Commission working document the future of 'Duty Drawback' in the rules of origin of EU's Free Trade Agreements
Date: 2010-03-09
Institutions: European Commission
Subjects: abolition of customs duties, competition, customs drawback, customs duties, free-trade agreement, originating product, preferential agreement, tariff reduction, trade agreement (EU)

EN 

EN 

   EN 

 
 
EUROPEAN COMMISSION 

Brussels, 9.3.2010 
COM(2010)77 final 

COMMISSION WORKING DOCUMENT 

The future of 'Duty Drawback' in the rules of origin of EU's Free Trade Agreements 

EN 

   EN 

 
 
 
  
COMMISSION WORKING DOCUMENT 

The future of 'Duty Drawback' in the rules of origin of EU's Free Trade Agreements 

On Wednesday 7 October 2009, a College debate took place on the EU-Korea FTA. In this 
context, the President invited DG Trade and DG Taxud to draft a common reflection note on 
the future of 'Duty Drawback'. 

I. 

Introduction 

'Duty Drawback' (hereafter referred to as 'DD'), as defined in the protocols of origin contained 
in  preferential  trade  agreements,  is  the  refunding,  remission  or  non-payment  -  partial  or 
complete - of customs duties or equivalent charges on foreign inputs (raw, semi-manufactured 
materials or components) that are used in the production of a final product which is exported 
to a third country1. 

DD is used in a non-preferential environment by the EU and many (if not all) countries. It 
puts exporting industries in different countries on an equal footing despite differences in the 
level of import duties. As to the import side, countries maintain the possibility to protect their 
domestic market through the MFN duties applied. DD is allowed under the provisions of the 
WTO Subsidies Agreement. 

In  a  preferential  environment,  the  EU  has  traditionally  followed  a  practise  of  prohibiting 
DD in many of its free trade agreements2, although it has permitted it partly or fully vis-à-vis 
many  developing  countries3.  However,  some  of  the  EU  FTA  negotiating  partners  object  to 
such a prohibition, and – as most recently seen in the case of Korea - the treatment of DD is 
becoming one of the key issues in these negotiations. An examination of the EU policy on DD 
is  therefore  required,  and  this  note  intends  to  provide  some  basic  considerations  and 
suggestions for a policy line on the issue, for subsequent discussion with the Council, the EP 
and stakeholders. 

1 

2 

3 

To illustrate the mechanism, one could imagine that a Japanese car engine is charged with 10% duties 
when entering Korea. When this car engine is assembled into a Korean car which is then exported to the 
EU, the Korean car manufacturer could 'drawback' the 10% duties he paid on the foreign input/Japanese 
car engine. 

The EU  is not  the only WTO  Member which has prohibitions of  DD  in free  trade  agreements.  Other 
countries prohibit it as well in some of their FTAs, although it can depend sometimes on their partners: 
e.g.  Mexico  and  Chile  sometimes  prohibit  DD  and  sometimes  allow  it.  Within  Mercosur,  DD  is 
prohibited  for  certain  cars.  For  the  US,  the  most  important  FTA  is  NAFTA  where  DD  is  prohibited. 
Following a policy discussion in 2003, the last years the US has been deciding on a case-by-case basis, 
and  DD  has  been  allowed  in  the  FTAs  negotiated,  except  for  the  US-Chile  FTA  where  DD  was 
prohibited; it has to be noted though that a majority of these FTAs concerned developing countries (i.a. 
Morocco, Oman, Bahrain, KAFTA, Colombia, Jordan, Peru) - with the exception of Israel and Australia 
and the not-yet adopted US-Korea FTA – and the EU also applied flexibilities in the past for developing 
countries. In US-Singapore FTA, DD has no real economic consequences as Singaporean MFN is 0 for 
most products. 

DD  is  prohibited,  subject  to  transitional  arrangements,  in  the  FTAs  with  developing  countries  like 
Mexico  and  Chile  and  all  the  Euro-Mediterranean  FTAs.  However,  it  has  been  permitted  in  trade 
preferences linked to development purposes: under the GSP rules applicable to all developing countries 
and for ACP countries under Cotonou, in the EPAs, and in the Trade, Development and Co-operation 
Agreement (TDCA) with South-Africa.  

