./.RESTRICTEDWORLD TRADE
ORGANIZATIONWT/REG/W/27
8 July 1998
(98-2720)
Committee on Regional Trade Agreements
Eighteenth SessionOriginal:  English
STATEMENT BY THE DELEGATION OF HONG KONG, CHINA
ON SYSTEMIC ISSUES
Comments on Secretariat Inventory of NTMs in WT/REG/W/26
(Annex 1:  Rules of Origin)
The Secretariat's Inventory of Non-Tariff Provisions in WT/REG/W/26 is extremely useful
and we are most thankful for it.  Still we must take issue with a solecism that has been committed in
paragraphs 9-12, where it is stated that preferential rules of origin determine origin.  They do no such
thing.
Rules of origin determine origin;  and preferential rules of origin determine preferential
origin.  In plain words, preferential rules of origin  are not real 'origin' rules but special local content
rules applicable in certain trading arrangements for the purpose of granting preferential treatment.
In a better ordered world, there would be no talk of preferential rules of origin.  They would
more properly be called something like preference qualifying rules.  However, we must accept that in
the world we live in they have always been known as preferential rules of origin and indeed this
terminology is sanctified in Annex II of the Agr eement on Rules of Origin.  But equally this Annex
makes absolutely clear what preferential rules of origin actually are:  in its paragraph 2 they are
defined as determining whether goods qualify for preferential treatment.
A product that originates in a Member of a Regional Trade Agreement (RTA) according to
normal MFN rules of origin still originates in that Member even if it does not qualify for preferential
treatment in the RTA.  The use of preferential rules of origin does not mean that products originate
elsewhere than under normal MFN rules of origin.
In relation to this issue, we will advance one thought:  that the use of preferential rules of
origin in RTAs relates to the definition of 'substantially all trade' (SAT):
(i) Contention may be made that the use of preferential origin rules should have a
bearing in determining whether the SAT criterion is met.
(ii) This addresses the concern that the stringency of preferential rules of origin may have
added effect on the patterns of trade and economic co-operation amongst
RTA parties, and with third parties.
(iii) To safeguard against unwarranted disruptions to trade patterns, there is a prima facie
case to consider that, in measuring SAT as a percentage, as proposed by Australia, the
base (100 per cent of trade between the RTA parties) should comprise all intra-RTA
trade measured according to MFN rules, while the qualifying proportion of trade (to
meet  the SAT requirement to be set at a specified percentage) should be measured
according to preferential rules of origin.WT/REG/W/27
Page 2
Thus the less stringent the preferential rules of origin are for a RTA, the higher percentage of
their members' intra-RTA trade will be included towards meeting the SAT threshold.
This is a relatively fresh idea.  Upon reflection, Members may agree that such an approach, if
adopted, will serve ultimately to meet the legitimate interests of all.
Note:
The Delegation of Hong Kong, China circulates this statement to promote awareness of the
concern regarding the possible use of stringent preferential rules of origin, which may result in
diversion of trade away from third parties.  The statement aims to stimulate discussions and facilitatefurther consideration, without prejudicing the position of any delegation on this matter.
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