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Creating Development Friendly Rules of Origin in the EU

Research reports

Written by Chris Stevens, Jane Kennan

This report summarises the findings from a study, funded by the Netherlands Ministry for Development Cooperation, on how the current review of the EU rules of origin can be used to benefit developing countries and, in particular, the least developed.1 The study provides two closely related perspectives on the subject. One analyses specific trade flows and industries; the other is a formal modelling exercise.

The first perspective is based on an analysis of 8,022 processed primaries and manufactures exported by low- or lower-middle-income countries to the EU for which origin rules could be potentially important. Over 30 low-income countries have exports exceeding €5 million in at least one Harmonised System (HS) 4-digit category. Just under one-quarter of processed primaries and one-third of manufactures were exported by four or more low income states.

The second perspective is provided by the modelling exercise using a partial equilibrium model which incorporates rules of origin. It has been applied to a group of products (in 88 industries) and countries (31 for which there are adequate data) that were identified as important in the first perspective. It can show whether or not making the origin rules more restrictive can benefit developing countries by broadening the base of production (because it requires an increase in domestic procurement and so promotes production of intermediate inputs).

The terms of reference for the study state that it must focus on all ‘developing countries, [and] in particular the LDC’s’. There are two reasons for this dual focus: one relates to policy and the other to research practicalities. First, whilst origin rules are important for all developing countries it might be the case that there are special features of LDCs that would justify distinctive features being incorporated into rules that apply just to them; it would be sensible for the EU to take account of such distinctiveness in the special regimes it already provides exclusively for LDCs. Second, a feature of many LDCs is that they export relatively few complex products compared to other developing countries, which may limit the scope for identifying the impact of the current or proposed new rules. A study that focused exclusively on LDCs might overlook lessons that can be drawn from the experience of other poor countries and fail to identify barriers that are even more severe for LDCs, such that they are preventing exports even getting off the ground.

Christopher Stevens, Michael Gasiorek and Jedrzej Chwiejczak and Jane Kennan