EN 

2 

   EN 

 
                                                 
II. 

a) 

The impact of prohibiting or allowing DD in free trade agreements 

Negative effects of DD 

Traditionally,  the  liberalisation  of  international  trade  concerns  the  reduction  or  complete 
removal  of  existing  trade  restrictions. General  removal of existing trade barriers on an  erga 
omnes  basis  is  the  most  direct  way  to  achieve  free  trade,  eliminating  and  reducing  customs 
duties  along  with  investment  protection,  opening  of  services  market  and  so  on.  Rather  than 
going for full trade liberalisation, many countries have chosen to take intermediate steps such 
as allowing DD, aimed at correcting the impact of import duties on exports and at promoting 
them. 

DD  can  indeed  be  regarded  as  a  compromise  to  trade  liberalisation  as  it  has  some  negative 
effects  on  it.  Although  there  is  no  single  view  in  the  economic  literature,  some  economic 
studies  have  found  for  example  that  DD  decreases  the  incentive  for  exporting  producers  to 
lobby against high tariffs on their inputs which has an opposite effect on free commerce. DD 
may reward the maintenance of protectionism: it can allow a country to keep on protecting its 
producers  of  intermediate  materials  whilst  reducing  such  protection  selectively  in  order  to 
promote its exports of finished products. While DD can have a positive impact on the export 
competitiveness  of  a  country,  it  could  also  lead  to  exports  with  low  domestic  value  and 
relatively high foreign content. 

DD is however even more questionable when it is maintained in a full liberalisation process of 
a  Free  Trade  Agreement  (FTA).  The  most  notorious  negative  consequence  of  allowing  DD 
then is probably the following. When DD is allowed in a free trade area, a producer of FTA 
partner  country  A  can  source  on  a  duty  free  basis  from  third  countries  for  exports  to  FTA 
partner  country  B,  whilst  their  competitors  in  country  B  have  to  pay  the  applicable  MFN 
duties when sourcing from third countries for products sold on their own domestic market. 

Example: a company from an FTA partner exporting fabrics to the EU would benefit from duty drawback for the 
fibres it imports from a third country to produce the fabrics; in contrast, an EU fabric manufacturer selling in 
the EU would not benefit from the reimbursement of duties paid on the fibres it may import from third countries 
for the manufacturing of those fabrics. If the share of such imported fibres in the value of the fabric is, say, 25 % 
for  the  EU  manufacturer,  the  potential  competitive  advantage  of  that  exporter  in  the  EU  (expressed  as  a 
percentage of the EU manufacturer's total price of the finished fabric) would be the result of multiplying by 25 % 
the import duty rate in the EU of such fibres (4 %), so some 1 % of the value of the fabric4. 

DD can thus lead to unbalanced competition in the market of the importing country which can 
have  negative  effects  on  domestic  industry  with  possible  consequences  on  employment. 
Additionally, allowing DD would also enable third countries to participate in a certain way in 
the  benefits  of  the  FTA,  as  regards  trade  in  intermediate  products  and  materials.  Whilst  a 
prohibition of DD would promote greater use of intermediate products and materials from the 
FTA partner countries via the use of cumulation possibilities, allowing DD would allow the 
treatment of inputs from third countries on a par with inputs originating from the FTA: both 
inputs would in reality enter the FTA partner at 0 % duty when re-exported after incorporation 
into a final product. Therefore, although DD is legally not an "export subsidy" it should not be 
regarded as a kind of export incentive that a free trade area should promote. 

b) 

Parameters that determine the impact of DD 

4 

To  note  that  in  most  other  industrial  sectors  and  products  the  rules  of  origin  may  allow  for  a  greater 
share  of  foreign  content  (up  to  50  %  in  certain  cases),  and  the  figures  and  impact  of  allowing  or 
prohibiting  duty  drawback  could  be  higher  depending  on  the  actual  use  of  the  foreign  sourcing 
possibilities. 

EN 

3 

   EN 

 
                                                 
DD is a complex economic tool. The impact of allowing or prohibiting DD on the exporters, 
on competition in the market of the importing country, and on trade in intermediate products, 
depends on many factors, which are illustrated below5. 

a) 

As regards the impact on the competitive position of exporters of finished products, 
the  relevant  factors  are  the  MFN  duties  that  the  exporting  country  applies  on 
intermediate  materials  combined  with  the  degree  of  foreign  sourcing  in  the  same 
country:  the  higher  the  MFN  duties  and  the  greater  the  use  made  of  foreign  inputs 
(depending on RoO within the FTA) are, the greater the impact of DD could be on 
the  final  product  exported.  This  is  one  of  the  main  reasons  why,  for  example, 
traditionally  in  most  countries  in  Asia  where  MFN  duties  are  relatively  high, 
allowing DD plays a much more important role than in US or EU where MFN duties 
are comparatively relatively low. 

