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Rules of Origin (ROO)

Industrialised countries offer developing countries preferential access to their markets through lower trade duties. However, research shows that preferences have had little impact for many developing countries, particularly in Africa. Often this reflects sever supply-side constraints in the poorest countries but here are features of these preference schemes, which limit their impact and can be changed, namely improving rules of origin.

Current rules of origin are outmoded and overly complex contributing to a relatively low level of utilisation of preference schemes particularly by low-income developing countries, thus hindering improved market access. The European Commission's (EC's) own analysis shows the limited success of these schemes with utilisation rates for the EC Generalised System of Preferences (GSP) at 50% dominated by the more advanced developing countries (Brazil, China, India, Indonesia, Malaysia, Pakistan, Philippines, Russia, Thailand, and Vietnam.

The following statistics reflect the complex criteria of ROO which does not take into account individual countries' requirements and capacities.

• European Union (EU) rules require that the production of bakery goods cannot use imported flour, which is very restrictive for many poor countries that do not have a milling industry.
• In Bangladesh clothing cannot be exported at duty-free rates to the EU unless it has undergone two stages of transformation (from yarn to fabrics, and fabrics to clothing). But Bangladesh does not have the spinning and weaving capacity to do this and rules do not allow Bangladesh to import fabrics to make into clothing and continue to allow them to receive the preference.
• Tanzanians are unable to export tinned vegetables to the EU at duty-free rates if the tin comes from a non Least Developed Country (LDC) like its neighbour Kenya.

By way of contrast:

• After the introduction of the African Growth and Opportunity Act (AGOA) scheme exports to the United States (US) grew dramatically from $65 million in 1999 to $230 million in 2000, reaching $282 million in 2003. Under AGOA, Lesotho, as a least developed country, is able to cumulate from all countries. The International Monetary Fund (IMF) calculated that the garment industry contributed to a 1% rise in Lesotho's Gross Domestic Product (GDP) in 2003 and the employment this has generated has been especially beneficial for women who dominate the industry. Spin offs to this can also be seen in terms of reforms to the business environment and water policy has improved through increased production.

Last updated: 4 October 2005

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