Trade Policy at Work

Enhancing LDC Utilisation of Preferential Market Access Schemes: A Case for Simplifying Rules of Origin

This note reviews the importance of preferential trade schemes for LDCs, taking stock of developments in the World Trade Organization (WTO), with a focus on the need for transparent and simplified Rules of Origin (RoO), which would facilitate better utilisation of the schemes.

Granting preferential market access schemes to developing countries and LDCs can be traced back to the early 1970s. Recognizing the difference in economies and technical capacities of developed and developing countries, member States of the then-General Agreement on Tariffs and Trade (GATT) unanimously sought to create a generalized system of preferences for developing countries, which would be non-reciprocal and non-discriminatory in nature. They therefore, decided to waive the most-favoured nation (non-discrimination) treatment (MFN) treatment for a temporary ten-year period in order to ‘permit developed countries to accord preferential tariff treatment to products originating in developing countries.’

This waiver of MFN obligations was sought to be made permanent by developing countries, leading to the insertion of the ‘enabling clause’. This permitted developed states to grant an indefinite exception to Article I (MFN) obligations by allowing preferential tariff treatment to products originating in developing countries, in accordance with the Generalised System of Preferences (GSP).

Furthermore, this was also the first time members brought about a distinction between preferences granted to developing countries and preferences granted to least developed countries (LDCs), by recognizing their special economic situation and development needs. In this regard, the clause obliged developed countries to exercise restraint in seeking concessions or contributions from LDCs. It also provided that favourable treatment should be accorded to LDCs, and that the clause would apply to any special treatment on LDCs among developing countries ‘in the context of any general or specific measures in favour of developing countries.’

While the Enabling Clause was limited to developed countries providing such preferential market access, a decision under the WTO in 1999 allowed granting preferential market access by developing countries also who wish to do so. This was achieved through a waiver to the MFN obligation under the 1999 decision on “Preferential-Tariff Treatment for Least-Developed Countries” , which has since been extended until 16 October 2029 .

These preferential schemes aim at integrating LDCs in the international trading regime, and achieve the basic objectives of GATT. In this regard, various developed countries and developing countries (in position to extend preferential schemes) began to formulate their own GSP and Rules of Origin schemes for LDCs.