RESTRICTEDWORLD TRADE
ORGANIZATIONG/RO/W/83
10 April 2002
(02-1941)
Committee on Rules of Origin Original:  English
IMPLICATIONS OF THE IMPLEMENTATION OF THE
HARMONIZED RULES OF ORIGIN ON OTHER WTO AGREEMENTS
Submission from Australia and New Zealand
The following communication, dated 9 April 2002, has been received from the Permanent
Missions of Australia and New Zealand.
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Purpose
This paper contains observations on the Harmonization Work Programme (HWP) and its
implications, and the need to ensure that the product-specific rules developed under this programmeare consistent with the trade-facilitating objectives and principles of the WTO Agreement on Rules of
Origin (ARO).
The objective of this paper is to refer to the original aims and principles of the HWP, and
suggest ways these could be used to facilitate the committee’s further work.
Background
The ARO was negotiated during the Uruguay Round, in light of the aim to “bring about
further liberalization and expansion of world trade”1 to benefit all countries.
When the ARO was concluded in 1994 it was envisaged that the exercise of harmonizing non-
preferential rules of origin would be completed in no more than three years.  This deadline has been
extended several times, which indicates the comp lexity of harmonising rules of origin (ROO).
Objectives and principles of the HWP
The objectives and principles set out in article 9(1) of the ARO explicitly provide the basis for
the HWP, and the characteristics of the harmonised rules resulting from it:
Origin should be determined by where goods are wholly obtained or, if more than one country is
involved in the production of the goods, where the “last substantial transformation” has been carried
out.
Harmonised ROO “should not be used as instruments to pursue trade objectives directly or
indirectly”, and “should not themselves create restrictive or disruptive effects on international trade”
or “impose unduly strict requirements ... as a prerequisite for the determination of the country of
origin”.
                                                     
1 Agreement on rules of origin, preamble.G/RO/W/83
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It should be possible to administer these rules in a “consistent, uniform, impartial and
reasonable manner”.
The rules of origin should be coherent.
The HWP should be undertaken consistent with the objective of providing “more certainty in
the conduct of world trade”.
The whole ARO stems from the recognition by WTO members that “clear and predictable
rules of origin and their application facilitate the flow of international trade”, and their desire “to
ensure that rules of origin themselves do not create unnecessary obstacles to trade”2.
The current decision-making process for specific products
The ARO provides that where production of goods involves two or more countries, origin is
determined by where the last substantial transformation takes place3.  In the CRO members are
currently considering two options for most issues , with a chairman’s recommendation of the most
suitable option.
The onus now appears to be on members supporting a minority option or the option that is not
the chairman’s recommendation to provide technica l information to justify their position, or to
develop a ‘special package’ of trade offs where they undertake to concede their position on a product-specific issue of lesser importance to secure a favourable position on an issue of more importance.
This “special packages” approach may produce results that are at odds with the last
substantial transformation criterion provided for in the ARO.  For this reason members should
consider this point very carefully before basing any rules of origin on the weight of numbers or apackage of trade offs.  The “burden of proof” should not automatically be placed on members with a
position that is supported by the minority, but on those proposing a rule that deviates from the
criterion of last substantial transformation.
Relationship between rules of origin and other WTO agreements
There appears to be some uncertainty among members about the relationship between other
WTO agreements and the rules of origin resulting from the HWP.  For instance, questions have been
raised about whether the rules must be used in the application of sanitary and phytosanitary measures,
consumer labelling, geographical indications, origin-marking requirements and anti-dumping4.  There
may also be uncertainty as to whether considerations in these areas of trade policy should impact on
the design and implementation of origin rules under  the HWP.  These questions may be slowing the
HWP.
We note that the rules developed in the HWP should be applied for the purposes set out in
article 1 of the ARO5.  Discussion and agreement on the relationship between the rules of origin
developed under the HWP and other WTO agreements not listed in article 1 of the ARO might helpfacilitate progress in the HWP.
                                                     