Example: Ruritania applies a 14 % tariff on the imports of fibres from third countries; if imported fibres account 
for  25  %  of  the  value  of  the  fabrics  exported  by  a  Ruritanian  company,  the  value  of  the  duties  paid  on  such 
imported fibres would be 3,5 % (25 % of 14 %) of the value of the Ruritanian exporter's fabric. As seen above, 
for an EU exporter the value of the duties imposed on the import of such fibres would be 1 % of his own fabric's 
price. 

b) 

As  regards  the  impact  on  competition  in  the  finished  products  market  in  the 
importing  country,  the  most  relevant  aspect  is  the  MFN  duty  that  the  importing 
country  applies  on  intermediate  materials:  the  higher  the  MFN  duties  that  a 
preferential  country  applies  on  the  import  of  intermediate  materials  and  the  higher 
the use by domestic manufacturers of such imported materials from a third country, 
the  bigger  potentially  the  competitive  disadvantage  of  domestic  manufacturers  of 
finished  products  as  compared  with  exporters  from  an  FTA  partner  country  that 
benefits from DD. . 

To  follow  the  same  example  above,  the  fabric  manufacturer  in  the  EU  importing  fibres  from  third  countries 
would have to pay import duties on such fibres corresponding to 1 % of its selling price, regardless of whether 
duty  drawback  is  allowed  or  prohibited.  Thus,  in  case  duty  drawback  is  allowed  in  an  FTA,  the  competitive 
advantage of an exporter from an FTA partner country, say, Ruritania over a domestic EU producer would be 1 
% of the value of the fabrics. 

If we look at the situation in Ruritania, a Ruritanian fabrics manufacturer importing the same amount of fibres 
from third countries would have to pay duties on imported fibres worth 3,5 % of the value of the fabrics: this 
would  constitute  the  advantage  for  an  EU  manufacturer  exporting  such  fabrics  to  Ruritania  in  case  duty 
drawback were allowed. 

However,  in  case  duty  drawback  were  prohibited  in  an  FTA  between  the  EU  and  Ruritania,  the  Ruritanian 
exporter to the EU would be faced with a negative advantage of 2,5 % of the value of the fabrics (3,5 % in duties 
it would pay on the fibres imported from third countries minus 1 % of the duties paid on the same fibres by its 
EU competitor); conversely, the EU exporter to Ruritania would have a competitive advantage in Ruritania of 
2,5 % (3,5 % of duties paid by Ruritanian manufacturers minus 1 % paid on such imports by EU exporters). 

c) 

5 

To switch from trade in finished products to trade in intermediate materials, the key 
factor that determines the impact on trade of intermediate materials and components 
between the EU and our FTA partners is the level of import duties applied by both 
sides  on  these  materials  and  components  that  will  be  eliminated  under  a  FTA:  the 

For  the  sake  of  simplicity,  in  the  examples  provided  no  account  has  been  taken  of  additional  factors 
such as whether the materials imported from third countries may be coming from preferential countries 
not subject to import duties or of the possibilities of cumulation. The calculation of the value of duty 
drawback has also been made for simplicity reasons on the price of import of the finished product rather 
than on the cost of manufacture, and therefore is somewhat overstated. 

EN 

4 

   EN 

 
                                                 
higher such duties, the more trade between FTA partner countries in those materials 
will be encouraged, to the detriment of third country suppliers. 

Continuing  with  the  same  example  above:  in  case  duty  drawback  were  prohibited,  a  Ruritanian  company 
importing fibres from third countries to manufacture fabrics for export to the EU would face an additional cost 
of 3,5 %. This cost would constitute an incentive to source fibres either domestically or from the EU rather from 
other third countries. If duty drawback is permitted, such an incentive would disappear. 

Another  factor  that  plays  a  role  on  the  impact  of  DD  is  the  degree  of  restrictiveness  or 
leniency  of  the  rules  of  origin  under  the  FTA:  the  product  specific  rules  of  origin,  which 
establish the 'sufficient working or processing' that needs to be carried out on non-originating 
materials to obtain an 'originating' product that can benefit from preferential tariff treatment, 
determine  the  level  of  permissible  foreign  sourcing  and  therefore  the  maximum  amounts  of 
duty that may have to be paid or that can be drawn back if the final product is exported. 

