WORLD TRADE  
ORGANIZATION  TN/CTD/W/30/Rev.1 
TN/MA/W/74/Rev.1 TN/AG/GEN/20/Rev.1 
10 February 2011 
 
(11-0675) 
Committee on Trade and Development  
Special Session Negotiating Group on Market Access Committee on Agriculture Special Session Original:   English 
 
 
 
LEAST-DEVELOPED COUNTRIES' PROPOSAL ON RULES OF ORIGIN 
 
Communication from Zambia on behalf of the LDC Group
 
 
Revision  
  
 The following communication, dated 2 December 2010, is being circulated at the request of 
the delegation of Zambia on behalf of the LDC Group. 
 
_______________ 
 
 
Rules of origin are old and have not followed evolutions in world trade. The present rules 
were initially drawn up in the 1970s and they have not materially changed much since, 
whereas the commercial world has. They were also  based on the need to protect Community 
industry and on the premise that beneficiary count ries should be encouraged to build up their 
own industries in order to comply. In most ca ses, this has not happened. Instead, there has 
been a trend towards the globalization of production, but rules of origin have not been 
adapted to this. At the same time, complian ce costs are high and the paper-based procedures 
are outdated. 
 
.... Lower preferential margins combined with high compliance costs make preferences 
unattractive . As a result of successive rounds of tr ade agreements, pref erential margins are 
much smaller than they used to be. 
 
…The dilemma of LDC s is well illustrated by the information received from countries 
requesting derogations from rules of origin. Such countries have little or no domestic fabric 
production, which means they have to import it (so failing to comply with the "two stages of processing" rule) and add only between 27 per cent and maximum 40 per cent in value. 
 
_______________ 
 
 From "Impact assessment on rules of origin fo r the Generalized System of Preference (GSP) 
European Commission, Brussels 25 October 2007 Taxud/GSP-RO/IA/1/07 (page 16). 
 
I. INTRODUCTION 
1. The first sentences in the preamble of this  paper are excerpted from a major policy document 
of the European Union, arguably the biggest donor in terms of preferential trade flows. Yet, they 
reflect in a self-explanatory manner the objectives of the LDCs in the area of rules of origin.  The TN/CTD/W/30/Rev.1 
TN/MA/W/74/Rev.1 
TN/AG/GEN/20/Rev.1 
Page 2   
  sentences above are the result of a reform in  the area of rules of origin that the EU  has been 
undertaken since 2003 and at present near to comp letion. Other Donors like Canada had previously 
embarked in such reform. 
 2. These sentences are finally acknowledging the in stances raised by the LDCs in their former 
submission of 2006
1 and previous LDCs Ministerial declarati ons. LDCs are not able  to take advantage 
of preferential market access provisions (and so be able to use trade as a vehicle for economic growth 
and poverty alleviation) if the Rules of Origin associated  with the preference scheme are so strict as to 
preclude the utilization of these preferences.  3. There is now a need to move forward starti ng from the recognized principles mentioned in the 
preamble. After more than 30 years of unaltered pref erential unilateral rules of Origin in spite of 
successive reduction of MFN tariffs, discussions at multilateral level on how to best fulfil the DFQF 
commitment could only be beneficial to all Memb ers. While acknowledging the unilateral nature of 
trade preferences the objective of this paper is to provide a first input into this process. 
 4. The Decision reached in Hong Kong, as containe d in Annex F of the Ministerial Declaration, 
states, inter alia, that WTO Members agreed to: " ensure that preferential rules of origin applicable to 
imports from LDCs are transparent and simp le, and contribute to facilitating market access ". 
 5. In order to initiate implementation of th e commitment on Rules of Origin made by all 
Members in the Hong Kong Declaration, the LDC Gr oup put forward a proposal (TN/CTD/W/29 and 
TN/MA/W/74 and TN/AG/GEN/18 of 6 June 2006) to the NAMA and Agriculture Committees and to 
the Committee on Trade and Development. The LD Cs submitted this proposal to these three 
Committees in order to promote a focused debate on Rules of Origin between LDCs and preference-giving countries on the basis of a specific te xt on rules of origin rather than on declarations 
of principle and statements of intent.   6. The responses from preference-giving countr ies to the LDC proposal have not been 
encouraging.  
 7. A series of meetings were held in 2007 with  Delegations of preference-giving countries, 
including the US, EU and Japan. However these meetings  were not particularly fruitful since the focus 
was on defence of the status quo  rather than being aimed at discussing possible ways to multilaterally 
achieve the objectives of rules of origin that are " transparent and simple, and contribute to facilitating 
market access ". 
 8. There were also misguided perceptions that e ither LDCs did not know what they want or how 
they want to proceed
2. This was despite the fact that the LDC Group presented a detailed proposal on 
Rules of Origin mentioned above to the NAMA Committee a year earlier. There was also an 
assumption3 that the objective of the LDCs submissi on was aimed at achieving harmonization of 
preferential rules of origin. Although desirabl e, nowhere had and has the LDC Group argued for 
harmonizing Rules of Origin.  
                                                      
