G/RO/W/220  
 
22 May 2023  
(23-3464) Page: 1/15 
Committee on Rules of Origin  Original: English  
 
THE IMPACT OF GSP GRADUATION ON LDCS  AND CUMULATION -THE CASE OF CAMBODIA  
SUBMISSION BY CAMBODIA  
The following submission, dated 15 May 2023, is being circulated at the request of the delegation of 
Cambodia.  
 
 
_______________  
 
 
Table of contents  
 
ACRONYMS AND ABBREVIATIONS  ................................ ................................ ....................  2 
1   INTRODUCTION  ................................ ................................ ................................ ..........  2 
2   THE POSITIVE EFFECTS OF THE EU REFORM CONCERNING RULES OF ORIGIN ON 
CAMBODIA N EXPORTS TO THE EU  ................................ ................................ ....................  3 
3   THE COMBINED CHALLENGES TO THE CAMBODIAN BICYCLE INDUSTRY ARISING 
FROM THE LOSS OF CUMULATION DUE TO GRA DUATION AND EROSION OF MARKET 
ACCESS  ................................ ................................ ................................ ............................  4 
4   THE CHALLENGES RESULTING FROM THE GRADUATION OF ASEAN COUNTRIES FOR 
CAMBODIA BICYCLE PRODUCERS: THE LOSS OF CUMULATION WITH MALAYSIA AND 
VIETNAM  ................................ ................................ ................................ ..........................  5 
4.1   The loss of cumulation with Malaysia  ................................ ................................ ............  5 
4.2   The loss of cumulation with Vietnam and the Cambodian bicycle producers' experience in 
requesting extended cumulation  ................................ ................................ .........................  7 
5   THE ALLEGED RATIONALE FOR EXCLUDING MATERIALS ORIGINATING IN 
GRADUATED COUNTRIES THAT ALSO BENEFIT FROM REGIONAL CUMULATION.  ..............  9 
6   COMPARABLE SITUATIONS AND BEST PRACTICES ADOPTED BY OTHER PREFERENCE -
GIVING COUNTRIES.  ................................ ................................ ................................ ...... 12 
7   THE SYSTEMIC NATURE OF THE ISSUE RAISED BY CAMBODIA: LACK OF PROCEDURES 
FOR REQUESTING CUMULATION UNDER THE EU GSP REGULATION AND ECONOMIC 
PARTNERSHIP AGREEMENTS.  ................................ ................................ .........................  13 
8   MAIN CONCLUSIONS AND RECOMMENDATIONS  ................................ ........................  14 
 
  G/RO/W/220  
 
- 2 - 
 
  ACRONYMS AND ABBREVIATIONS  
ACP African, Caribbean and Pacific  
ASEAN  Association of Southeast Asian Nations  
CRO Committee on Rules of Origin  
DFQF  Duty-Free and Quot a-Free 
EBA Everything But Arms  
EPA Economic Partnership Agreement  
ESA Eastern and Southern Africa  
EU European Union  
FTA Free trade Agreement  
GPT General Preferential Tariff  
GSP Generalized System of Preferences  
GSP Regulation  Regulation (EU) No. 978/2012 of the European Parliament and of the Council 
of 25 October 2012 applying a scheme of generalized tariff preferences and 
repealing Council Regulation (EC) No . 732/2008, OJ [2012] L 303/1  
HS Harmonized System  
LDCs  Least Developed Countries  
PSRO  Product -specific rules of origin  
TAXUD  Directorate -General for Taxation and Customs Union  
WTO  World Trade Organization  
1   INTRODUCTION  
1.1.  As noted by the Least Developed Countries (LDCs) Group in previous submissions, almost eight 
years have passed since the adoption of the Nairobi Minister ial Decision on Preferential Rules of 
Origin for LDCs. Since then, the creation of a notification template and the calculation of utilization 
rates of the Duty -Free and Quot a-Free (DFQF) schemes, as well as related discussions on utilization 
rates, helped to achieve better transparency. However, there has been no parallel progress in 
implementing the substantive part of the Nairobi Decision. Specifically, the paragraphs concerning 
substantial transformation, cumulation, and certification requirements have n ot been implemented 
yet.  
1.2.  We are now well past the 5th anniversary of the Nairobi Decision,  and on 14 April 2022, the 
Committee on Rules of Origin (CRO) adopted a Decision on Preferential Rules of Origin and the 
Implementation of the Nairobi Ministerial Decision (G/RO/95). In particular, the CRO's Decision 
provides:  
"The work of the CRO could in clude identifying and agreeing upon best practices by all 
Members on preferential rules of origin and related administrative requirements and further 
analyzing  existing origin requirements and the utilization of trade preferences ." 
1.3.  The Ministers who attend ed the 12th Ministerial Conference of the World Trade Organization 
(WTO) welcomed this Decision and mandated the CRO to report its work to the General Council 
ahead of the 13th Ministerial Conference.  
1.4.  In line with this mandate, the Cambodian delegation her eby wishes to provide its input on the 
application of Paragraph 2 of the Nairobi Decision, which concerns the topic of cumulation.  
1.5.  The present submission  examines the challenges and opportunities faced by the Cambodian 
private sector arising from the "Eve rything But Arms" (EBA) initiative of the European Union (EU). 
This examination focuses particularly on the experience reported by Cambodian bicycle producers. G/RO/W/220  
 