Example: for fabrics, the standard EU preferential rule or origin is manufacture from fibres, which implies two 
transformations – spinning and weaving/knitting – which typically account for about three quarters of the value 
added of the fabric, which have then to be provided domestically. This limits foreign sourcing and therefore the 
scope  and  impact  of  allowing  or  prohibiting  duty  drawback.  The  impact  of  allowing  duty  drawback  would, 
however,  be  greater  in  sectors  where  the  rule  is  more  relaxed  –  for  instance  for  some  chemicals,  metals  or 
machinery, where materials from third countries can account for 40 %-50 % of the value of the product and the 
product is still considered as domestically produced. In those cases, prohibiting duty drawback could impose a 
significant additional constraint on the sourcing possibilities theoretically allowed by the rule of origin. 

The importance of DD is also depending on the economy of the country. Indeed, as regards 
trade in finished products, the impact for the EU of allowing DD is relatively limited, as the 
EU  generally  applies  very  low  tariffs  on  the  import  of  intermediate  products/materials  and, 
because of the EU's very varied industry base, the need for manufacturers to rely on foreign 
sourcing could sometimes be limited, although globalisation is increasing the dependence of 
EU  manufacturers  on  external  suppliers.  Such  an  impact  may  be  greater  in  the  EU  trading 
partners, which often apply higher import duties and which have, because of their size, to rely 
more on imported materials. In other words, in closed, protectionist markets with high MFN 
duties  on  parts  and  in  markets  where  foreign  sourcing  is  important,  allowing  DD  has  more 
impact than in a more liberal customs territory with an integrated economy. 

All in all, the potential negative impact of allowing DD constitutes a good reason in favour of 
seeking, as a matter of general policy, to prohibit DD in free trade areas. 

c) 

Problems related to the prohibition of DD 

Even if the prohibition of DD still seems the preferred option in an FTA context, this policy 
can create problems in its application. 

Before a preferential arrangement is made, international commerce between the future partner 
countries  of  the  free  trade  area  is  based  on  a  non-preferential  environment.  In  such  trade 
relations,  DD  is  always  used  or  at  least  available.  If  this  situation  evolves  towards  a 
prohibition of DD in a free trade area, the maximum benefits one may expect from the tariff 
reductions agreed within the FTA could be significantly reduced. 

Whilst a prohibition of DD would imply less benefits as compared with allowing DD, DD does not constitute per 
se  a  benefit  for  an  FTA  partner  additional  to  the  elimination  of  import  duties.  For  instance,  under  MFN 
treatment the duty to be paid for the import into the EU of a car is 10 %; if the import price of the car is 10.000 
€, the duty saved under an FTA would be 1.000 € as compared with the current MFN situation. Thus, assuming 
that  a  car  manufacturer  in,  say,  Ruritania  contains  20  %  of  parts  and  components  imported  from  non-
preferential third countries, and as the import duties in Ruritania of such components is on average 16 %, the 
duty paid on such components would be 320 €. In case an FTA prohibits DD, the net benefit for the exporter 
would  then  be  680  €  (1.000  €  -  320  €)  instead  of  1.000  €,  thus  a  reduction  of  32  %  of  the  benefit  of  duty 
elimination. Should the share of imported parts used by the Ruritanian car maker be the maximum permitted by 

EN 

5 

   EN 

 
the EU standard rules of origin (40 %), then the net benefit would be reduced to a bit more than a third of the 
EU import duties (1.000 € - 640 € = 360 €)

6. 

For  some  products,  the  producers  of  a  partner  country  could  even  prefer  to  use  MFN  tariff 
duty,  because  the  cost  of  renouncing  to  duty  drawback  could  be  higher  than  the  applicable 
MFN duty. 

