Harmonizing Preferential Rules of Origin in the WTO System

Preferential arrangements (bilateral and multilateral free trade areas and GSP systems (preferences for developing countries)) are emerging everywhere in the world trading system and are causing concern because they discriminate against non-members and add complexity, distortions and inconsistency to the global system. Rules of origin (ROOs) linked to these arrangements are a significant part of the problem. More and more they have become the source in their own right of distortions in trade patterns, complexity, non-transparency and inconsistency. This essay argues that WTO members should authorize negotiations seeking to harmonize preferential ROOs (rules of origin linked to preferential arrangements) around core principles consistent with WTO rules. The harmonized preferential ROOs should be aligned as much as possible with the harmonized regime for non-preferential ROOs (rules of origin linked to non-preferential arrangements) likely to emerge from the current hold-over WTO negotiations authorized by the Uruguay Round ROOs Agreement. They should be nonrestrictive, based essentially on the principle that substantial transformation confers origin, and - except where developing countries benefit - should not allow cumulation (treating product components from within the preferential region as locally produced). Existing preferential ROOs not consistent with these principles could be argued to violate Article XXIV, and in some cases Article III, of GATT 1994. In the case of developing country preferences, bilateral cumulation in GSP systems could be argued to violate the Enabling Clause