1  See TN/CTD/W/29 and TN/MA/W/74 and TN/AG/GEN/18 of 6 June 2006. 
2 In his introduction to the Draft NAMA Modalities (JOB(07/126) on 17 July 2007 the NAMA Chair, 
in paragraph 38, stated that "On the issue of improving rules of origin  for duty-free, quota-free market access, 
neither the proponents nor the Members more br oadly have a precise idea on how to proceed" . 
3 The Chair in Draft NAMA Modalities (JOB/07/126) on 17 July 2007 paragraph 38, stated that "I 
would note that harmonizing preferential rules of origin may not be the optimal solution and that there are best practises among Members that could be readily adopt ed to enhance the effectiveness of these programs".   TN/CTD/W/30/Rev.1 
 TN/MA/W/74/Rev.1 
 TN/AG/GEN/20/Rev.1 
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  9. The statement on the adoption of best practices  made by the NAMA chai r is in line with the 
position of preference-giving countries, who all belie ve that their particular preferential Rules of 
Origin constitute best practice, rather than in line  with the clearly stated objectives of the LDC Group. 
 10. The LDC proposal for preferential Rules of Origin under the DFQF stems from the 
consideration that there are not easy short cuts or mi racle solution to the issue of rules of origin. The 
LDC proposal is centred on an across the board Rule  of Origin based on a percentage criterion. The 
proposal for an across the board criterion is simply ma de to avoid the proliferation of product-specific 
rules of origin product by product line. Rules of origin negotiated product by product and industry by 
industry open the way for organized industries, lobbi es and unwise trade policy makers to devise rules 
of origin that are diminishing transparency and trade liberalization. This has happened during RTAs negotiations among Developed a nd Developing countries and among Developing countries 
4 in a 
number of occasions. However reliance on an across board percentage does not preclude the 
possibility to have some product specific rules of origin for specific sectors drafted by using other 
methodologies such as Change of tariff clas sification and specific working or processing 
requirements. These eventual exceptions should be kept to a minimum.  11. The draft LDCs model protocol attached as an  annex to this paper conforms with the Kyoto 
Convention and internationa l practice by the Main Preference Giving countries in that it uses two 
main origin-conferring categories, these being:   (i) Wholly Produced - refers to agricultural and mining products which are collected, 
mined, grown, reared etc. in the exporti ng country (e.g. mineral products; vegetable 
products; live animals; products obtained fro m live animals; etc. if these products 
originate in the Member State concerne d). Annex D1 of the Kyoto Convention 
contains a definition of what constitutes w holly produced and most preferential Rules 
of Origin follow this definition; 
  (ii) Substantive Transformation, defined by one or more of the following methods: 
  (a) change of tariff classification; 
  (b) value addition; or   (c) specific working or manufacturing process.  12. There are difficulties in any method used to calculate substantive transformation as discussed 
in the former submission made by the LDC Group.  The method recommended for use in the LDC 
draft model protocol is the percentage criteria as  adopted by many preference giving countries with 
some adaptations.   13. In fact the percentage criteria used by cer tain preference giving countries are defined in a 
variety of ways but mainly they take the following forms
5: 
                                                      
4 See for a number of examples of restrictive pro duct specific rules of origin in North-South and 
South-South RTAs Inama, "Rules of origin In International Trade". Cambridge University press, 2009 and for 
the NAFTA case Krisha, Kala "Understanding Rule s of origin" EFMA Meetings Helsinki, 2003. 
5 The intrinsic limitations and scarce trade facilitation effect deriving from the use by preference giving 
countries of different calculations methods and different level of percentages are evident as early witnessed in 
an UNCTAD document: As earlier mentioned a preference-receivi ng country pointed out that insuperable 
obstacles were caused by the need to devise and operate an accounting system that differed in the definition of concept, application of accounts, precision, scope, and control from its internal legal requirements. The system 
must provide the costing information to  satisfy the rules of the countries of  destination, to check the shares of 
domestic and imported inputs in the unit cost of the exported goods, in some cases identifying the country of origin of the inputs and establishing direct and indirect processing costs.  TN/CTD/W/30/Rev.1 
TN/MA/W/74/Rev.1 
TN/AG/GEN/20/Rev.1 
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  - Value addition (35 per cent) calculated as a per centage of the cost of  local originating 
material, labour and direct cost of processing out of the ex factory price of the finished 
product. This is the method used, for exampl e, under the US GSP and AGOA. This method is 
also used, albeit with other level percentag es required and different definitions of the 
numerators and denominators, by other prefer ence giving countries like Australia; Canada; 
New Zealand and Eurasian Customs Union. 
 
