G/RO/W/187/Rev.1  
 
24 February 2020  
(20-1386) Page: 1/9 
Committee on Rules of Origin    
 
IMPACT OF DIRECT CON SIGNMENT REQUIREMENT S  
ON PREFERENCE UTILIZ ATION BY LEAST DEVEL OPED COUNTRIES  
NOTE BY THE SECRETAR IAT1 
Revision  
1  INTRODUCTION  
1.1 In a previous Note (G/RO/W/185), the Secretariat pointed out that  least-developed countries 
(LDCs) were often unable to fully use non-reciprocal  preferential trade arrangements (PTAs) even 
when their exports were subject to a simple origin criterion. The calculation of utilization rates for 
agricultural products, for in stance, revealed that 82% of imports of "fruits, vegetables, plants" from 
LDCs did not receive any tariff preference, despite being eligible for preferential treatment 
(RD/RO/78 and G/RO/M/72) . Since  the majority of these products were subject to the 
"whol ly-obtained origin criterion" in all the PTAs examined , variations in preference utilization could 
not be explained by the origin criterion itself. Consequently, other factors, such as certification of 
origin and/or transportation requirements had to expla in underutilization, at least for such cases.  
1.2  This note examines  utilization rates in light of preference -granting Members' transportation 
requirements in order to identify the impact that these requirements may have on the ability of LDCs 
to fully utilize trade preferences.  
2  WHAT ARE "DIRECT CON SIGNMENT" REQUIREMEN TS? 
2.1 The obligation that goods being granted preferential market access  must be transported 
directly from the country claiming preferential treatment to the country granting preferences i s a 
common requirement in preferential trade agreements whether reciprocal (regional trade 
agreements, RTAs) or non -reciprocal (preferential trade arrangements, PTA s). This requirement 
reflects the principle that the determination of origin should focus on  processes that occurred 
exclusively in the territory of the countries eligible for preferences (principle of territoriality). 
The direct consignment rule aims at ensuring that the goods that left the beneficiary country are the 
same as the ones that will enter the preference -granting country.  
2.2 Different terms are used to refer to this obligation. Agreements refer most commonly to "direct 
shipment", "direct consignment", "direct transportation" or "tran sshipment". A variation of this 
obligation is the principle that goods must not be altered during transit ("non -alteration rule"). 
This note employs the term "direct consignment" to refer to all obligations related to the 
transportation and consignment of goods.  
2.3 Irrespective of the specific terms use d, the objective of this provision is, in all cases , to ensure 
that no further processing takes place in a third country  (or territory) , when the goods are in transit 
from the beneficiary country  to the preference -granting country . It is a provision that m itigates the 
risk of preferences being abused. It is not possible, however, to enforce this provision strictly. In  fact, 
not all countries are connected to each other through direct commercial freight routes. Landlocked 
territories almost always depend on transit for their imports and exports. In addition, goods may be 
transported by air, sea or land (rail and/or road), with different combinations and connections . It is 
 
1 This document has been prepared under the Secretariat's own responsibility and is without prejudice to 
the positions of Members or to their rights and obligations under the WTO.  G/RO/W/187/Rev.1  
 