- 3 - 
 
  This submission  then shares lessons learned and best practices that preference -giving countries 
could adopt to (i) facilitate compliance with origin requirements, (ii) mitigate the adverse effects 
that may arise from graduation of beneficiary status from LDCs trade preferences by facilitating 
cumulation procedures, and (iii) maintain regional value c hains, as implicitly recommended by 
Paragraph 2 of the Nairobi Decision on cumulation.  
2  THE POSITIVE EFFECTS OF THE EU REFORM CONCERNING RULES OF ORIGIN ON 
CAMBODIAN EXPORTS TO THE EU  
2.1.  As acknowledged by the LDCs Group in previous submissions, the tangible and concrete trade 
effects of the EU reform concerning rules of origin have been dramatic for many LDCs, especially 
Cambodia.  
2.2.  In the context of the EU initiative to reform the rules of origin for LDCs, Cambodia is often 
branded as a success story, as it managed to substantially increase its exports to the EU, showing 
high utilization rates under the EBA. Following the EU reform of rules of origin of 2011, Cambodia 
was also able to diversify its export composition to the EU thanks to the success of its bic ycle 
industry. Moreover, Cambodia benefitted from using regional value chains and cumulation with the 
Association of Southeast Asian Nations (ASEAN) countries, this being one of the stated goals of the 
EBA's provisions on cumulation.  
2.3.  The EU reform introduc ed lenient rules of origin for clothing products falling under Chapter 62 
of the Harmonized System (HS) that allowed garments assembled in the EU and sewn from fabric 
produced anywhere to obtain originating status. This reform had an immediate effect on th e 
Cambodian garment sector: in 2011, garment exports from Cambodia to the EU almost doubled, 
and continued to increase over the subsequent years. The utilization rate of Cambodian exports to 
the EU increased from 57% to 90%, with a significant surge in the  volume of exports of clothing 
products.  
2.4.  The impact of the EU reform, however, went well beyond the traditional garment sector, as it 
relaxed the rules of origin in entire HS Chapters, such as Chapter 87 Vehicles, other than railway or 
tramway rolling sto ck and parts and accessories thereof . This allowed the use of up to 70% of 
non-originating materials for bicycles and the easing of ASEAN cumulation rules.  
2.5.  Figure 1 below shows that, in 2011, the utilization rate of bicycles exported from Cambodia to 
the E U increased to around 80% from the rate of 33% of the previous year. Moreover, between 
2010 and 2013, import values multiplied by a factor of 5.4, increasing from US$60 million to 
US$325  million (+442%).  
Graph 1 - EU imports from Cambodia and GSP utilizati on rates: Bicycles  
 
G/RO/W/220  
 
- 4 - 
 
   
2.6.  Between 2014 and 2020, the utilization rates decreased slightly, i.e., from over 80% in 
2014-2018 to 78% in 2019 and 72% in 2020.  This decrease in utilization rates may be due to the 
difficulties arising from the loss of cumulation with Malaysia and the challenges  in using the 
derogation , as discussed in Section  4.1 below. The subsequent increase in imports and utilization 
rates afte r the COVID -19 epidemic in 2021 and 2022 represents a recovery bubble that is 
overshadowed by the declining orders for 2023 that are not yet reported in official data.  
2.7.  A critical liberalizing  factor of the reformed EU rules of origin was the change in cumu lation 
rules. The new cumulation relaxed the value -added principle in the allocation of origin when two or 
more ASEAN countries are involved in manufacturing.  
2.8.  This new cumulation rule allowed bicycle manufacturers based in Cambodia to use ASEAN 
parts, suc h as bicycle frames made in Vietnam and Shimano gears made in Malaysia, without these 
inputs being counted against the 70% threshold of non -originating materials. In such cases, the 
finished bicycle would have Cambodian origin and be entitled to duty -free treatment in the EU, 
provided that the working or processing operations carried out in Cambodia went beyond the simple 
assembly of the bicycles. The higher allowance threshold of 70% on the use of non -originating 
material combined with the new rules on cum ulation created significant investment opportunities 
that were exploited by a number of companies producing bicycles in Cambodia. Examples of 
producers that were able to benefit from these reforms are AJ bikes,1 Speedtech and Smartech.2  
2.9.  To adequately an d collectively represent their interests, these companies formed the 
"Cambodia Bicycles Coalition" (CBC).   
3  THE COMBINED CHALLENGES TO THE CAMBODIAN BICYCLE INDUSTRY ARISING FROM 
THE LOSS OF CUMULATION DUE TO GRADUATION AND EROSION OF MARKET ACCESS   
3.1.  The p ositive impact of the abovementioned EU reform began to fade in 2014, with the 
amendment to the EU's Generalized System of Preferences (GSP) rules, which resulted in countries 
being excluded from the EU GSP if they either (a) graduated from beneficiary sta tus under the EU 
GSP or (b) concluded Free Trade Agreements (FTAs) with the EU.  
3.2.  EU Regulation No. 978/2012 (EU GSP Regulation),3 which came into effect in 2014,4 provides 
(in Article 4) that a beneficiary country shall be removed from the list of GSP ben eficiaries if (a) the 
World Bank has classified it as a high -income or an upper -middle income5 country during three 
consecutive years immediately preceding the update of the list of beneficiary countries; or (b) it 
benefits from a preferential market acce ss arrangement which provides the same tariff preferences 
as the GSP, or better, for substantially all trade.  
3.3.  The first challenge arose from the graduation of Malaysia from GSP beneficiary status in 2014. 
As a result, Cambodia's bicycle sector could not u se any more gears originating in Malaysia under 
ASEAN cumulation. This seriously affected the supply chain of Cambodia's bicycle producers since 
the gears originating from Malaysia that national or regional alternatives could not replace. 
This challenge wa s addressed through the request for a specific derogation to the EU, as discussed 
in Section 4.1 below.     
3.4.  The second challenge emerged from the entry into force of the EU -Vietnam FTA on 
1 August  2020.6 This is because, according to Article 4(b) of the E U GSP Regulation, countries that 
 
1 See https://www.ajsbikes.com/   
2 See https://panjiva.com/Smart -Tech-Cambodia -Co-Ltd/5476217 . 
3 Regulation (EU) No . 978/2012 of the European Parliament and of the Council of 25 October 2012 
applying a scheme of generalized tariff preferences and repealing Council Regulation (EC) No . 732/2008, OJ 
[2012] L 303/1.  
4 Ibid, Article 41.  
5 Compare to Article 3 of Council Regulation (EC) No . 732/2008 of 22 July 2008 applying a scheme of 
generalized tariff preferences for the period from 1 January 2009 to 31 December 2011 and amending 
Regulations (EC) No . 552/97, (EC) No 1933/2006 and Commission Regulations (EC) No . 1100/2006 and (EC) 
No 964/2 007, OJ [2008] L 211/1, which provided a higher threshold for graduation from the GSP.  
6 Free Trade Agreement between the European Union and the Socialist Republic of Viet Nam, OJ [2020] 
L 186/3. See  also https://ec.europa.eu/commission/presscorner/detail/en/IP_20_1412 . G/RO/W/220  
 