- Value addition defined as subtraction of the va lue of imported material out of the ex-works 
(or adjusted value in US terminology). This, for example, is the "build down" method used 
under the United States - Central America Free Trade Agreement (US-CAFTA) and it has been also used by the EU in  the impact assessment study
6. 
 - Allowance of a maximum amount of foreign i nputs as a percentage of the ex-work price (EU  
current practice and Japan practice using the FOB price as a denominator Japan)
7.  
 14. The nature of each formulation of the percen tage criterion affects the administrative effort 
required to introduce and maintain compliance with cr iterion.  It also affects the substance of the 
criterion. There are also a series of limitation to the percentage criteria that the calculation method 
proposed by the LDC group has addressed in light  with best practices and lessons learned.  
 15. Limitations in using the percentage criterions are well known and may be quickly 
summarized as follows:  
- Percentages calculations are easily affected by movements in exchange rates for finished 
products that have imported raw materials in that when a local currency appreciates, the 
percentage value added tends to decline, and vice-versa;  
 - The level of percentage threshol d may be arbitrarily set and it is difficult to set it up even with 
consultations with the private sector given the num ber of variables costs to take into account;  
 
- The costs of labour in developing countries is relatively cheap and in a value added 
calculation it may turn an asset into a penalty; and 
 - The calculations may be difficult and may en tail some accountancy expertise and a certain 
amount of discretion in assessing costs that may lead to dispute plus accountancy skills 
generally not available in most small firms in LDCs. 
 16. More specifically, there are three kinds of para meters for defining the percentage criteria that 
are discussed here below together with the solution proposed by the LDC Group: 
 
 
                                                     
 
6 According to the Impact Assessment  Brussels 25 October 2007 Taxud/GSP-RO/IA/1/07  the formula 
of the valued added is as follows:  
   Value added  =   Ex- works -price - value of non -originating material    
                                        --------------------------------------------------------          X 100  
                                                            Ex -works price 
 
7 It has to be noted that both EU  and Japan under the current GSP rules of origin do not use the 
percentage criterion as an across the board criteria. Th e Percentage criterion is only used in the context of 
certain product specific rules of origin contained in a extensive detailing the product specific rules of origin.  TN/CTD/W/30/Rev.1 
 TN/MA/W/74/Rev.1 
 TN/AG/GEN/20/Rev.1 
 Page 5 
  
  General limitations of the percentage criterion: Determination of the numerator 
 17. There are important differences in the fo rmulation of the numerator and calculation of 
percentages. The major differences in the numer ator reflect two approaches, one, which places a 
maximum limit on the use of, imported material like the  EU and Japan and the other one which places 
a minimum limit of value added  as in case of the US GSP represented by cost of local materials + direct cost of processing. A  third variation is a valued added calculation made by subtraction as in the 
case of the EU formula used in the impact ass essment and in the build-down calculation of the 
US-Central America Free Trade Area.  18. Lesson learned in preferential rules of origin a nd most recently in the net cost calculations in 
NAFTA has amply demonstrated that the formulat ion of percentage criterion calculations as value 
added or "domestic content" are complex entailing th e detailed rules to define what are allowable and 
allowable costs that can be counted as numerator a values added calculation.  
 19. These elements may be familia r only to accountants.  As pric es, costs and quantities change, 
recalculation will be necessary to ensure compliance. While some of these tasks may form part of the 
normal accounting procedures required for commerc ial purposes, some may not. In such cases 
therefore additional professional expertise may be required. The calculation of the numerator in a 
value added calculation is complex as it entails:   (i) A distinction of costs, which could be computed as local value added;  (ii) Itemization of such cost to the singl e unit of production.  As a consequence it often 
requires accounting, and discretion may be used in assessing unit co sts.  Additionally, 
currency fluctuations in beneficiary countri es may affect the value of the calculation; 
 (iii) Low labour costs in developing countri es may result in low value added and instead 
of being a factor of competitiveness may turn out to a factor penalizing producers based in Developing countries. 
 
