main challenges were discussed:

• Stringent requirements: Exporters are supposed to present various supporting documents that involve inspection, testing or certification before they are issued with Certificate of Origin. This lengthy process may result in delays, add on cost of doing business or even loss of perishables. Procedures remain complex (e.g. under AGOA and EBA) which makes RoO certification difficult to access for traders.
• Complex RoO not understood by exporters: Interviewed private sector stakeholders indicated that some of the requirements under Rules of Origin are too complex for exporters to understand and it would have been helpful if they are harmonized. In Uganda for instance, with over 97 chapters and different tariff lines, all with a series of technical information, this complexity presents information which is unfriendly to the private sector players. The need for generalized electronic issuing was also mentioned.
• Multiplicity of Issuing Authorities: Different offices/authorities are involved in providing supporting documents that often involve physical inspection and verification. In some cases, private sector players do not know which issuing authority to go to. The need for single window was expressed.
• Multiplicity of RoO regimes: Some EAC countries belong to multiple RoO regimes, e.g. EAC and COMESA, and traders are sometimes not aware about which applies. There is a need to modernize and harmonise different RoOs (AGOA, EBA, EPA etc.)
• Application at borders: It was reported that simplified RoO certificates are not available at some borders, e.g. in Rwanda. In Burundi, reports indicated that at some borders officials were unaware of RoO’s and indiscriminately applied tariffs to all products irrespective of origin.
• Non-cooperation from trading partners: Many of the trade partners are not willing to share production procedures (required for issuance of Certificate of Analysis) for fear of their production techniques being copied and those that do provide only sub-standard information. Moreover, lack of trust amongst partner states makes verification a tedious and cumbersome procedure for traders which ultimately undermine trade. For instance, Kenya recently blocked sugar imports from Uganda on the grounds of lack of clarity on its origin.
• Industrial Development: The ‘Third Country Fabric Provision’, which intends to bridge the capacity gap of local manufacturers by allowing external sourcing, is reportedly being abused. This is detrimental to industrialization in the lower and middle-level value chain. As a result, benefits from AGOA do not seem to have extended to the lower echelon of textiles production.

Discussion with delegates

Delegates welcomed the reports by country-based stakeholders and agreed that many challenges are domestic in nature. Discussions highlighted the specific challenges faced by landlocked countries, where documentation requirements are especially many. For these countries, it was also advised that transport costs should be included in preferential RoO calculation. With regard to industrialization, it was emphasized that the focus should be vertical integration of industries in the region. Addressing RoO challenges requires a two-pronged approach, i.e. EAC vs. External Markets. In the EAC, significant efforts should be directed to developing electronic issuing, as well as capacity-building and awareness-raising of the private sector, e.g. through a handbook on how to export within the region. With regard to external markets, there is a need to better identify the problems faced by specifically the main products exported from the EAC.

Recommendations

The main recommendations from the discussion included the following:

• Multilateral Rules: It is important for WTO members to agree on a development-oriented rules of origin regime at the multilateral level. A multilateral agreement would address the numerous challenges individual countries face, which are often taken advantage of during bilateral trade negotiations to bloc such flexibilities which can be best secured multilaterally.
• Rules Harmonization: Harmonisation of the RoO at the multilateral level is critical to provide guidance in the Free Trade Agreement (FTA) negotiations. In addition, there is a need to modernize and harmonise different RoOs (AGOA, EBA, EPA etc.)
• Electronic issuing: There is a need to allow all traders to fulfil requirements electronically, by developing electronic issues across the region. This will greatly reduce delays, corruption and frustration on the part of exporters.
• Information availability: The EAC needs to have a database for individual country requirement on rules of origin so that EAC exporters are able to have access to information, particularly under GSP and Ordinary certificates of origin.
• Capacity-building: Significant efforts should go into capacity-building and awareness-raising of the private sector as well as border officials, for all to better understand the practical aspects of RoO.