- 5 - 
 
  "[benefit] from a preferential market access arrangement (FTA) that provides the same tariff 
preferences as the scheme, or better, for substantially all trade " lose GSP beneficiary status after a 
transitional period of two years.7 Therefore, Vietnam lost its GSP beneficiary status as of 1 January 
2023.  
3.5.  The direct effect of this development is that Cambodian bicycle manufacturers can no longer 
use Vietnamese -origin materials under the ASEAN cumulation provision to meet the 70% of the 
non-originating material threshold for preferential access to the EU. Overall, most of the bicycles 
manufactured in Cambodia are made mainly with Vietnamese -origin materials. Without the 
cumulation of Vietnamese -origin materials, the applicable product -specific rule of origin (PSRO), 
which requires not exceeding 70% of non -originating materials out of the ex -works price, cannot be 
met.   
3.6.  As further detailed in the Sections below, the loss of cumulation with originating parts of 
bicycles from Mala ysia and subsequently Vietnam created significant difficulties for the Cambodian 
bicycle producers, causing delays and disruptions to the supply chains.  
3.7.  The EU has embarked on a process of revising the EU GSP scheme for the next decade, 
i.e., 2024-2034. Such a process may provide opportunities to review and redress the evident 
imbalances arising from disallowing the use of inputs originating in GSP -graduat ed beneficiary 
countries. However, despite Cambodia's attempts to bring the issue to European Commission's 
attention, the current developments show little willingness to better understand the implications of 
the EU combined policy actions on Cambodia and A SEAN LDC.  
3.8.  The combined trade policy actions of (i) excluding inputs of graduated ASEAN countries from 
cumulation and (ii) embarking on concurrent FTA negotiations with individual ASEAN countries are 
creating collateral damage to Cambodia and ASEAN LDCs, d isrupting ASEAN regional value chains, 
and affecting the market access condition of the ASEAN LDCs by eroding their preferential margins. 
The EU could legitimately pursue its trade and economic interests while also maintaining the 
necessary measure to safe guard ASEAN LDC achievement and regional value chains.  
3.9.  The current EU GSP Proposal8 does not seems to contain any provision to remedy the existing 
imbalance. In fact, Article 4 of the EU GSP Proposal, which deals with the eligibility criteria for the 
standard EU GSP, does not provide any solution. It basically reproduces Article 4 of the  EU GSP 
Regulation. Likewise, Paragraph 3 of Article 33 of the EU GSP Proposal, which regulates the 
procedures for cumulation, does not introduce corrective measures to redress the existing imbalance 
and is not clear as to the procedures to be followed for  requesting extended cumulation, as discussed 
in Section 4.2 below.   
4  THE CHALLENGES RESULTING FROM THE GRADUATION OF ASEAN COUNTRIES FOR 
CAMBODIA BICYCLE PRODUCERS: THE LOSS OF CUMULATION WITH MALAYSIA AND 
VIETNAM  
4.1  The loss of cumulation with Malaysia   
4.1.  As pointed out in the previous Section, following the amendments to the EU GSP Regulation, 
Cambodia's bicycle producers could no longer use Malaysian inputs (mainly gears produced by the 
Shimano factory in Malaysia) for ASEAN cumulation purposes. At that tim e, similar changes to the 
Canadian GSP rules of origin raised concerns and caused significant difficulties for the Cambodian 
bicycle industry. As discussed in Section 6, the Canadian Government addressed such concerns 
 
7 See Paragraph 2(b) of Article 5 of Regulation No. 978/2012: "The decision to remove a beneficiary 
country from the list of GSP beneficiary countries, per Para graph 3 of this Article and based on point (b) of 
Article 4(1), shall apply as from two years after the date of application of a preferential market access 
arrangement."  
8 Proposal for a Regulation of the European Parliament and of the Council on applying a generalized 
scheme  of tariff preferences and repealing Regulation (EU) No . 978/2012 of the European Parliament and of 
the Council Brussels, 22.9.2021 COM (2021) 579 final  2021/0297 (COD).  G/RO/W/220  
 
- 6 - 
 
  through the adoption of new rules in t he Canadian graduation policy which allowed the use of inputs 
from graduated countries.9  
4.2.  Faced with a difficult situation in the EU market, the Cambodian bicycle manufacturers 
contacted the Ministry of Commerce of Cambodia to request a derogation from th e European 
Commission to continue using inputs originating in Malaysia as eligible under ASEAN cumulation 
during a transitional period. This request was granted with a quota on the number of bicycles that 
can use cumulation,10 and for a period of three yea rs, i.e., from 29 July 2014 until 
31 December  2016.  
4.3.  This derogation, however, did not address the production cycles. As reported by bicycle 
manufacturers located in Cambodia:  
"The derogation for Malaysia took much too long to [be] put in place, we missed a whole 
model year with no Shimano as local content. Then when it was granted, it took a long time 
for the Malaysia[n] government to start to issue Form A11. Frankly, we will only start 
[benefitting] from this model year production, which starts in May, an d we just have until the 
end of 2016 before [the derogation from the EU GSP Regulation] expires. Brands [will not] 
want to change specifications halfway through a model year in 2016. So, for us, it's almost all 
over from May 2016 ." 12 
4.4.  During the derogation  period ( i.e., 29 July 2014 until 31 December 2016), several consultations 
and exchanges of letters took place between the Cambodian Minister of Commerce and 
Commissioner Malmstrom. On those occasions, the Cambodian Minister reiterated the need to find 
a permanent solution to the issues faced by the Cambodian private sector, which the temporary 
nature of a derogation could not address. However, the European Commission did not provide any 
substantive reply.13 It simply outlined the procedure to request a new  derogation and the modalities 
to request extended cumulation, which is discussed further in Section 4.2 below.  
4.5.  Building up the necessary information to apply for a second derogation took some time.14 
Moreover, once it was granted, the difficulties of taki ng advantage of the second derogation 
remained. As explained by the Cambodian bicycle manufacturers:  
"As with the last derogation, the long lead times in our industry create a problem, which I 
suppose the [European] Commission [does not] really understand.  [Now] that we have the 
confirmation of form A, we can go to the customers and try to get them to change the 
specification of models already in production elsewhere and move that production to 
Cambodia. Assuming [that] they agree, the lead time from order to production is four months. 
[Therefore,] after the technical checks, we can start [exporting] these additional models in 
February 2019. [This means that, for a long period, Cambodian bicycle producers could make 
no use of the derogation extension granted  by the EU]. Furthermore, customers also face 
losing it again through expiry (for EU arrivals) In December 2019, "In" means shipments 
[made] in November, so orders placed in July should again be without derogation. Therefore, 
the […] production [that benef itted] from the derogation is [the production which took place 
 