20. The US has progressively restricted the use of the net cost calculations to limited items in the 
automotive sector and the  EU that initially planned to use such calculation in its reform of the GSP 
rules of origin has dropped the original plans.  
Proposal by the LDC Group: Use of value of materials calculation as numerator 
 21. In the light of the above mentioned lessons  learned and best practices the LDC are proposing 
a calculation methodology based on a value of mate rials calculation. This methodology eliminates 
most of the shortcomings of a value added calcula tion. The value of material calculation is based on 
the WTO Customs Valuation Agreement anchoring th e rules to a multilateral instrument in use by 
WTO Members. This method of calculation is simi lar to the one used by the US in recent FTA 
agreements with Australia, Singapore, Chile, Centra l America and other countries as well as to the EU  
calculation currently used.  
Specific limitation of the percentage criterion: Calculation of denominator  
 
22. As in the case of the numerator the preference giving countries are using different formulation 
that can be summarized as ex-factory cost, ex-works price and FOB price.  23. These formulations of denominators have as seri es o pros and cons.  At present only Japan is 
using FOB price under its current GSP rules of origin. 
  TN/CTD/W/30/Rev.1 
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  24. Under current practice the EU is using th e following definition of ex-works price:  
 
 "ex-works price" means the price paid for th e product ex works to the manufacturer in the 
Community or in "beneficiaries" states in w hose undertaking the last working or processing is 
carried out, provided the price in cludes the value of all the mat erials used, minus any internal 
taxes which are, or may be, repaid when  the product obtained is exported. 
 25. In the case of the US as pointed out above the concept of appraised value still used with the 
related difficulties reported above. In the case of th e US-CAFTA agreement th e denominator is based 
on the concept of adjusted value based on the following definition: 
 
 For the purposes of this note, the term "adj usted value" means the value determined under 
articles 1 through 8,article 15 and the corresponding interpretive notes of the Agreement on 
Implementation of Article VII of the Genera l Agreement on Tariffs and Trade (the Customs 
Valuation Agreement), except that such value ma y be adjusted to exclude any costs, charges 
or expenses incurred for transportation, insu rance and related services incident to the 
international shipment of the merchandise from  the country of exportation to the place of 
importation . 
 
26. The two definitions of denominator mentioned does not differ widely since they make reference either by wording or by direct refere nce to the transaction value as contained in the WTO 
Customs Valuation Agreement.  
27. On one hand the formulation under the US makes explicit reference to the WTO Customs 
Valuation Agreement resulting in a transparent and predictable text of law binding and applicable by 
all WTO Members. On the other hand the expression ex-works price has been  widely used by the 
majority of beneficiaries that are familiar to the ex-works price definition. At a well-attended 
workshop on rules of origin in Eastern and Southern  Africa the two definitions were widely discussed 
and the majority of the participant opted for the ex-w orks price definition. A solution could be to take 
the best of the two definitions. 
 
Proposal by the LDC Group: Use of ex-works price as denominator  
 
28. The proposal of the LDC group is therefore based on an ex-works price defined as follows 
 
 "ex-works price" means the price paid for th e product ex-works to the manufacturer in the 
Community or in " beneficiaries" states in whose undertaking the last working or processing 
is carried out determined under articles 1 through 8, article 15 and the corresponding 
interpretive notes of the Agreement on Implem entation of Article VII of the General 
Agreement on Tariffs and Trade (the Customs Valuation Agreement).  
 
The percentage criterion calculation proposed by the LDCs 
 
29. On the basis of these lesson learned the LDCs is proposing the following percentage criterion  
The methodology used to calculate value additio n is based on two formulas called build-down and 
built-up, using best practice from the US-CAFTA and the EU:  
  TN/CTD/W/30/Rev.1 
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   Method Based on Value of Non-Origin ating Materials ("Build-down Method") 
 
 LDCC = EW - VNM
 x 100 
            EW   Method Based on Value of Originating Materials ("Build-up Method")  RVC = VOM x 100
 
          EW 
 Where:  - LDCC is the LDCC value content, expressed as a percentage;  - EW is the ex works price; 
 
- VNM is the value of non-originating materials that are acquired and used by the producer in 
the production of the good; VNM does not include the value of a material that is self-produced; and 
 
- VOM is the value of originating material s acquired or self-produced, and used by the 
producer in the production of the good. 
 
The issue of the level of percentages 
 
30. Another intrinsic limitation of the percentage  criterion is the setting the level of percentage 
The first criticism derive from the fact that even if determined trough consultations with the private 
sector setting an adequate level of percentage tends to be arbitrary as it may change from time to time 
due to variations in the cost of the inputs and currency fluctuations.  
 31. Moreover the level of the percentages ma y be different from product to product and the 
stringency of leniency of a given percentage  depends on the calculation methodology. The LDC 
Group has assessed various lite ratures in this respect
8 and has made use of a survey conducted among 
Eastern and Southern Africa and other evidence from recent studies conducted by researchers hired by 
preference giving countries.   
32. Recent experience of preference giving countri es has also been taken in account. In 2003 the 
Canadian Government introduce changes in rules of origin setting a 60 per cent maximum import 
content allowance (instead of the 40 per cen t permitted for other developing country GSP 
beneficiaries) for LDCs. This means that to qualify for the LDC duty-free treatment, at least 
40 per cent of the ex-factory price of the goods packed  for shipment to Canada must originate in one 
or more LDC beneficiary countries or Canada. In addition 20 per cent of the 40 per cent qualifying 
content could originate from other developing count ries beneficiaries of the Canadian GSP scheme. 
Special rules for textile and clothing were also introduced allowing the use of imported fabric from 
                                                     
