A guide to the new ICC recommendations on rules of origin in PTAs

Imports and Exports | | MIC Customs Solutions |

The International Chambers of Commerce have recommended a series of changes to rules of origin in preferential trade agreements in order to address many of the issues that exist with the current systems.

In the last few years, preferential trade agreements (PTAs) have become an increasingly common part of the international trading landscape, as countries seek to improve their economic access to new markets and forge stronger links with strategic allies.

On the whole, this has been a positive development for import and export-driven businesses, as it has allowed companies to trade across borders with greater ease than ever before. However, the sheer number of agreements that are being put in place worldwide has also created some unintentional administrative challenges, with a new layer of red tape replacing that which had been cut away.

The International Chambers of Commerce has therefore recently issued a series of recommendations calling on policymakers to adopt a new approach to the way rules of origin are handled within current and future PTAs, in order to ensure that any bureaucratic challenges are minimized and that these trade deals are able to achieve their maximum potential.

Problems with the current approach to rules of origin

With progress on the World Trade Organization's efforts to liberalize trade through the Doha Development Agenda remaining limited, bilateral and regional PTAs have emerged as a common alternative, with more than 400 of these deals currently in existence, including mega-regional agreements such as the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership.

However, since many of these PTAs cover the same trading areas, it is creating an overlap of rules and procedures that results in confusing and inconsistent market entry arrangements, especially for small and medium-sized enterprises (SMEs) with limited resources. The lack of a multilateral consensus on rules of origin is also making it difficult for companies to determine which PTA provides the greatest advantage for trading their goods.

Donia Hammami, head of customs and trade facilitation at the ICC, said: "Businesses of all sizes find themselves unable to manage the complexity and administrative burden of origin requirement procedures, which gradually form a behind-the-border barrier to trade. Streamlining the certification of procedures will go a long way towards making this easier for traders."

The ICC's eight recommendations

In order to address these problems, the ICC has outlined a series of eight key recommendations:

  1. Rules of origin should conform to the provisions and procedures of the laid out in the World Customs Organization's (WCO's) Revised Kyoto Convention wherever possible, allowing for greater standardization
  2. Extended or cross-cumulation should be established between common agreements, allowing common bilateral parties to share or cumulate origin status across different regions
  3. Common procedural standards for customs verification of origin documentation should be created by the WCO, in close cooperation with the private sector
  4. All PTAs should contain provisions for the resolution of minor origin disputes within commercially responsive timeframes, with appropriate support for the companies affected, rather than allowing local customs authorities to make unilateral rulings
  5. The customs capacities of trading partners should be considered when agreeing a PTA, particularly in terms of electronic infrastructure, with capacity-building programmes implemented where necessary
  6. PTA negotiations should aim for horizontal global cohesion of rules of origin procedures wherever possible, in order to make it possible to implement a broad-ranging multilateral approach in future
  7. Governments should come to an agreement over the starting point for PTA negotiations, adopting a shared set of standard definitions and procedures for all border crossing and market access issues
  8. Current bilateral or regional PTAs should be considered as steps towards a broader multilateral agreement in future, rather than the current fragmented approach

The potential benefits

The advantages of moving towards a model such as that suggested by the ICC would be numerous, with governments, businesses and consumers all potentially benefiting.

Adopting a more standardized approach to PTA negotiation would remove some of the complexity from the process and allow more complementary arrangements to be put in place, while businesses would benefit from reduced bureaucracy and lower costs associated with the import and export process. Ultimately, this will result in reduced prices and better access to a broader range of goods and services for the end user.

Brian Staples, president of the consultancy group Trade Facilitation Services, described the move as a "true win-win trade facilitation initiative", adding on behalf of the ICC: "Streamlined origin procedures will lower costs and increase predictability for all parties, especially for SMEs, in developing and developed countries alike."