Origin trade rules ‘make poorest suffer’

Date: 10/02/05

The European Parliament will call later this month for a simplification of complex trade rules which have worked against clothing exporters from the world's poorest countries.

The rules of origin setting the conditions that products must meet before qualifying for duty-free access to the Union's markets are strongly criticised in a report to be endorsed by the assembly on 22 February.

Spanish Socialist MEP Antolín Sánchez Presedo, who drafted the paper, cites the onerous requirements on local content as one of the main reasons why poor countries are not able to make use of trade preferences conferred on them by EU schemes. He attacks the European Commission for not addressing these barriers within the scope of a review of the Generalised System of Preferences - the trade arrangements applying to developing countries - published last year.

Sri Lanka is among those contending that the rules, compiled in the 1970s, are antiquated. According to Colombo, they have benefited big players like China, which have the capacity to manufacture clothing entirely with home-made ingredients, but have proven detrimental to many other Asian economies.

Although textiles and clothing have accounted for more than half of Sri Lanka's total merchandise exports in recent years, its government estimates that the rules allow it to make use of just 33% of EU preferences.

It is unable to reap the full benefit of the duty-free access regime because a considerable amount of the fabrics used in garment production come from Indonesia.

"We feel that for historical reasons the rules of origin are biased in favour of larger developing countries," says Sri Lanka's EU envoy Romesh Jayasinghe. "The idea is that for industrialisation to be a success, countries should be encouraged to have an integrated manufacturing process. It is obviously easier to integrate if you have a large domestic industry but smaller countries are not able to do that. In today's world, you do not make any single product from beginning to end in the same country. That's why a revision of the rules of origin is both timely and necessary."

Peter Mandelson, the European commissioner for trade, told a London School of Economics lecture last weekend that he wished to see rules "designed as a way to help development, not impede it". His department has been drafting plans for a new system. "I want Europe to bring forward proposals for new rules by the time of the Gleneagles Group of Eight (G8) summit," he said, referring to the meeting in Scotland on 6-8 July.

Aides to Mandelson say that one concrete step being envisaged is to focus on boosting the countries hurt by the Indian Ocean tsunami.

Under this move, the rules of origin would be relaxed to allow manufacturers to use materials acquired from throughout the South and South-East Asia regions.

Anti-poverty advocates are pressing the EU to emulate Canada's 2003 Market Access Initiative, which is regarded as the only rich country scheme that allows quota-free access to textile and clothing exports from the world's poorest nations.

This gives countries designated as least developed free rein to make their textiles with contents from anywhere in the world - a process known as 'global accumulation' - provided that some 'transformation' of the imported content occurs.

"Global accumulation is really important," says Liz Stuart, a trade policy analyst with Oxfam. "If you only allow least developed countries to purchase inputs domestically or even regionally, you'll find that there aren't the inputs available to make their products."

The US, meanwhile, has granted a waiver to the standard rules of origin for African clothing and textile exports. This has been a key factor in how Lesotho now exports 400 times more to the US than the EU, even though the latter is traditionally a bigger destination for African traders.

Another charity, ActionAid, is concerned that any benefits from relaxing the rules could be short-lived. It accuses Mandelson of striving to replace the trade preferences currently offered to the African, Caribbean and Pacific bloc with a set of Economic Partnership Agreements (EPAs) from 2008.

The organisation fears that the EPAs will ultimately hurt the countries concerned by denying them a chance to protect their markets from European producers and investors.

"We don't want to get distracted by the rules of origin," says ActionAid's Tom Sharman.

"The real problem is that the EPAs will bring forced liberalisation on poor countries. That's the real problem here, and it will not be solved by tinkering with the rules of origin," he adds.

Preview of the adoption on 22 February 2005 of a European Parliament report which strongly criticises the so-called rules of origin setting the conditions that products must meet before qualifying for duty-free access to the European Union's markets. The European Parliament is to call for a simplification of these complex trade rules which work against clothing exporters from the world's poorest countries. The requirements on local content has been quoted as one of the main reasons why poor countries are not able to make use of trade preferences conferred on them by EU schemes.