 
8 See for instance:,  Impact assessment on rules of origin for the Ge neralized System of Preference(GSP) European 
Commission, Brussels 25 October 2007 Taxud/ GSP-RO/IA/1/07, Evaluating the Conse quences of Shift to a Value-added 
method for Determining Origin in EU PTAs", July 2006 (Letter of Contract No. 2005/ 103984, Framework Contract 
AMS/451 - LOT No. 11), Dr. Michiel Scheffer of Saxion Hogescholen , "Study on the application of value criteria for textile 
products in preferential rules of origin", October 2006 (Te nder 06-H13). Contract Cadre FI SH/2006/20, Specific Convention 
N° 3 "Rules of Origin in Preferential Trade Arrangements: Ne w rules for the fishery sector,Trade Preferences for LDCs: An 
early assessment of benefits and possible im provement in the context of WTO negotiations .  UNCTAD/ITCD/TSB/2003/8. 
December 2003, An assessment of the impact of  Preferences Eros ion and  Rules of Origin in Eastern and Southern Africa, a 
survey of ESA exporters, UNCT AD and COMESA, forthcoming 2010.  TN/CTD/W/30/Rev.1 
TN/MA/W/74/Rev.1 
TN/AG/GEN/20/Rev.1 
Page 8   
  other beneficiaries of the Canadian GSP scheme provided that they do not exceed 75 of the ex-factory 
price of the final goods. 
 
33. In addition to findings resulting from field research the EU  Impact Assessment contained 
simulations exercises on the trade creation deriving fr om using different percentages of 50 per cent of 
local content and 30 per cent. The policy implicati on of the simulation exercise is that the trade 
creation results from the simulation exercise were far greater under 30 per cent
9 level of percentage.  
 
34. Hence in drafting the latest proposal10 for changes in the GSP rules of origin the EU  
Commission used for a number of goods a threshold of 30 per cent of  local value content equivalent to a maximum allowance of foreign import of 70 per cent.   
The level of percentages proposed by LDCs 
 35. On the basis of the above mentioned best pa rticles and lessons learned the LDC are proposing 
a level of percentage of 20 per cent for the build-up formula and 25 per cent for the build-down 
formula.  
36. The difference in the percentage among th e two formulas derives from the different 
calculation methodology.         
The new element of the calculation proposed by the LDCs:  
 
Inclusion of in-land transport for the calculation of the domestic content calculation (build-up) 
and exclusion of freight and insurance for the ca lculations of the maximum allowance of foreign 
materials (build-down). 
 
37. The formulas proposed take into account the speci al situations related to the transport costs of 
input materials to Islands and landlocked LDCs. The calculations are based on adjustments made to 
the value of materials as contained in article 6 of the LDC Draft Protocol permitting either the 
deduction of the CIF costs to the regional port when a "build-down" method is used or the addition of 
inter-regional inland costs of transport when th e "build-up" method is used. This method of 
calculation of the value of materials used in manufacturing will greatly facilitate LDC compliance 
with the Rules of Origin of the preference giving country. 
 
Product specific rules for specific sectors 
 
38. The LDC group is aware that the percentage  criterion may not be, technically speaking, the 
most suitable methodology for some specific sectors of goods. This may be applicable to textiles and 
clothing that are categories of produc ts of high expert interest. The recent EU GSP proposed rules for 
chapter 61 and 62 allowing the use of imported fabri cs to make originating garments in LDCs could 
be a valuable example with some additional flexibiliti es. It should be borne in mind the desire to limit 
to full extent possible the proliferati on of line by line rules of origin. 
 
                                                     
 
9 See pages 36-37 Impact assessment on rules of orig in for the Generalized System of Preference (GSP) 
European Commission, Brussels 25 October 2007 Taxud/GSP-RO/IA/1/07. 
10http://ec.europa.eu/taxation_customs/resources/documents/customs/customs_duties/rules_origin/prefe
rential/news_june_09.pdf.  TN/CTD/W/30/Rev.1 
 TN/MA/W/74/Rev.1 
 TN/AG/GEN/20/Rev.1 
 Page 9 
  
  Cumulation 
 
39. The LDC Group proposal contains provisi ons for allowing regional cumulation. These 
provisions have been elaborated in taking into account that, although laudable and highly desirable, 
cumulation is not a substitute for liberal rules of or igin. With liberal rules of origin the LDC producers 
may source their inputs worldwide from the most  competitive producer at the best prices. 
 Administration and certificate of origin   
40. Administrative costs related to rules of origin  are calculated to equivalent to 3 per cent to 
5 per cent. The LDC group is currently elaborati ng a proposal and assessing the implications deriving 
from different methods of administering rules of origin including the recent proposal advanced by the EU of "registered exporters".   
 
