G/RO/W/161  
 
25 August  2016 
(16-4515) Page: 1/3 
Committee on Rules of Origin    
 
 MODALITIES FOR THE C ALCULATION OF "PREFE RENCE UTILIZATION"  
Note by the Secretaria t1 
The 2015 Nairobi Ministerial Decision on rules of origin for least developed countries (LDCs) 
mandates the Committee on Rules of Origin (CRO) to agree on modalities for the  calculation of 
utilization rates (Paragraph 4.3).  This note seeks to assi st Members in these discussions . 
1  DEFINING PREFERENCE UTILIZATION  
1.1 "Preference utilization" can be described simply as the extent to which imports which are 
eligible for trade pre ferences are actually imported under these preferences.  In more technical 
terms, it is the ratio between the amount – in terms of value or quantity – of imports which 
actually received preferences out of the total amount of imports which are eligible for preferences.  
Utilization rates therefore relate to the capacity of economic operators to actually seize market 
access opportunities which are available through reciprocal or non -reciprocal preferences.  
2  UTILIZATION RATES AS  A TOOL TO EXAMINE RU LES OF ORIGI N 
2.1 The fact that economic operators may choose to pay duties under the most -favoured -nation 
(MFN) regime instead of utilizing trade preferences would seem counterintuitive.  This may, 
nevertheless, be explained by a variety of reasons, one of which rela tes to the inadequacy of the 
rules of origin associated with a specific preferential scheme.   In fact, the granting of trade 
preferences is contingent on a number of conditions being met, including:  
(i) compliance with specific minimum manufacturing or pr ocessing requirements (i.e. the 
specific rule of origin defining the conditions for substantial transformation to happen 
and therefore for origin to be acquired);  
(ii) compliance with specific documentary requirements (i.e. the presentation of a correct 
certificate of origin); and  
(iii) compliance with transportation requirements (i.e. direct consignment from a 
beneficiary country to the preference -granting country as the basic rule).  
2.2 Only when all three requirements are met will the preference be gran ted.  In other words, in 
addition to the existence of preferences, the producer of a good must have the ability to comply 
with (and demonstrate compliance with) the criteria set for a preferential importation of that 
product.  
2.3 It is for this reason that  utilization rates have been used as an indicator to assess the 
effectiveness of preferences in general and of preferential rules or origin in particular.2  A low 
utilization rate for imports of a particular good could indicate that the rule of origin asso ciated  with 
to the preferences for that good is too stringent or not well understood and that the exporter was 
not able to comply with the rule and/or its ancillary requirements.  Conversely, a high utilization 
rate could indicate that the rule of origin m atches the productive capacity of LDCs and can 
therefore be complied with most of the time.  
                                                
1 This document has been prepared under the Secretariat's own responsibility and is without prejudice 
to the positions of Members or to the ir rights and obligations under the WTO.  
2 For instance, a communication of the LDC Group  reported the utilization rates for preferential exports 
from LDCs to Canada, the EU, Japan and the US and examined extensively how rules of origin could be 
impacting utilization rates (document G/RO/W/148) . G/RO/W/ 161 
 
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  2.4 It should be noted, nonetheless, that there are also limitations to the use of utilization rates 
as a tool to examine the appropriateness of rules of origin.  In fact, utilization rates could be very 
low for a specific tariff line for reasons which are not necessarily related to the design of a rule of 
origin.   For instance, an operator (importer, exporter or the producer) could be unaware that 
preferences are available.  Or, an operator may prefer to pay MFN duties because the preferential 
margin is not attractive (that is, the MFN rate is low so the preferential margin does no t work as 
an incentive to use the preferences). Additionally, a high overall utilizatio n on total imports may 
conceal big differences at the tariff line level.  
2.5 In sum, rules of origin have a direct impact on the ability of traders to use trade 
preferences. Utilization rates are therefore a useful tool to assess the appropriateness or th e 
restrictiveness of rules of origin requirements.  However, since other factors may also influence 
the ability of producers to export under trade preferences, no definite conclusions can be drawn 
from that factor alone . 
3  CALCULATION METHODOL OGIES  
3.1 The m ain tool to monitor or measure preference utilization is the degree of imports which 
actually pay preferential (i.e. reduced or zero) tariffs when imported. When considering a single 
transaction, a duty preference is either granted or not. Utilization rate s can be calculated for a 
single product, and/or single exporting country, or aggregated on any product and/or country 
group. Because utilization rate is a ratio, it is expressed as a percentage value between 0 and 100.  
Generally however, not all imports necessarily qualify for preferences; hence utilization rates 
should consider only trade which would be, all conditions being met, eligible to receive preferential 
treatment.  
3.2 Two main calculation methodologies are considered here3: 
(a) One option is to  base Preference utilization rates ( purvalue) on the "reported value" of 
imports: that is, the share of those imports that have reportedly benefited from a 
preferential duty scheme compared to those imports on tariff lines eligible for 
preferential duty tr eatment.  This information is compiled by customs, based on the 
treatment sought by importers at the moment of importation.  

eligible pireported pi value
piPTAPTApur
,,
,
 
purvalue: PREFERENCE UTILIZATION RATE (per cent) based on import value  
where:  i = import value  
 p = products  
 PTA reported  = imports reported to have taken place under the PTA preferential duty scheme  
 PTA eligible  = imports under any eligible tariff line, i.e. preferential duty < MFN duty rate.  
 