To  which  degree  these  problems  arise  and  their  relative  importance  as  compared  with  the 
impact  of  allowing  DD  depend,  as  indicated  above,  on  different  economic  parameters  like 
respective  MFN  tariffs  of  both  countries,  level  of  reduction/abolition  of  tariffs  within  the 
FTA,  and  the  level  of  'leniency'  of  the  'rules  of  origin'  and  thus  maximum  foreign  content 
allowed and the economies of both partners.  

in 

the  home  market  and  promote  bilateral 

Whereas  a  prohibition  of  DD  for  an  FTA  would  avoid  certain  adverse  effects  of  DD  on 
intermediate 
competition 
products/materials,  in  preferential  trade  arrangements  with  a  developing  country  the 
additional development objective may bring an additional consideration. Indeed, a prohibition 
of DD in respect of developing countries might not always be desirable. It would for example 
be difficult to conceive that a developed country would give an LDC, on the one hand, duty 
free access to its market in order to assist and support the economy of the LDC while, on the 
other  hand,  it  would  limit  the  economic  benefits  resulting  from  such  a  free  access  by  a 
prohibition of DD for foreign inputs used by the producers of the LDC, should both partners 
enter into a FTA. 

trade 

in 

This  could  be  the  case,  for  instance,  if  the  EU  enters  into  an  FTA  with  a  group  of  countries  which  includes 
LDCs. LDCs being EBA beneficiary countries, they can export to the EU duty free whilst benefiting from duty 
drawback.  If  under  such  an  FTA  duty  drawback  were  prohibited,  exporters  from  the  LDCs  concerned  would 
have to pay duties for the inputs imported from third countries that are incorporated in their products exported 
duty free to the EU, something that is not required under EBA. 

Similarly, since the share of exports of developing countries to the EU subject to EU import 
duties is relatively limited7, a prohibition of duty drawback, that would imply a limitation of 
the benefits of import duty elimination, would thus reduce further their incentives to enter into 
a FTA with the EU. 

Furthermore, developing countries are currently entitled to apply DD for all their exports to 
the  EU  under  unilateral  preferences  (GSP);  in  fact,  a  large  share  of  the  exports  of  many 
developing  countries  to  the  EU  are  already  duty  free  or  subject  to  very  low  duty  rates 
(sometimes  called  ‘nuisance  duties’)  under  the  GSP  whilst  benefiting  from  DD.  In  those 

6 

7 

One  may  however  argue  (see  section  II.a)  above)  that  it  is  legitimate  in  a  FTA  to  prevent  exporters, 
through  the  prohibition  of  DD,  from  fully  benefiting  from  the  duty  elimination  since  otherwise 
exporters  would  be  placed  in  a  better  position  than  their  competitors  operating  on  the  importing 
country's domestic market. 
Roughly around three quarters of the exports of the developing countries with which the EU is currently 
negotiating FTAs are subject to zero or very low duties in the EU under MFN and the GSP. Thus, in 
2008 58 % of total imports from India came duty free into the EU and a further 7 % under nuisance 
duties (≤ 3%); 65 % of imports from ASEAN came duty free and a further 5,6 % under duties below 
3%; 80 % of imports from Central America also came duty free; 77 % of Colombian exports came duty 
free, and 95 % from Peru. Thus, prohibiting DD would imply limiting the benefits of the FTA for about 
a  quarter  of  the  exports  of  these  countries  to  the  EU;  however,  these  concern  products  subject  to  the 
highest tariffs in the EU and which are normally more sensitive. 

EN 

6 

   EN 

 
                                                 
cases, the resulting situation under an FTA would be worse than currently for those products 
benefiting from zero duty under the GSP 8. 

To give an example: the EU MFN duty for motor vehicle engines is 4,2 %, but after the duty reduction under the 
GSP Regulation this duty is brought to zero for all developing countries. Thus, a developing country can export 
those engines under the GSP to the EU duty free and with duty drawback. If under an FTA with a developing 
country  duty  drawback  were  prohibited,  the  FTA  treatment  for  the  engines  exporter  from  that  developing 
country would be worse than the current one: assuming that the value of the engine is 2.000 €, and that the share 
of parts imported for the manufacture of the engine was 20 %, if the average import duties on such parts is, say, 
16 %, the engines exported under the FTA from that developing country would be facing an additional cost of 64 
€  as  compared  with  its  exports  under  the  current  rules  (20  %  of  2.000  €  x  16  %  =  64  €,  which  would  be 
equivalent  to  a  duty  of  3,2  %  on  the  engine).  Should  the  share  of  imported  parts  used  reach  the  maximum 
allowed under the EU standard rules of origin (40 %), then the additional cost would be double, 128 €, which 
equals 6,4 % of the value of the export and which is higher than the EU MFN import duty. 

III.  Conclusions 

Allowing DD is problematic in the context of a free trade area, as it introduces the possibility 
of  competitive  distortions  between  the  participating  countries,  whereas  goods  and  services 
should  be  traded  on  their  respective  markets  on  the  basis  of  comparative  advantages.  There 
are thus good reasons in favour of seeking, as a matter of general policy, to prohibit DD in 
free trade areas. 