- 2 - 
 
  therefore common that internationally traded goods transit through local, regional or gl obal logistical 
hubs. As a result, preferential rules of origin must balance the imperative of ensuring the integrity 
of preferential goods with the realities of international freight transportation and distribution. 
This balancing exercise is different in  each preferential agreement, translating into different levels 
of restrictiveness.  
3  LINKING DIRECT CONSIGNMENT REQUIREM ENTS AND PREFERENCE UTILIZATION  
3.1 A product will only be granted preferential  market access  treatment if : (i) the exporting 
country is eligible under a preferential scheme ; and (ii) the product is covered by such preferences. 
When both conditions are met, preferential treatment will only be granted if the product complies 
with three simultaneous origin requirements:  
(i) origin criteri a: a good must either be wholly obtained or satisfy minimum substantial 
transformation requirements so that any imported materials are sufficiently transformed to 
acquire the origin of the beneficiary country (as prescribed in general or product -specific origi n 
criteria in the RTA or PTA);  
(ii) proof of origin : a good must prove that it complies with the relevant origin criteria. This  can 
be attested by a third party (using a certificate of origin which contains information as 
prescribed in the text of the RTA or PTA) or by the importer or producer (self -certification); 
and 
(iii) direct consignment : a good must be transported from the beneficiary country directly to the 
preference -granting country.  
3.2 Because these three components must be met simultaneously, non -compliance with any of 
them can disqualify a product from receiving preferen tial market ac cess. For this reason, the lack of 
capacity to comply with direct consignment provisions could explain why some products, such as 
those subject to the wholly -obtained origin criterion, do not always receive preferences . It is in this 
context that the relation ship between direct consignment rules and utilization rates may yield 
interesting lessons for identifying best practices and removing bottlenecks . 
3.3 Trade statistics as compiled by the WTO, however, do not allow to different iate imports which 
were consig ned directly from those that were consigned  indirectly. Goods which were directly 
consigned would presumably meet by default these requirements  and one could expect that 
utilization rates for directly consigned goods would tend to be higher than the rates for goods that 
were transhipped . Neither do WTO statistics allow for the identification of the share of consignments 
which are transported by land, sea or air. One could assume that air freight would more easily meet 
direct consignment obligations. In addi tion, it is not possible to infer from WTO statistics which share 
of imports did not receive preferences specifically for failing to comply with direct consignment 
requirements. As a result of these data limitations, an examination of the impact of direct 
consignment rules on preference utilization needs to use indirect statistical indicators rather than 
clear statistical evidence.  
Graph 1: Under utilization rates (%), landlocked LDCs vs. LDCs with sea access (all 
products and all PTAs)  
 
Source:  WTO In tegrated Database, 2019.  
3.4 A possible starting point is to verify whether there are differences in preference utilization 
between landlocked LDCs and other LDCs with sea access. Both groups should have an identical or  21%52%
0%10%20%30%40%50%60%
sea access landlockedG/RO/W/187/Re v.1 
 
- 3 - 
 
  similar ability to utilize trade pre ferences if direct consignment obligations have no impact on 
preference utilization. Conversely, a lower utilization rate by landlocked countries would indicate 
that direct consignment rules are not merely technical requirements but rather that they influe nce 
the ability of LDC exporters to utilize preferences. As can be seen in Graph 1, over 50% of all imports 
from landlocked LDCs do not receive any tariff treatment (52%)  despite being eligible for 
preferences . That is more than double the underutilization  rate for LDCs with sea access (21%).2 
3.5 It could be argued, nonetheless, that such a comparison may be  influenced by the type of 
products exported by each of these two groups of LDCs as well as by the origin criteria that apply 
to these products. It would be useful, as a result, to isolate direct consignment requirements from 
other origin -related requiremen ts, in particular variations in the substantial transformation criteria. 
In order to narrow down the analysis, Graph 2 reflects utilization rates only for agricultural products 
subject to the wholly -obtained criterion. In this manner, a similar pool of pro ducts  and rules  are 
considered. As can be seen in the graph, underutilization is higher for landlocked LDCs (29%) than 
for LDCs with sea access (14%). This is a clear indication that transportation requirements have an 
impact on preference utilization.  
Graph 2: Underutilization rates (%) and total preferential imports in USD million, 
landlocked LDCs vs. LDCs with sea access (agricultural products subject to wholly -
obtained origin criterion only, all PTAs)  
 