 
  
 
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  Duty-Free Quota-Free Market Access Provisions 
For Least-Developed Countries 
 
Annex F of the WTO Hong Kong Ministerial Decisions 
 
Rules of Origin 
 
 
 
GENERAL PROVISIONS 
 
Article 1 
 For the purposes of this Agreement: 
 
(a) "LDCs" means the countries classified with in this category by the United Nations 
General Assembly. 
(b) "manufacture" means any kind of work ing or processing including assembly or 
specific operations; 
(c) "material" means any ingredient, raw materi al, component or part, etc., used in the 
manufacture of the product; 
(d) "product" means the product being manufactured , even if it is intended for later use in 
another manufacturing operation; 
(e) "goods" means both materials and products; 
(f) "customs value" means the value as determined in accordance with the 1994 
Agreement on implementation of Article VI I of the General Agreement on Tariffs 
and Trade (WTO Agreement on customs valuation); 
(g) "ex-works price" means the price paid for the product ex works to the manufacturer in 
the Community or in" beneficiaries" states in whose undertaking the last working or 
processing is carried out determined under articles 1 through 8, article 15 and the 
corresponding  interpretative notes 
(h) "value of materials" means the customs value at the time of importation of the 
non-originating materials used, or, if this is not known and cannot be ascertained, the 
first ascertainable price paid for the materi als in the LDC except that such value may 
be adjusted to exclude any costs, charg es or expenses incurred for transportation, 
insurance and related services incident to  the international shipment of the 
merchandise from the country of expor tation to the place of importation; 
(i) "value of originating materials" means th e value of such materials as defined in 
sub-paragraph (h) app lied mutatis mutandis; 
(j) "chapters", "headings" and "sub-headings" m ean the chapters, headings (four-digit 
codes) and sub-headings (six-digit codes)  used in the nomenclature which makes up 
the Harmonised Commodity Description and Coding System, or HS;  TN/CTD/W/30/Rev.1 
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  (k) "classified" refers to the classification of a product or material under a particular 
heading;  and 
(l) "consignment" means products which ar e either sent simultaneously from one 
exporter to one consignee or  covered by a single trans port document covering their 
shipment from the exporter to the consignee or , in the absence of such a document, by 
a single invoice. 
GENERAL REQUIREMENTS 
 
Article 2 
 
1. The following products shall be cons idered as originating in the LDCs: 
(a) products wholly obtained in the LDCs with in the meaning of Article 3 of this 
Agreement;  and 
(b) products obtained in the LDCs incorporati ng materials which have not been wholly 
obtained there, provided that such materi als have undergone suff icient substantial 
transformation in the LDCs within the m eaning of Article 4 of this Agreement. 
2. For the purpose of implementing paragraph 1, all LDCs shall be considered as being one 
territory. 
3. Originating products made up of materials w holly obtained or sufficiently worked or 
processed in two or more LDCs shall be considered as products originating in the LDC where the last 
working or processing took place, provided the working or processing carried out there goes beyond that referred to in Article 5. 
WHOLLY OBTAINED PRODUCTS 
 
Article 3 
 
1. The following shall be considered as wholly obtained in the LDCs: 
(a) mineral and other naturally occurring produc ts extracted from their soil or from their 
seabed; 
(b) vegetable products harvested there; 
(c) live animals born and raised there; 
(d) products from live animals raised there; 
(e) products obtained by hunting or fishing conducted there; 
(f) products of sea fishing and other products taken from the sea outside the territorial 
waters by their vessels; 
(g) products made aboard their factory ships exclusively from products referred to in 
sub-paragraph (f); TN/CTD/W/30/Rev.1 
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  (h) used articles collected there fit only for the recovery of raw materials, including used 
tyres fit only for re-treading or for use as waste; 
(i) waste and scrap resulting from manuf acturing operations conducted there; 
(j) products extracted from marine soil or subsoil outside their territorial waters provided 
that they have sole rights to work that soil or subsoil; 
(k) goods produced there exclusively from the pr oducts specified in sub-paragraphs (a) 
to (j). 
2. The terms "their vessels" and "their factory sh ips" in paragraph 1(f) and (g) shall apply only 
to vessels and factory ships which are registered or recorded in a LDC or in a country as defined in 
article 7. 
3. Notwithstanding the provisions of paragraph 2, the preference giving country shall recognise, 
upon request of a LDC, that vessels chartered or l eased by the LDC be treated as "their vessels" to 
undertake fisheries activities in its exclusive economic zone. 
 