9 See, Canadian circular available at http://www.cbsa -asfc.gc.ca/publications/dm -md/d11/d11 -4-4-
eng.html .  
10 Commission Implementing Regulation (EU) No . 822/2014 of 28 July 2014 on a derogation from 
Regulation (EEC) No . 2454/93 as regards the rules of origin under the scheme of generalized tariff preferences 
in respect of bicycles produced in Cambodia regarding the use under cumulation of bicycle parts origi nating in 
Malaysia, OJ L 223, 29 July 2014, p. 19.  
11 Form A was adopted in 1970 by UNCTAD's Working Group on Rules of Origin as a common certificate 
of origin for the purposes of the GSP (TD/B/AC.5/38).  
12 Inputs from AJ Company, September 2018.  
13 See the letter of Commissioner Malmstrom of 9 November 2016 addressed to the Minister of 
Commerce of Cambodia, available at: 
http://ec.europa.eu/carol/?fuseaction=download&documentId=090166e5ae183eb7&title=CM_signed%20 -
%20ASEAN%20letter%20to%20Sorasak.pdf   
14 Commission Implementing Regulation (EU) No. 2018/348 of 8 March 2018 on a temporary derogation 
from the ru les of preferential origin laid down in Delegated Regulation (EU) No. 2015/2446 in respect of 
bicycles and other cycles produced in Cambodia regarding the use under cumulation, of parts originating in 
Malaysia, OJ L67/24,09.3.2018, p. 1.  G/RO/W/220  
 
- 7 - 
 
  between] January [and] July 2019 (6 months), whereas the derogation was granted for 18 
months. "15 
4.2  The loss of cumulation with Vietnam and the Cambodian bicycle producers' 
experience in requesti ng extended cumulation  
4.6.  The loss of cumulation with Vietnam from 1 January 2023, i.e., two years after the entry into 
force of the EU -Vietnam FTA, is another formidable challenge to achieving an established regional 
value chain.  
4.7.  In fact , while the amount and value of Vietnamese -origin materials used may vary from one 
bicycle model to anothe r, not a single bicycle eligible for EBA duty -free can be manufactured by 
Cambodian producers without using Vietnamese -origin materials.  
4.8.  The materials imported from Vietnam to Cambodia for bicycle production include alloy and 
carbon frames, forks, saddles, tubes, tires, rims, decals, handlebars , stems, seat posts, kickstands, 
fenders, chains, brakes, rear carriers, and high -quality packagin g materials. The materials of 
Vietnamese origin used by Cambodian producers constitute the most important parts of the bicycles.  
4.9.  In 2020, on a weighted average basis, the Vietnamese -origin materials used by the CBC 
members accounted for 20% of the total va lue of the materials used. On a model -specific basis , the 
Vietnamese -origin materials' value can be much higher.  
4.10.  Cambodian bicycle  producers had no option but to request extended cumulation. Such a 
possibility is provided under the EU GSP Regulation as ou tlined below:  
 
4.11.  As is clear from the wording of Paragraph 7 of Article 86 of the GSP Regulation,16 "extended 
cumulation"  can only be granted upon request and where several conditions are met.  
4.12.  These condition s can be summarized as follows:  
a) The request for extended cumulation must be motivated and supported by evidence;  
b) If granted, extended cumulation applies only to specific products (although it is unclear how 
the products subject to the request should be de fined and how specific their definition should 
be, i.e., whether at HS chapter level, heading level, etc.);  
c) Extended cumulation may not be granted in relation to agricultural products; and  
d) The countries involved in the cumulation ( i.e., Cambodia and Vietn am) must have undertaken 
to provide the administrative cooperation necessary to comply with the rules of origin both 
with regard to the EU and among themselves.  
 
15 Statement by a C ambodian bicycle producer.   
16 Now in Article 56 of the Union Code as contained in Commission Delegated Regulation (EU) 
No. 2015/2446 of 28 July 2015 . Box 1 - Paragraph 7 of Article 86 of the EU regulation  
At the request of any beneficiary country's authorities, extended cumulation between a 
beneficiary country and a country with which the European Union has a free -trade agreement 
per Ar ticle XXIV of the General Agreement on Tariffs and Trade (GATT) in force may be granted 
by the Commission, provided that each of the following conditions is met:  
(a) the countries involved in the cumulation have undertaken to comply or ensure compliance 
with this Section and to provide the administrative cooperation necessary to ensure the 
correct implementation of this Section both with regard to the European Union an d between 
themselves.  
(b) the undertaking referred to in point (a) has been notified to the Commission by the 
beneficiary country concerned.  
The request referred to in the first subparagraph shall contain a list of the materials involved in 
the cumulation and be supported with evidence that the conditions laid down in points (a) and 
(b) of the first subparagraph are met. It shall be addressed to the Commission. Where the 
materials concerned change, another request shall be submitted. Materials falling withi n HS 
chapters 1 -24 shall be excluded from extended cumulation.  G/RO/W/220  
 