(b) A second option is to calculate preference utilization ( purprefduty) by examining  customs 
duties paid when a product crosses the border.  It compares  actual duties saved, or 
utilized preference s, as a ratio to duties that could be saved for all imports eligible 
under the preferential duty scheme.  
 
  
  
eligible pireported pi prefduty
piPTA prefduty MFNPTA prefduty MFNpur
,,
,
 
purprefduty: PREFERENCE UTILIZATION RATE (per cent) based on duty margin  
where:  i = import value  
 p = products  
 MFN = MFN applied duty rate  
 prefduty  = preferential duty rate  
 PTA reported  = imports reported to have taken place under the PTA prefer ential duty scheme  
 PTA eligible  = imports under any eligible tariff line, i.e. preferential duty < MFN duty rate.  
 
                                                
3 A more detailed approach can be found in Keck, A. and Lendle, A.  (2012)  "New evidence on preference 
utilization" , WTO Staff Working Paper ERSD -2012-12, revise and resubmit to  Journal of International 
Economics.  G/RO/W/ 161 
 
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  3.3 Other shares relating to preference coverage have been suggested:  One referred to as the 
"coverage ratio"4 calculates eligible prefere ntial imports as a ratio of all imports, or dutiable 
imports. Another measure, referred to as the "utility ratio"5 is based on calculating the share of 
imports actually using the preferential trade regime out of total, or dutiable, imports.  
4  DATA LIMITATION S 
4.1 There are a number of factors which may affect the calculation of utilization rates , 
particularly related to the data which is available or used .  In fact, data available with the WTO 
Secretariat is based on Members' annual notification of tariff and  trade data (imports) in 
compliance with the Transparency Mechanism for Preferential Trade Agreements (PTA), 
established by General Council Decision on 14 December 2010 (WT/L/806).   As a result, the data 
is necessarily contingent on the practices of Member s. 
4.2 First, utilization rates for a Member's scheme might be misleading when that Member 
maintains several preferential duty schemes to the same beneficiary countries.   Even if the 
calculation of utilization rates indicates a low level of utilization, a comprehensive analysis could 
indicate that trade is actually taking place under competing preferential schemes.  
4.3 Second, the preference regime notified to the WTO by Members is often the duty scheme as 
"requested" or "claimed" by economic operators (e. g. importers), not necessarily the scheme 
actually applied after customs clearance.  As a result, figures for preferential trade may be 
somewhat overestimated.  
4.4 Third, data may also be impacted by variations of duty rates during the year.  In fact, 
Memb ers' notifications to WTO IDB are annual and would not capture temporary variations. 
This may be particularly important if seasonal duties or tariff rate quotas are applied.  
4.5 Lastly, the comparison between preferential and MFN duties would also be affe cted if a 
non-ad valorem  duty is used.  In such cases, the conversion into ad valorem  equivalents is 
necessary.6 
5  ACCESSING UTILIZATION RATES  FROM THE WTO  
5.1 The WTO Secretariat will make available preferential trade data through its Tariff Analysis 
Online  tool ( http://tao.wto.org ) from 2016 .  The new function will allow Members to consult import  
data for each preferential trade agreement (as notified to the Secretariat,  http://ptadb.wto .org) 
and will be publicly accessible subject to the usual dissemination policy adopted by the Committee 
on Market Access on 13 July 2009 (G/MA/238).  
5.2 From the import values reported  by tariff line, will be possible to calculate preference 
utilization rates for each PTA  notified  by Members  using simply the metho dology de scribed in 
paragraph 3.2 (a) above . 
__________  
 
                                                
4 Candau, F., Fontagné, L. & Jean, S. (2004). The Utilisation Rate of Preferences in the EU  Paper 
presented at the 7th Global Economic Analysis Conference, Washington D.C., 17 -19 June 2004.  
5 Inama, S. (2003). Trade Preferences and the World Trade Organizati on Negotiations on Market Access. 
Journal of World Trade 37(5), 959 -976. 
6 A detailed explanation of non -ad valorem  duties and their conversion can be found in the WTO 
Secretariat Note in document TN/MA/20.