Source:  WTO Integrated Database, 2019  
3.6  The downside of narrowing the range of products and rules analysed is that it becomes harder 
to draw general conclusions if only a small number of observations are available. In fact, agricultural 
goods subject to the wholly -obtained criterion represent onl y about 4% of all LDC imports eligible 
for trade preferences. In the case of some preference -granting Members, imports of this type of 
products  from LDCs are almost negligible, making an analysis difficult (this is the case, for instance, 
of Australia, Can ada and Chinese Taipei). Higher value of imports of this type of products are 
observed for some preference -granting Members, which facilitates the analysis in their case (for 
instance, the EU, India and Thailand).  
3.7 Despite  these limitations, the examina tion of the data reveals that underutilization rates for 
this type of products are considerably  high. Products which are subject to underutilization in this 
category concern primarily fresh fruits, vegetables and plants (60% by underutilized value for all 
LDCs) followed by other agricultural products and animal products3. Not all LDCs are concerned by 
underutilization to the same extent. Underutilization rates for each LDC reflect the type of products 
exported as well as the main export destinations. For se veral LDCs, u nderutilization is close to zero 
(Lesotho; Malawi; Haiti; The Gambia; Tanzania; Uganda; Mauritania; Madagascar and Senegal). 
 
2 The calculations of preference utilization rates in this note are based on WTO Members' notifications to 
the WTO Integrated Database. Import statistics were available for the following PTAs: Australia (2017);  Canada 
(2017); Chile (2016); China (2016); EU (2017); India (2015); Japan (2017); Republic of Korea (2016); Norway 
(2016);  Switzerland (2017); Chinese Taipei (2017); Thailand (2016); United States (GSP -LDC and AGOA, 2017) . 
3 Table 4 of document G/RO/W/185 contains a more detailed breakdown of underutilization rates for 
different agricultural subsectors.   
 86%
71%14%
29%
 - 500 1,000 1,500 2,000 2,500
sea access landlockedin million US$
utilization underutilizationG/RO/W/187/Rev.1  
 
- 4 - 
 
  For others, however, it is close or above  50% (Myanmar and Angola (underutilization of 44%); 
Lao People's  Democratic R epublic (84%); Yemen (90%); Nepal (91%), Guinea (94%) and 
Afghanistan (99%).   
4  NATIONAL PRACTICES R EGARDING DIRECT CONS IGNMENT  
4.1 In order to further test the hypothesis that direct consignment rules influence preference 
utilization, another possibility would be to compare the utilization rates under schemes which apply 
a more liberal or a stricter direct consignment requirement. This would require a review of national 
practices in this respect  and the identification of more or less trade rest rictive practices, which is a 
complex exercise . Annex 1 to this note contains a table summarizing national requirements under 
standardized categories. As the table shows, there are many variations in the way this requirement 
is enforced .  
4.2  Australia is the only preference -granting Member with no direct consignment requirements. 
This mirrors Australia's practices in other preferential trade agreements. All other preference -
granting Members enforce some type of direct consignment principle, al beit with significant 
variations. Japan explicitly excludes small value consignments from any documentary requirements.  
4.3 In general, all preference -granting Members require that goods claiming preferences must not 
undergo operations other than unloading  and reloading if transit is required.  All require that the 
goods are not altered in transit. All require that the goods remain under customs supervision during 
transit.  The main variation concerns the documentary evidence which applies in case of 
tranship ment. This requirement is sometimes enforced by way of requesting the importer to present 
a "certificate of non -manipulation" prepared by the customs authorities of the transit country. 
Such certificate may be requested in all cases (Chile; India; Japan; Republic of Korea; 
Russian  Federation; and Thailand) or must be presented only upon request (China). In some cases, 
a non -manipulation certificate , which is an additional trade document,  is not requested and the 
integrity of goods  is ensured by the presenta tion of  a single transportation document or a "through 
bill of lading"  (Canada; Chile; India; Japan; Russian Federation; and Thailand)4. In the case of the 
United States  (US)5, documentary evidence will only be requested if the US is not mentioned as the 
final destination of the goods in the transport documents. In addition, there may be a requirement 
that transportation documents must mention the name of a national consignee for the goods 
(Canada,  Norway and Switzerland ). In Japan, the importer is given th e choice of documents to 
present among several options.  
4.4 The application of this requirement  in the EU; Norway;  Switzerland;  and Turkey is different 
from others because the direct consignment obligation is replaced with a "non -alteration principle". 
According to that principle, transit through third  countries is allowed as long as the goods do not 
undergo any manufacturing or further processing ("alteration") other than small operations (aimed 
at preserving the goods in good condition or affixing marks o r labels). A certificate of 
non-manipulation confirming that the goods were not altered during transit will only be requested 
in case of doubt.  
4.5 The requirements that goods be kept under customs control during their transit is sometimes 
nuanced by some flexibilities  which allow certain operations to happen during transit: e.g. small 
operations to preserve the goods during transit , storage and splitting of consignments, affixing of 
labels, etc.  
4.6 In several cases, documentary requirements are waived for  small -value consignments. 
With few exceptions, these requirements are identical or very similar to the requirements which 
prevail in major RTAs.  
 
