The Evolution of Preferential Rules of Origin in Asean's RTAs : A Guide to Multilateral Harmonization

Restrictive preferential rules of origin cause producers in RTAs to source intermediate materials from RTA partners instead of non-parties in order to meet the rules of origin requirements. For RTAs concluded under Article XXIV, restrictive preferential rules of origin open doors to selective tariff liberalization in violation of GATT Article XXIV. For RTAs concluded pursuant to the Enabling Clause, restrictive preferential rules of origin may result in ‘undue difficulties' to non-parties in violation of the Enabling Clause. In order to address the inconsistencies with the WTO law, restrictive preferential rules of origin should converge to the WTO harmonized non-preferential rules of origin (NPROO), which would be deemed non-protectionist. However, in view of the slow progress of harmonizing NPROO in the WTO, we propose an alternative approach based on the evolutionary development of preferential rules of origin in the ASEAN's RTAs. As a second-best solution, we propose that all RTA rules of origin adopt a general rule applicable to all non-wholly obtained products: the 40% value-added rule or a change in tariff heading (CTH). In conjunction with the general rule, a limited number of product-specific rules of origin that are coequal to the general rule should be permitted so as to provide some room for flexibility for RTAs to accommodate divergent existing preferential rules of origin.The proposed general rule would further enhance the conformity of RTAs with the WTO system by harmonizing preferential rules of origin across RTAs and across different product lines