SUBSTANTIAL TRANSFORMATION 
 
Article 4 
 1. For the purposes of these Rules of Origin, pr oducts which are not wholly obtained are 
considered to be sufficiently work ed or processed in a LDC when the LDC value content is calculated 
on the basis of the build-down method (value added criteria) or the build-up method (local content criteria) described below. 
(a) For the build-down (value added) method, the LDC value content of a good may be 
calculated on the basis of the formula: 
LVC =  P - VNM
 x100 
                            P 
 Where: LVC is the LDC value content of the good, expressed as a percentage. 
P is the ex-works price of the good. 
VNM is the value of non originating mate rials that are acquired and used by the 
producer in the production of the good, but does not include the value of a material that is self-produced. 
 
(b) For the build-up (local content) method, the regional value content of a good may be 
calculated on the basis of the formula: 
LVC =  VOM
  x 100 
                       P  
Where: 
LVC is the regional value content of  the good, expressed as a percentage. 
P is the ex-works price of the good.  TN/CTD/W/30/Rev.1 
 TN/MA/W/74/Rev.1 
 TN/AG/GEN/20/Rev.1 
 Page 13 
  
  VOM is the value of originating materials that are acquired or self-produced, and 
used by the producer in the production of the good. 
 
2. A finished good is sufficien tly worked or processed when: 
(c) (i) In the case where the build-down method is used the LDC content expressed 
as a percentage is equal to 25 percent. 
(d) (ii) In the case where the build-up method is used the LDC content expressed as a 
percentage is equal to 20 percent. 
3 Value of materials 
(e) For the purpose of calculating the LDC va lue content of a good, the value of a 
material is: 
(i) in the case of a material that is imported by the producer of the good, the 
value of the material; 
(ii) in the case of a material acquired or self-produced as defined in paragraph 4 
in the territory in which the good is produced, the value, determined in accordance with the Agreement on Impl ementation of Article VII of the 
General Agreement on Tariffs and Trade 1994. 
(f) The following expenses, if not included in  the value of an originating material 
calculated under sub-paragraph 3(a) above , may be added to the value of the 
originating material: 
(i) the costs of freight, insurance, pack ing and all other costs incurred in 
transporting the material within or between the territory of one or more of the LDCs or neighbouring countries as defi ned under Article 7 to the location of 
the producer; 
(ii) duties, taxes and customs brokerage fees on the material paid in the territory 
of one or more of the LDCs or neighb ouring countries as defined in Article 7 
other than duties or taxes that are waived, refunded, refundable or otherwise recoverable, including credit against duty or tax paid or payable; 
(iii) the cost of waste and spoilage resulting from the use of the material in the 
production of the good, less the value of renewable scrap or by-products. 
(g) The following expenses, if included in the value of a non-originating material 
calculated under sub-division 3(a) above , are deducted from the value of the 
non-originating material: 
(i) the costs of freight, insurance, pack ing and all other costs incurred in 
transporting the material to the location of the producer; 
(ii) duties, taxes and customs brokerage fees on the material paid in the territory 
of one or more LDC or neighbouring countries as defined under Article 7, 
other than duties or taxes that are waived, refunded, refundable or otherwise recoverable, including credit against duty or tax paid or payable; TN/CTD/W/30/Rev.1 
TN/MA/W/74/Rev.1 
TN/AG/GEN/20/Rev.1 
Page 14   
  (iii) the cost of waste and spoilage resulting from the use of the material in the 
production of the good, less the value of  renewable scrap or by products; 
(iv) the cost of originating materials used in the production of the non- originating 
material; 
(v) in the case where the deductions menti oned above under (i) to (iv) are not 
made and the value of a non-originating material is calculated on a c.i.f. basis the required percentage under th e build-down method will be increased 
by (z) percentage. 
4. If a product, which has acquired originating stat us by fulfilling the cond itions set out above, is 
used in the manufacture of another product, the co nditions applicable to the product in which it is 
incorporated do not apply to it and no account sha ll be taken of the non-originating materials which 
may have been used in its manufacture.] 
 
INSUFFICIENT WORKING OR PROCESSING OPERATIONS 
 
Article 5 
 
1. 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 4 are satisfied: 
(h) operations to ensure the preservation of products in good conditi on during transport 
and storage (ventilation, spreading out, drying, chilling, placing in salt, sulphur dioxide or other aqueous so lutions, removal of damaged parts, and like operations); 
(i) simple operations consisting of removal of dust, sifting or screening, sorting, 
classifying, matching (including the making-up of sets of articles), washing, painting, cutting up; 
(j) changes of packaging and breaking up and assembly of packages or simple placing in 
bottles, flasks, bags, cases, boxes, fixing on cards or boards, etc., and all other simple 
packaging operations; 
(k) affixing marks, labels and other like di stinguishing signs on products or their 
packaging; 
(l) simple mixing of products, whether or not  of different kinds, where one or more 
components of the mixtures do not meet the conditions laid down in this Agreement 
to enable them to be considered as originating in a LDC; 
(m) simple assembly of parts to constitute a complete product; 
(n) a combination of two or more operations sp ecified in sub-paragraphs (a) to (f); and 
(o) slaughter of animals. 
2. All the operations carried out in the LDCs sh all be considered together when determining 
whether the working or processing undergone by that pr oduct is to be regarded as insufficient within 
the meaning of paragraph 1.  TN/CTD/W/30/Rev.1 
 TN/MA/W/74/Rev.1 
 TN/AG/GEN/20/Rev.1 
 Page 15 
  