4 A "through bill of l ading" (or a "house air waybill" or a "through air waybill" is a transport document 
which contain, in a single contract, information about the complete transportation of a good, from the origin to 
the preferential destination, including any possible transi t through third -countries.  
5 There are no differences in the direct consignment rules under the US' General System of Preferences 
(GSP) and the African Growth and Opportunity Act (AGOA). Both PTAs are therefore considered together in this 
note. G/RO/W/187/Re v.1 
 
- 5 - 
 
  5  IDENTIFYING STRICTER  AND MORE FLEXIBLE D IRECT CONSIGNMENT PR OVISIONS  
5.1 Given the number of variations and th e possible combinations of the various requirements 
and flexibilities, it is difficult to establish an objective rank of the obligations from stricter to most 
flexible. Moreover, it is not clear how some requirements are enforced in practice. For instance,  it is 
not possible to know how frequently a document must be presented when it is to be presented only 
"upon request". Also, the fact that some rules do not explicit ly authorize certain practices 
(e.g. splitting of consignments) does not mean that they pr ohibit them, at least under certain 
circumstances.  
5.2 One possible tool to identify best practices could be the text of the Nairobi Ministerial Decision 
on preferential rules of origin for LDCs. It contains provisions which require preference -granting 
Members to refrain from requesting a certificate of non -manipulation. As a principle, such certificate 
should only be requested in case " there are concerns regarding trans shipment, manipulation, or 
fraudulent documentation" (WT/L/917/Add.1, paragraph 3.1(a)). In addition, the Decision also 
requires preference -granting Members to "consider measures to streamline customs procedures, 
such as minimizing documentation requirements for small consignments". The LDC Group had 
reviewe d national practices in light of these requirements in a presentation to the Committee on 
Rules of Origin (CRO) in 2017 (RD/RO/57).  
5.3 Considering these limitations and guidelines, two groups of PTAs may be proposed for 
analysis:  
(i) Group 1  (More flexibl e requirements): Australia; Chinese Taipei; EU; Switzerland; Turkey;  
and US; and 
(ii) Group 2  (Stricter requirements): Canada; Chile; China; India; Japan; Republic of Korea; 
New Zealand; Norway; Russian Federation (and other Members of the Euro -Asian Econo mic 
Union); and Thailand.  
5.4 It would seem reasonable to group Australia (no requirement), EU, Switzerland and Turkey 
(non-alteration principle), Chinese Taipei and the US (documentary evidence requested only if the 
transport documents do not show the US as the final destination of the goods) together. 
Requirements of all other PTAs are stricter at least in some aspect. For instance, Norway, despite 
applying similar requirements to the EU, requests that a national consignee be mentioned in the 
transportati on documents , which would mean that the LDC exporter would need to know the final 
purchaser of the goods in the preference -granting country . Canada, Chile, India, Japan, the 
Russian  Federation and Thailand request a through bill of lading (or an equivalent  "single 
transportation document") , which might also be costly or difficult to obtain for LDC exporters . The 
Republic of Korea requests a certificate of non -manipulation in all cases.  
Graph 3: Under utilization rates (%) – PTAs with less strict direct consignment rules vs. 
PTAs with more strict requirements (a gricultural products subject to the wholly -
obtained origin criterion only, all PTAs)  
 