- 8 - 
 
  4.13.  It is also noted  that there is no procedure regulating the period that may lapse between the 
submission of the request and a reply from the European Commission.  
4.14.  Officials of the Cambodian Ministry of Commerce and of the Directorate Generals for TRADE 
and for Taxation and Customs  Union (TAXUD) of the European Commission held consultations on 
the exa ct procedures to be followed, including possible formats and required information to apply 
for extended cumulation. However, the initial phase of these consultations was not particularly 
fruitful.17 It was only after a formal communication through the lawy er of the Cambodian bicycle 
producers with TAXUD that the procedural steps were finally clarified. In order to be considered, 
TAXUD required requests for extended cumulation to be accompanied by a joint undertaking of the 
Governments of Cambodia and Vietna m about administrative cooperation on rules of origin. 
However, no sample or direction as to the content of the joint undertaking was provided.  
4.15.  Due to the complexity of the issue and the necessity to enter into a bilateral agreement, it 
took two years (202 1-2022) and a series of bilateral consultations and exchanges of letters between 
the Government of Cambodia and the Vietnamese Government to finalize and sign a joint 
undertaking.  
4.16.  The formal request for extended cumulation was lodged in December 2022. At present, while 
informal discussions  have taken place, the European Commission has not provided a definitive 
response yet.  
4.17.  During such informal discussions, the Commission officials  informed the Government of 
Cambodia that, due to the entry into force of the new EU GSP scheduled for 2024 and some related 
changes in the EU rules of origin, the joint undertaking signed by Cambodia and Vietnam must be 
updated to identify the correct the  legal basis for granting the request. This, in turn, will entail a 
new round of consultations between Cambodia and Vietnam to sign the updated undertaking.  
4.18.  Article 33 of the EU GSP Proposal18 for the 2024 -2034 decade provides in relevant part:  
3. Without pre judice to the rules referred to in Paragraph  2 and upon request from a 
beneficiary country, the Commission shall grant regional cumulation between beneficiary 
countries of different regional groups or extended cumulation where and as long as  the 
following conditions are met:  
a) the request from the beneficiary country provides sufficient evidence that such 
cumulation is necessary in view of the specific trade, development, and financing 
needs of that country;  
b) the cumulation does not create und ue trade difficulties for other eligible countries, 
in particular beneficiaries under the EBA arrangement, in view of possible 
diversion of trade flows;  
c) The beneficiary country provides evidence that it cannot comply with the rules of 
origin applicable to  the goods in question, without such cumulation being granted.  
4. When assessing if the request is justified in view of the specific trade, development and 
financing needs of the beneficiary country, in particular , based  on information provided by 
that count ry, the Commission shall take into account the level of dependency of the beneficiary 
country on integrated production with the third countries concerned by request, the impact of 
such dependence  for the beneficiary country, the relevance of sectors with s uch integrated 
production for the economy of the beneficiary country and future development perspectives 
with regard to the products in question.  
5. Before the Commission reaches its decision on a request, it shall give the beneficiary 
country the opportunit y to present its views.  
 
17 Meetings among Cambodia delegation and Taxud  and Trade Directorates' officials of 2016 and 2017.   
18 Proposal for a regulation of the European Parliament and of the Council on applying a generalized 
scheme of tariff preferences and repealing Regulation (EU) No . 978/2012 of the European Parliament and  of 
the Council; Brussels, 22.9.2021 COM (2021) 579 final 2021/0297 (COD) . 
 
 G/RO/W/220  
 
- 9 - 
 
  4.19.  The above text does not clarify the procedure for submitting a request, it does not specify the 
format to be used for the joint undertaking and  does not provide a timeline for the European 
Commission to assess and respond to the re quest for extended cumulation.  
4.20.  The text of the provision does nevertheless provide guidance as to the factors that should 
motivate a request for extended cumulation. The pending request submitted by the Cambodian 
bicycle manufacturers provided details on s uch factors, including:  
a) the level of dependency of the beneficiary country on integrated production with the third 
countries concerned by the request;  
b) the relevance of sectors with such integrated production for the economy of the beneficiary 
country; and  
c) future development perspectives with regard to the products in question.  
4.21.  The combined effects of the loss of cumulation of parts originating in Malaysia first and of 
parts originating in Vietnam in 2023 are affecting regional value chains of the Cambodian bicycle 
industry.  
4.22.  As discussed in Section 7, the loss of cumulation – and the procedures being tied up to its 
re-establishment – is not an isolated Cambodian issue, as it is affecting other African LDCs that have 
entered an Economic Partnership Agreement (EPA) with the EU.  
4.23.  In addition to being unable to use parts originating in Malaysia and Vietnam, the Cambodian 
bicycle industry is also facing competition arising from the erosion of trade preferences. 
The preferential margin that bicycle producers enjoy b y being based in Cambodia is eroding 
gradually, as the tariff cuts under the EU -Vietnam FTA are implemented. In the same vein, those 
ASEAN countries that entered into FTAs with the EU may be able to cumulate among themselves 
progressively.19 Cambodia, on t he other hand, may face important limitations in terms of the 
cumulation scope since most ASEAN countries will have either graduated from the GSP or concluded 
FTAs with the EU.  
4.24.  As a bicycle producer, an important advantage of being located in Cambodia, is that there 
exist more lenient PSRO, which allow the use of up to 70% of non -originating materials under the 
EBA. By contrast, under the EU -Vietnam FTA only 45% of non -originating materials may be used. 
Yet, as Cambodia may graduate from LDC status in 2026,  i.e., after the review of the criteria for 
graduation by the UN Committee on Development Policies, Cambodian bicycle producers may lose 
these benefits in 2029, i.e., after the grace period of three  years provided under the EBA.  
5  THE ALLEGED RATIONALE FOR E XCLUDING MATERIALS ORIGINATING IN GRADUATED 
COUNTRIES THAT ALSO BENEFIT FROM REGIONAL CUMULATION.    
5.1.  The most significant challenges for the Cambodian bicycle producers originate from the 
graduation policy introduced by the EU in its GSP scheme. It is impo rtant to clarify that the matter 
under discussion is not the EU graduation policy per se , which  may be legitimately pursued by a 
preference granting country. Rather, the issue which the present submission aims to highlight is 
how, since the entry into forc e of the EU GSP Regulation , the EU GSP graduation policy has been 
applied to inputs originating in graduated countries that are also members of a regional grouping.  
5.2.  The graduation of a country from EU GSP beneficiary status results in the exclusion of inputs 
and materials originatin g in that country from regional cumulation. Regional cumulation is granted 
under the EU GSP scheme to various regional groupings.20 Under this arrangement, beneficiaries 
 