2 Agreement on rules of origin, preamble.
3 Article 9(1)(b) states: “rules of origin should provide for the country to be determined as the origin of a particular
good to be either the country where the good has been wholly obtained or, when more than one country is concerned in the
production of the good, the country where the last substantial transformation has been carried out”.
4 For example, Japan’s G/RO/W/74 and the USA’s G/RO/W/65.
5 Article 9(1)(b) states: “rules of origin should be applied equally for all purposes as set out in Article 1”.G/RO/W/83
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Coherence
The HWP should produce rules of origin that are coherent: “logical and consistent, holding
together to form a whole”6.
Some of the proposed rules of origin in the latest integrated negotiating text seem to ignore
capital-intensive manufacturing processes as sufficie nt to confer origin, while other proposed rules
regard relatively light manufacturing processes as sufficient, despite similarities in the process and the
final product.
For example the rules of origin recommended in the latest negotiating text would mean the
processes of obtaining reconstituted milk, processed cheese, condensed milk and milk powders wouldnot confer origin.  Yet origin would be conferre d for the processes involved in obtaining buttermilk
and whey; milk products; milk solids; extracts or essences or concentrates; producing jams, fruit
jellies, marmalades fruit or nut puree; and obtaining mustard from mustard flour and meal; distillation
and obtaining margarine from fats or oils.  Other inconsistencies concern obtaining meat from fish.
The options recommended in the negotiating text su ggest that obtaining fish meat does confer origin
yet obtaining fish fillets does not.  Inconsistencies are apparent in the textiles and clothing chapters of
the integrated negotiating text, where the degreasing of wool is insufficient to confer origin but not the
carding and combing of wool.
To help ensure that  further consideration of the outstanding issues in the HWP is coherent,
and consistent with the objectives of the ARO, it would be helpful if a summary of those rules already
endorsed by CRO (or emerging themes) was articulated at the beginning of each chapter in the
Chair’s text.  This summary could provide a snapshot of the direction of negotiations to date.  This
information would usefully highlight any potential inconsistencies between those rules already
endorsed under the HWP and rules still under consideration.  This would be particularly useful priordiscussion of the HWP in June 2002.
An integral part of the whole HWP is consideration of the result in terms of its overall
coherence
7.  The CRO’s work on the HWP is not complete until this coherence review is completed.
(Closely adhering to the principles of the HWP during the development of harmonised rules of origin
will, of course, make this coherence exercise easier.)
The CRO might also wish to discuss how th e coherence exercise mandated under the ARO
will be carried out, and what the measure of coherence will be for the purposes of this exercise.  Ways
of addressing any lack of coherence in the rules could also be considered.
Trade-facilitating effects
The ARO is predicated on the desire for harmonized rules of origin to be a tool for further
liberalisation of trade, and not create unnecessary obstacles to trade.  To achieve this, the results of the
HWP must not add costs to international trade.
At present probably less than 5% of the world’s trade is subject to non-preferential ROO.  If
rules resulting from the HWP are applied generally in export markets, new documentation
requirements will be imposed. There would be significant compliance costs on exporters and their
                                                     
6 Concise Oxford Dictionary, 10th edition.
7 Article 9(3): “On the basis of the principles listed in paragraph 1 ... upon completion of all the work identified in
subparagraphs (i), (ii) and (iii) of paragraph 2(c), the Committee shall consider the results in terms of their overallcoherence.”G/RO/W/83
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suppliers, and possible trade distortions as stringent documentation requirements discourage trade and
force exporters to change their source of raw materials or their export strategies.
There are also resource implications for the customs administrations in both the exporting and
importing countries.  Not all WTO members will be adequately resourced for this work.  Furtherquestions must be answered about how customs authorit ies would deal with certificates of origin.  For
instance, what are the legal implications if a certificate of origin cannot be provided or there is doubt
about the authenticity of the document?  Would this entitle the importing country to stop the
transaction until a certificate is provided?
Any increased compliance costs for businesses and administrative burden on customs
authorities are inconsistent with the efforts in the WTO to reduce the ‘red tape’ in moving goodsacross international borders.
It would be helpful for members to assess how the HWP in its emerging form will facilitate
trade and add to the liberalising efforts of the WTO.  To assist in this assessment members might
outline how they would administer and enforce ROO,  including clarification of exactly which classes
of trade-related measures would be affected by the ROO.
Conclusion
Ministers reiterated at Doha their desire to see the HWP completed.  We feel that the work of
the CRO in developing rules of origin under the harmonisation work programme would be facilitated
by close reference to the objectives and principles in the ARO, especially by:
- close adherence to the principle of “last substantial transformation” where goods are produced
in more than one country;
- consideration of whether each product-specific recommendation is objective, understandable,
predictable, and trade-facilitating;
- a review of the coherence of the package of rules of origin, and consideration of whether they
will be administrable in a consistent, uniform and reasonable manner.
Members might also find benefit in discussing and agreeing on how the results of the HWP
might (or might not) relate to other WTO agreements, especially those not listed in article 1.
The success of the HWP will not and should not be measured by the fact of completion,
though this would be a considerable achievement under the circumstances.  The rules of origin must
be measured by their practical impact on international trade.  The HWP makes sense to the extent that
it is consistent with the ARO and with the way business actually operates in the 21st century.  The
outcome of the HWP must be justified in terms of economic benefit, in terms of transparency and
certainty in world trade, and a reduction (not increase) in compliance and transaction costs.
Otherwise the international trading community has ev ery right to question the fundamental benefits of
the programme.
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