Source:  WTO Integrated Database, 2019   
 28%60%
30%57%
0%10%20%30%40%50%60%70%
less strict requirements more strict requirements
sea access landlockedG/RO/W/187/Rev.1  
 
- 6 - 
 
  5.5 A comparison of the underutilization rates of these two groups of PTAs confirms that stricter 
direct consignment requirements are associated with lower utilization rates. Underutilization rates 
(for agricultural goods subject to the wholly obtained origin criterion) are significantly higher for 
PTAs in Group 2, that is, those applying stricter direct consignment requirements. For imports from 
landlocked LDCs, underutilization reaches a rate of 57% under the PTAs with a strict requirement 
and 30% for PTAs wi th a more flexible requirement. For imports of products from LDCs with sea 
access, the same pattern is observed: PTAs with stricter requirements have an underutilization rate 
of 60%, almost double the rate for PTAs with a more flexible requirement (28%).6 
6  IDENTIFYING SPECIFIC  RESTRICTIVE ELEMENT S IN THE RULES  
6.1 It would be useful to confirm these findings by examining the specific aspects of direct 
consignment rules which are conducive to higher or lower utilization rates. There are, however, a 
series of limitations to these calculations. The first is that not all PTAs can be examined but rather 
only those for which import statistics are available with the Secretariat7. Second, the volume of 
imports from LDCs under some of the PTAs analysed is almost negli gible. This means that drawing 
general conclusions may be difficult. Third, limiting the analysis to agricultural products subject to 
the wholly -obtained criterion reduces the number of statistical observations. Finally, it may be 
challenging to attribute variations in utilization rates to a single element, isolating these elements  
from other aspects of direct consignment rules.  
6.2  Notwithstanding these limitations, it may be useful to compare the utilization rates of PTAs 
for which a through bill of ladi ng must be presented and those which do not contain that obligation. 
The comparison, as shown in graph 4, confirms that underutilization rates are significantly higher 
for the PTAs which contain that obligation. The underutilization rate for landlocked LDC s is 26% for 
PTAs with no obligation of a single transportation document. The rate is three -times higher when 
the obligation to present a single transportation document is introduced (79%). A similar pattern is 
also observed for LDCs with sea access: the u nderutilization rate for PTAs that require a through bill 
of lading is 60% but only 39% when that requirement is removed.  
Graph 4: Under utilization rates (%) - PTAs with and without the obligation to present a 
single transportation document (a gricultural p roducts subject to the wholly -obtained 
origin criterion only, all PTAs)  
 
Source:  WTO Integrated  Database, 2019  
6.3 Another possible element to examine is the obligation to inform the name of a national 
consignee in the transportation documents. Only the PTAs of Canada and Norway contain these 
requirements. Interestingly, underutilization rates for both PTA s are higher when compared with 
others. However, it would be difficult to draw a conclusion in the case of Canada  in this analysis,  
 
6 The simple average of trade weighted PTA schemes was used to mitigate the effect of significantly 
different sizes of import flows. More specifically trade weighted underutilization rates for individual PTA schemes 
were calculated and then the simple avera ge between those schemes was used in the graph.  
7 The PTAs of Iceland;  Montenegro;  New Zealand;  the Russian Federation (and other Members of the 
Euro-Asian Economic Union) ; and Turkey could not be included in the calculations. Document G/RO/W/163/Rev. 7 
contains the latest list of PTAs for which import statistics has been notified to the WTO Secretariat.   39%60%
26%79%
0%10%20%30%40%50%60%70%80%90%
Obligation to present a single transport document No obligation to present a single transport
document
sea access landlockedG/RO/W/187/Re v.1 
 