19 The provisions of the EU -Singapore FTA expressively provide for ASEAN cumulation, and similar 
provisions in the EU -Vietnam FTA are also providing scope for cumulation with ASEAN  countries and cumulation 
with South Korea for a number of textile inputs for clothing products.  
20 The EU grants regional cumulation to the following groupings:  
- Group I: Brunei ; Cambodia ; Indonesia ; Laos; Malaysia ; Myanmar/Burma ; Philippines ; Thailand ; 
Vietnam; (ASEAN)  
- Group II: Bolivia ; Colombia ; Costa Rica ; Ecuador ; El Salvador ; Guatemala ; Honduras ; 
Nicaragua ; Panama ; Peru; Venezuela;  
- Group III: Bangladesh ; Bhutan ; India; Maldives ; Nepal ; Pakistan ; Sri Lanka; (SAARC)  
- Group IV: Argentina ; Brazil ; Paraguay ; Uruguay (MERCOSUR) . G/RO/W/220  
 
- 10 - 
 
  that are members of the same regional trade grouping may consider inputs originating f rom other 
members as originating in their own country. This substantially  facilitates compliance with rules of 
origin requirements.21 
5.3.  The EU GSP Regulation, however, changed the treatment of inputs and materials originating in 
graduated countries. These ch anges have significant and concrete implications, especially for the 
countries that still benefit from GSP preferences. The previous EU GSP Regulation (EU Regulation 
No. 732/2008) contained an express provision that maintained the 'acquis' of regional cumu lation 
even when one of the members of a regional group graduated from the GSP. This provision used to 
read as follows:  
 
5.4.  Neither the current EU GSP Regulation nor the EU GSP Proposal that will revise the EU GSP 
scheme for the next decade 2023 -2033 contain a provision equivalent to Article 5(3) of the EU GSP 
Regulation No. 732/2008. The absence of such a provision means that the inputs originating in 
graduated countries can no longer be used for cumulation purposes under the regional cumulation 
provisions.  
5.5.  According to officials of the European Commission, the absence of such a provision in the EU 
GSP Regulation is motivated by the fact that the continued use of inputs from graduated countries 
runs against the reasons underlying graduation. According to this reasoning, the products and/or 
materials originating in graduated countries no longer need preferential treatment to be competitive 
and allowing the use of such materials for the manufacturing of products in other countries may 
frustrate the objective of graduation.  
5.6.  Above all, the European Commission argues that the use of inputs originating in graduated 
countries is incon sistent with Article I of the GATT 1994, as graduated countries may not have 
equivalent preferential access to the EU market.22  
5.7.  Figure 1 below illustrates the inconsistencies that would supposedly arise in cases where gears 
with Malaysian origin are expor ted to the EU market. After the graduation of Malaysia from the EU 
GSP Regulation, a bicycle gear (HS sub -heading 87141020) exported from Malaysia to the EU is 
subject to an MFN customs duty of 3.7% ad valorem.  However, under ASEAN regional cumulation, 
if the same gear is incorporated into a bicycle with Cambodian origin, it would enter the EU market 
duty-free thanks to the EBA.  
 
21 See Stefano Inama, Rules of origin in international trade, Cambridge University Press, 2009 and 
2022.  
22 At least, this is the argument used by the Commission to justify the absence of the provision 
contain ed in Paragraph 3 of Article 5 of EU GSP Regulation 2008 in the GSP regulation of 2014.  Box 2 - Paragraph 3, Article 5 of the EU GSP Regulation No. 732/2008  
Regional cumulation within the meaning and provisions of Regulat ion (EEC) No . 2454/93 shall 
also apply where a product used in further manufacture in a country belonging to a regional 
group originates in another country of the group, which does not benefit from the arrangements 
applying to the final product, provided t hat both countries benefit from regional cumulation for 
that group.  G/RO/W/220  
 
- 11 - 
 
  Figure 1 - Potential WTO inconsistency of regional cumulation of inputs and materials 
originating in graduated countries in the absence of equivalent market access between 
the EU and the graduated  countries  
 
 
 
 
5.8.  According to the European Commission, the different treatment of inputs originating in 
graduated countries under, on the one hand, the EU GSP Regulation No. 732/2008 and, on the other 
hand, the current EU GSP Regulation would be justified in that the situation illustrated in Figure 1 
above would be equivalent to tariff circumvention and would constitute a breach of Article I of the 
GATT 1994.23 
5.9.  This argument, however, is not entirely convincing, as it is unclear why such an argument was 
not raised before when the EU GSP Regulation No. 732/2008 was in force. Moreover, it can be argued 
that, when the inputs originating in graduated countries are incorporated into a finish ed product, 
they are substantially transformed into a new product, as indicated in the Union Customs Code24 
(see Box 3 ). 
 
 
  
 
23 Article I of GATT 1994 provides as follows: "…any advantage, favour, privilege or immunity granted 
by any contracting party to any product originating in or destined for any other country shall be accorded 
immediately and unconditionally to the like product originating in or destined for the territories of all other 
contracting parties… " 
24 Available  at https://eur -lex.europa.eu/legal -content/EN/TXT/PDF/?uri=CELEX:02015R2446 -
20160501&from=EN . 
 