  TERRITORIALITY 
 
Article 6 
 
1. The conditions for acquiring originating status  must be fulfilled without interruption in the 
LDCs. 
2. The acquisition of originating status shall not be affected by working or processing done 
outside the LDCs on materials exported from the LDCs  and subsequently re-im ported there, provided: 
(p) the said materials are wholly obtained in  the LDCs or have undergone working or 
processing beyond the operations referred to in Article 5 prior to being exported;  and 
(q) it can be demonstrated to the satisfaction of  the customs authorities  of the preference 
giving countries that: 
(i) the re-imported goods have been obtained by working or processing the 
exported materials; and 
(ii) the total added value acquired outside LDCs by applying the provisions of 
this Article does not exceed (a) percen t of the ex-works price of the end 
product for which originating status is claimed. 
CUMULATION 
 
Article 7 
 
Cumulation with preference giving countries
 
 
1. Materials originating in the preference givi ng countries shall be considered as materials 
originating in the LDCs when incorporated into a product produced in the LDCs.  It shall not be 
necessary that such materials have undergone suffi cient working or processing, provided they have 
undergone working or processing going beyond  that referred to in Article 5. 
Regional cumulation  
 
2. Products originating in any of the countries th at are partners with a LDC of a regional group 
and used in further manufacture in a LDC shall be treat ed as if they originated in the LDC of further 
manufacture. 
3. Notwithstanding paragraph 2, products further manufactured in a LDC shall be considered as 
originating in a LDC only if the manufacturing pr ocess in the LDC are going beyond  the insufficient 
working or processing operation listed in article 5.   
4. The cumulation provided for in this para graph may be applied only provided that: 
(a) a preferential trade agreement is in place between a LDC and other members of the 
same regional trading arrangement;  
(b) originating material and products of other members of the regional group and 
incorporated into a product further manufactured in a LDC have acquired originating 
status by the application of rules contained in this Agreement. TN/CTD/W/30/Rev.1 
TN/MA/W/74/Rev.1 
TN/AG/GEN/20/Rev.1 
Page 16   
  Cumulation with neighbouring countries
 
 
5. At the request of a LDC, materials origina ting in a neighbouring developing country not a 
member of a regional trade agreement which is not a LDC shall be considered as materials originating 
in the LDC when incorporated into a product obtain ed there.  It shall not  be necessary that such 
materials have undergone sufficient working or processing, provided that the working or processing carried out in the LDC exceeds the operations listed in Article 5.  
 
UNIT OF QUALIFICATION 
 
Article 8 
 
1. The unit of qualification for the application of  the provisions of this Agreement shall be the 
particular product which is considered as the b asic unit when determining classification using the 
nomenclature of the Harmonised System.  Accordingly, it follows that: 
 - when a product composed of a group or assembly of articles is classified under the 
terms of the Harmonised System in a single heading, the whole constitutes the unit of 
qualification; and 
 - when a consignment consists of a numb er of identical products classified under the 
same heading of the Harmonised System, ea ch product must be taken individually 
when applying the provisions of this Agreement. 
 2. [Where packaging is included with the produc t for classification purposes, it shall be included 
for the purposes of de termining origin.] 
3. Accessories, spare parts and tools dispatched with a piece of equipment, machine, apparatus 
or vehicle, which are part of the normal equipment and included in the price thereof or which are not 
separately invoiced, shall be regarded as one with the piece of equipment, machine, apparatus or 
vehicle in question. 
4. Sets, as defined in General Rule 3 of the Ha rmonised System, shall be regarded as originating 
when all component products are originating.  Neve rtheless, when a set is composed of originating 
and non-originating products, the set as a whole sha ll be regarded as originating, provided that the 
value of the non-originating prod ucts does not exceed (b) per cent of the ex-works price of the set. 
5. In order to determine whether a product origin ates, it shall not be necessary to determine the 
origin of the following which might be used in its manufacture: 
(a) energy and fuel; 
(b) plant and equipment; 
(c) machines and tools; 
(d) goods which do not enter and which are not  intended to enter into the final 
composition of the product. 
 
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