- 7 - 
 
  because the pool of products is very small . Nonetheless, 93% of wholly -obtained agricultural tariff 
lines from LDCs enter ed Canada duty -free under various tariff schemes  in 201 7. Underutilization 
rates for Norway are significantly higher than those of the EU. This is true when agricultural goods 
subject to the wholly -obtained criterion are considered but is also true for all products (Norway and 
the EU apply almost identical origin criteria, so it is possible to broaden the range of products 
examined ). 
7  CONC LUSION  
7.1 Despite the limitations regarding the type of information which can be inferred from import 
statistics, the calculation of utilization rates in this note offers a clear indication that direct 
consignment requirements have a significant influence  on the ability of LDCs to utilize trade 
preferences – in particular that of landlocked LDCs. It would be ideal to refine the statistics available 
to identify with greater precision the share of consignments which are delivered directly and 
indirectly and,  among those, the share of consignments which utilize preferences or are denied 
preferential market access . It would be ideal, in addition, to further this research to identify more 
specifically which obligations and which flexibilities related to direct c onsignment have a strongest 
impact on preference utilization. Finally, it would be useful to clarify national requirements and fine -
tune the information available in the notifications made to the Secretariat.   
  G/RO/W/187/Rev.1  
 
- 8 - ANNEX 1   
DIRECT CONSIGNMENT RULES IN  WTO MEMBERS' NON -RECIPROCAL TRADE PREFE RENCES FOR LEAST DEV ELOPED COUNTRIES (LD CS) 
 
Australia  Canada  Chile China  EU India Japan1 Rep. 
of 
Korea  New 
Zealand  Norway  Russia 
(EAEU)  Switzerland  Chinese 
Taipei  Thailand  Turkey  U.S.A 
(AGOA)  U.S.A 
(LDC)  
Direct 
consignment or  
Non alteration in 
transit   √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ 
Customs control 
during transit   √ √ √ √ √ √ √  √ √ √  √ √ √ √ 
Goods must not 
enter the market 
of transit 
countries     √  √   √  √ √  √  √ √ 
Transit must be 
for geographical 
or transport 
reasons       √  √   √   √    
Through Bill of 
Lading (or "single 
transport 
document")   √2(U) √(U)   √ √*    √   √3*    
Bill of Lading      √*(U)         √* √*(U) √ √ 
Consignee in the 
importing 
country must be 
named   √        √  √      
Other 
transportation 
documents     √ √5*(U)       √*(U)   √5*(U) √ √ 
Certificate by 
customs 
authorities of 
transit country or 
other supporting 
documents    √(U) √5(U)  √ √* √   √ √*(U)  √*  √ √ 
Certificate of 
Origin     √6  √  √  √   √ √    
Commercial 
invoice     √  √   √(U)   √  √  √ √ 
Self-proof of 
direct shipment              √      
  G/RO/W/187/Rev.1  
 
- 9 -  
Australia  Canada  Chile China  EU India Japan1 Rep. 
of 
Korea  New 
Zealand  Norway  Russia 
(EAEU)  Switzerland  Chinese 
Taipei  Thailand  Turkey  U.S.A 
(AGOA)  U.S.A 
(LDC)  
Operations to 
ensure the  "good 
condition" of 
goods   √ √ √ √ √    √ √ √  √ √ √ √ 
Possibility to 
display goods at 
exhibitions or 
fairs under 
customs control        √ √   √       
Goods may be 
stored during 
transit   √7 √ √7 √ √ √ √  √ √ √ √  √   
Consignments 
may be split 
during transit   √ √  √     √  √   √   
Possibility to affix 
labels during 
transit      √     √  √      
Source:  Notifications to the WTO Committee on Rules of Origin (G/RO/LDC/N/).  
Notes:  
1 Documentary requirements do not apply to consignments under 200,000 yen.  
2 Or the house air waybill.  
3 Or an air waybill, or a through air waybill, or a multimodal or combined tr ansportation document.  
4 Factual/concrete evidence based on marking/numbering of packages/any evidence related to the goods.  
5 Not compulsory if Customs has obtained electronic data information of certified documents of tran sshipment.  
6 Not necessary if Cu stoms has received the electronic data information for a CO.  
7 For a period not exceeding 6 months.  
(U):  document to be provided upon request only  
"*":  the exporter or importer has a choice of which document to present.  
 
 
__________