However,  since  the  prohibition  of  DD  may  also  create  problems  in  its  application  for  our 
partner countries, some limited concessions to this general policy line may be considered in 
exchange  of  adequate  concessions  from  the  other  party,  and  on  the  condition  that  'rules  of 
origin'  (RoO)  would  fulfil  the  needs  of  the  EU  industry.  Thus,  a  limited  possibility  for 
exceptions can be envisaged, based on a comprehensive assessment of the following criteria: 

a) 

b) 

8 

The extent to which the RoO of the FTA are satisfactory for the EU including for 
its industry. Indeed, having the right product-specific RoO may be as significant or 
more in economic terms than prohibiting DD. On the one hand, the RoO in our FTAs 
should  require  an  adequate  level  of  transformation  and/or  value  added,  in  order  to 
promote  that  the  benefits  of  the  FTA  accrue  primarily  to  the  FTA  partners.  On  the 
other hand, it would be highly desirable that the FTAs have the same or similar RoO, 
as  it  is  not  practicable  for  EU  industry  to  adjust  foreign  sourcing  to  rules  different 
depending  on  the  market  of  destination.  Thus,  the  acceptance  of  rules  of  origin  as 
close  as  possible  to  the  EU  standard  rules  of  origin  is  an  important  and  relevant 
factor to take into consideration. Once acceptable RoO are agreed that overall fulfils 
the  needs  of  EU  industry,  it  could  thus  be  acceptable  to  show  flexibility  on  DD, 
although preferably within certain limits, taking into account the other criteria below. 

The likely impact of allowing - or as appropriate prohibiting - DD, both in terms of 
competitive  conditions  in  the  EU  market  as  well  as  on  EU  exporters,  should  be 
assessed and taken into account in evaluating the overall balance of the agreement. 
Such  an  analysis,  including  a  quantitative  assessment  that  should  start  early  in  the 
negotiating process and will in any case precede the decision on the conclusion of the 
FTA, will look into the impact on trade, production, investment and employment, on 
the  use  of  the  cumulation  possibilities  under  the  FTA,  and  on  affected  developing 
countries. 

The shares of such exports subject to zero duty under the GSP were in 2008: 24 % for India, 10 % for 
ASEAN countries, 20 % for Central America, 13 % for Colombia and 23 % for Peru. In these cases, 
FTA treatment would be worse in case of a prohibition of DD. 

EN 

7 

   EN 

 
                                                 
c) 

d) 

The  ambition  of  the  FTA  in  terms  of  market  access  and  the  extent  to  which  it 
meets the interests of EU industry. Elements that may be considered, on a case by 
case basis, to assess such flexibility are the extent to which more advanced countries 
assume  ambitious  trade  liberalisation  commitments  as  a  result  of  the  FTA  that 
constitute  an  overall  satisfactory  outcome  for  EU  industry.  Similarly,  adequate 
market  access  conditions  should  be  provided  for  EU  exporters  of  intermediate 
products to whom it would not otherwise accrue some FTA benefits. 

Development  considerations,  including  the  extent  to  which  a  FTA  negotiating 
partner  is  already  exporting  duty  free  (or  under  so-called  "nuisance  duties")  to  the 
EU with DD, the impact of prohibiting DD on the benefits and on the incentives for 
them to enter into an FTA, and the effects of allowing DD on the use of domestically 
produced  intermediate  materials.  The  degree  of  development  of  the  third  country 
concerned should also be taken into consideration. 

As to the possible  concessions  on  DD,  an example of  limited flexibility could be  to restrict 
DD to the difference between the average MFN rates applicable to intermediate inputs in the 
partner country and the EU respectively when the MFN duty rates of a future partner country 
are relatively high and relatively low in the EU. This could be attempted generally or for some 
sectors (or even products as necessary) where the impact of DD due to the differential MFN 
duties  may  be  more  significant.  This  would  aim  at  maintaining  a  level  playing  field  for  the 
industries of both countries within the free trade zone. In other cases, time limitations or other 
limits  could  be  considered.  In  the  case  of  developing  countries,  a  less  demanding  position 
would  be  justified  in  the  light  of  a  development-friendly  policy  (the  degree  of  which  may 
depend on whether it concerns an LDC or GSP+ country or not), and taking into account that 
they already benefit from DD for their exports to the EU under the GSP. 

EN 

8 

   EN