 
EU 
 
Cambodia  
Gear incorporated in a finished 
bicycle  
 
Malaysia  
Bicycle gear  
 
Duty -free 
EU MFN duty rate of 
3,7% on gears  
 
Duty -Free  Box 3 - Paragraph 4 of Article 55 of the Union Customs Code  
Regional cumulation between beneficiary countries in the same regional g roup shall apply only 
under the condition that the working or processing carried out in the beneficiary country where 
the materials are further processed or incorporated goes beyond the operations described in 
Article 47(1) and, in the case of textile prod ucts, also beyond the operations set out in 
Annex  22-05. G/RO/W/220  
 
- 12 - 
 
  5.10.  Article 47(1) of the Union Customs Code lists a series of working or processing operations 
that are considered to be insufficient to confer origin.25 Hence, as long as the working and processing 
operation carried out in a country are not among those listed in Article 47(1), the materials that 
have been worked and processed should be conferred a new origin.  
6  COMPARABLE SITUATIONS AND BEST PRACTICES ADOP TED BY OTHER PREFERENCE -
GIVING COUNTRIES.  
6.1.  Canada, another major preference -giving country, has adopted a very different approach in 
applying its graduation policy. Such an approach should serve as an example of best practices and 
could be adopted by the E uropean Commission in implementing the EU GSP Proposal, which is 
expected to enter into force next year.  
6.2.  As part of its 2013 "Economic Action", Canada reformed its General Preferential Tariff (GPT) 
regime. Under the reformed Canadian GPT regime, countries meeting one of the two criteria below 
ceased to be eligible for the Canadian GSP scheme. The two criteria  are:  
a) whether, according to the latest World Bank income classifications, the country is classified 
for two consecutive years as a high -income or upper -middle -income economy; or  
b) whether, a ccording to the latest WTO statistics, the country has had a 1% or greater share of 
the world's exports for two consecutive years.  
6.3.  Under the new Canadian regime, the eligibility of each country to benefit from GSP status shall 
be reviewed every two years.  
6.4.  The reform led to the graduation from GPT treatment of 72 trading  partners in 2015. The 
graduation of these 72 countries was projected to have a series of negative implications for the 
remaining beneficiaries. However, the potential negative impact of this reform was acknowledged 
by Canadian importers during the review process carried out by the Canadian Government on the 
 
25 Article 47 of the Union Code provides as follows.  
1. Witho ut prejudice to Paragraph 3, the following operations shall be considered as insufficient 
working or processing to confer the status of originating products, whether or not the 
requirements of Article 45 are satisfied:   
 
(a) preserving  operations to ensure  that the products remain in good condition during 
transport and storage;  
(b) breaking up and assembly of packages;  
(c) washing, cleaning ; removal of dust, oxide, oil, paint, or other coverings;  
(d) ironing or pressing  of textiles and textiles articles;  
(e) simple painting and polishing operations;  
(f) husking and partial  or total milling of rice; polishing and glazing of cereals and rice;  
(g) operations to colour  or flavour sugar or form sugar lumps; partial or total milling of crystal 
sugar;  
(h) peeling , stoning , and shelling of fruits, nuts, and vegetables;  
(i) sharpening , simple grinding or simple cutting;  
(j) sifting, screening, sorting, classifying, grading, matching (including the making -up of sets 
of articles);  
(k) simple  placing in bottles, cans, flasks, bags, cases, boxes, fixing on cards or boards and 
all other simple packaging operations;  
(l) affixing or printing marks, labels, logos and other like distinguishing  signs on products or 
their packaging;  
(m) simple mixing of products, whether or not of different kinds; mixing of sugar with any 
material;  
(n) the simple addition of water or dilution or dehydration or denaturation of products;  
(o) simple assembly of parts of articles to constitute a complete article or disasse mbly of 
products into parts;  
(p) a combination of two or more operations specified in points (a) to (o);  
(q) slaughter of animals.  
2. For the purposes of Paragraph 1, operations shall be considered simple when neither special 
skills nor machines, apparatu s or tools especially produced or installed for those operations are 
required for their performance.  
3. All the operations carried out in a beneficiary country on a given product shall be taken into 
account when determining whether the working or processi ng undergone by that product is to be 
regarded as insufficient within the meaning of Paragraph 1.  G/RO/W/220  
 
- 13 - 
 
  impact of the proposed changes to the Canadian GPT scheme. In fact, as reported in the outcome 
of the impact exercise, out of the 105 submissions  "approximately half of the submissions received 
during c onsultations expressed concern that changes to GPT country eligibility would reduce the 
benefits of Canada's LDCT and outward processing regimes. Grandfathering the pre -1 January 2015, 
list of GPT beneficiaries for these regimes responds to these concerns. "26 
6.5.  Accordingly, modifications to the rules of origin under Canada's LDCs trade regime were made 
to ensure that LDCs' exports would continue to be eligible for duty -free treatment when imported to 
Canada, even when they incorporated inputs originating in c ountries that would no longer be eligible 
for the GPT.  
6.6.  Unfortunately, neither the mid -term evaluation of the EU's GSP 201727 nor the impact 
assessment study carried out in 202128 mention, let alone address, the negative effects that 
graduation of the input s originating in graduated countries will have on the countries that should 
remain GSP beneficiaries.  
7  THE SYSTEMIC NATURE OF THE ISSUE RAISED BY CAMBODIA: LACK OF PROCEDURES 
FOR REQUESTING CUMULATION UNDER THE EU GSP REGULATION AND ECONOMIC 
PARTNERSHIP AG REEMENTS.  
7.1.  The situation faced by the Cambodian bicycle industry in applying for regional or extended 
cumulation is neither unique nor an isolated case.  
7.2.  Under the trade arrangement provided by the Cotonou Agreement between the EU and the 
African, Caribbean and Pacific (ACP) countries (the Cotonou Agreement), the ACP countries were 
granted full regional cumulation by the EU. The Cotonou Agreement, including its provisions on 
cumulation, has gradually been replaced by different Economic Partnership Agreements (EPAs) 
between the individual ACP countries and the EU. Similarly, the EU -Vietnam FTA as well as other 
FTAs concluded by the EU contain detailed rules on the implementation of cumulation with other 
ASEAN countries.  
7.3.  A closer look at the cumulation provision s contained in the EPAs between the EU and the ACP 
countries and the EU -Vietnam FTA shows a number of similarities. In fact, the implementation of 
these provisions on cumulation is subject to a number of conditions. Such conditions echo those for 
extended cumulation analysed  above.  
7.4.  An example is provided by Paragraph 5 of Article 3 of the Protocol on rules of origin of the EU -
Vietnam FTA, which reads:  
 
 
26 See http://canadagazette.gc.ca/rp -pr/p2/2013/2013 -10-09/html/ sor-dors161 -eng.html .  
27 Final Interim Report 21 September 2017 available at : https://circabc.europa.eu/ui/group/f2 43659e -
26f5-44d9-8213-81efa3d92dc7/library/fef4662d -6e95-4242-8e5a-d0ec5bde782f/details  
28 Available at https://op.europa.eu/en/publication -detail/ -/publication/be174994 -f337-11eb-aeb9-
01aa75ed71a1/language -en.  Box 4 - Paragraph 5 of article 3 of the Protocol on rules of origin of the EU -Vietnam FTA  
The cumulation provided for in Paragraphs 2 to 4 shall only apply provided that:  
(a) the ASEAN countries involved in the acquisition of the originating status have undertaken 
to:  
 (i) comply or ensure compliance with this Protocol; and  
 (ii) provide the administrative cooperation necessary to ensure the correct implementation 
of this Pro tocol both with regard to the Union and among themselves;  
(b) the undertakings referred to in subparagraph (a) have been notified to the Union;  
(c) the tariff duty applicable by the Union to the products in Annex IV obtained in Vietnam by 
use of such cum ulation is higher or the same than the duty applicable by the Union to the 
same product originating in the ASEAN country involved in the cumulation.  G/RO/W/220  
 
- 14 - 
 
  7.5.  A mirror provision is contained in Paragraph 6 of Article 4 in the EPA between the EU and the 
Eastern and Southern Africa (ESA) countries containing similar conditionalities for implementing 
regional cumulation.  
 
7.6.  The two examples provided above show that the cumulation provisions were respectively (a) 
included under the GSP provisions prior  to 2014, i.e., ASEAN cumulation for Vietnam, and (b) 
Cotonou and later Market Access Regulation for ACP countries and other countries that have entered 
or will be entering an FTA with the EU, have not been automatically transferred to new trade 
arrangemen ts. 
7.7.  Put simply, graduation out of the GSP schemes or conclusion of an EPA with the EU means that 
the cumulation provisions granted under the former GSP or EBA are subject to conditions for the 
entry into force of the cumulation under the new trade arrangem ents. These conditions may be 
summarized as follows:  
a) the conclusion of an agreement on administrative cooperation;  
b) notification of the details of the agreements to the EU; and  
c) official publication of the date on which cumulation will enter into force.  
7.8.  Therefore, countries that have entered into FTAs with the EU and that used to benefit from 
cumulation under the EU GSP Regulation or Market Access regulation or EBA ( e.g., Vietnam and the 
ACP countries members of the Cotonou Agreement) have to re -apply for regional cumulation 
according to the provisions in their respective FTAs.  
8  MAIN CONCLUSIONS AND RECOMMENDATIONS  
8.1.  In conclusion, the EU reform concerning rules of origin has brought considerable benefits to 
Cambodia. However, with the introduction of the exclusion from the cumulation of the inputs 
originating in graduated countries, the EU has significantly backtracked the outstanding results of 
its reform for no apparent and valid reason.  
8.2.  The issue of graduation from the EU GSP and the exclusion from  the cumulation of graduated 
countries under Article 4(b) of the EU GSP Regulation is not limited to ASEAN LDCs but  is also a 
systemic issue affecting ACP countries. In fact, as a result of  this provision, ACP countries entitled 
to benefit from cumulation under past arrangements with the EU, i.e., the Cotonou Agreement, can 
no longer cumulate with ACP countries that have entered into an EPA with the EU, unless a specific 
procedure is underta ken as discussed in Section 7.  
8.3.  The Cambodian delegation thus recommends redressing the collateral damage that resulted 
from graduation, which has profoundly affected Cambodia's private sector as well as the private 
sectors of other ASEAN and ACP countries.   
8.4.  In the GSP Proposal, the European Commission and the European Parliament should 
re-introduce the possibility for a country that is part of a regional trade grouping to cumulate inputs Box 5 - Paragraph 6 or Article 4 in the EU -ESA EPAs  
The cumulation provided in this Article may only be applied provided that:  
(a) the countries i nvolved in the acquisition of the originating status and the country of 
destination have concluded an agreement on administrative cooperation, which ensures the 
correct implementation of this Article;  
(b) materials and products have acquired originating s tatus by the application of the same rules 
of origin as provided in this Protocol; and  
(c) the ESA States will provide the Community, through the European Commission, with details 
of agreements on administrative cooperation with the other countries or terr itories referred 
to in this Article. The European Commission shall publish in the Official Journal of the 
European Union (C series), and the ESA States shall publish, according to their procedures, 
the date on which the cumulation provided for in this Arti cle may be applied with those 
countries or territories listed in this Article which have fulfilled the necessary requirement.  G/RO/W/220  
 
- 15 - 
 
  originating in a graduated country that is part of the same regional g rouping. The GSP Proposal 
should also impart predictability and transparency as regards the procedures for submitting a 
request for extended cumulation. Most importantly, the EU GSP Proposal should include a provision 
imposing a deadline of 90 working days  on the European Commission to decide on a request for 
extended cumulation. Once the deadline is passed, the request should be deemed to be accepted 
for a minimum period of five years.  
__________