By Sharon Atieno

Direct consignment or direct shipment requirements have an impact on the low utilization of tariff preferences by least developed countries (LDCs), a World Trade Organization (WTO) Secretariat report reveals.

A previous report by the Secretariat had in May noted that LDCs were unable to fully use preferences even when their exports were subject to simple origin requirements; for example, 82% of imports of fruits, vegetables and plants from LDCs did not receive any tariff preference despite being eligible for preferential treatment.

According to the direct consignment requirements, goods being granted preferential market access must be transported directly from the country claiming preferential treatment to the country granting preferences.

Meeting during the launch of New rules of origin initiative to help firms better utilize trade preferences
Photo credits: WTO

Comparing utilization rates between landlocked LDCs and LDCs with sea access, the Secretariat report found that 52% of imports from landlocked LDCs do not receive any tariff treatment despite their eligibility for preferences compared to 21 % of underutilization rates for LDCs with sea access.

Similar results were obtained even when only one product category was examined, in this case agricultural products subjected to identical origin criteria. Underutilization was found to be higher for landlocked LDCs at 29% than for LDCs with sea access at 14%.

“This is a clear indication that transportation requirements have an impact on preference utilization,” the report reads.

In a separate paper on the issue, the LDC Group which consists of 26 African countries, concurred with the notion that direct shipping requirements were a major hindrance to the use of tariff preferences.

“The fact that documentary evidence related to direct consignment requirements could be an insurmountable obstacle to utilization of trade preferences by LDC, especially landlocked and islands LDCs, has been initially identified by UNCTAD and repeatedly raised by the LDC Group a number of times,” the group said.

In their report, the LDCs note that the documentary evidence of non-manipulation during the transit in the territory of the third country and that the goods have not entered the customs territory of the third country required by majority of preference-giving Members is not easy to obtain and/or may entail a significant cost.

The LDC report said that the Canadian General Preferential tariff provisions for the documentary evidence of direct consignment contains unusually strict and detailed requirements which “is simply overwhelming in the context of today’s business transactions and does not correspond to commercial realities.”

On the other hand, the LDC Group applauded European Union (EU) for a positive evolution of their requirements in terms of documentary evidence related to direct shipments.

The Group pointed out that the non-alteration principle provision introduced by the EU or similar arrangements such as those adopted by Australia and New Zealand may constitute a best practice that should be progressively adopted by other preference-giving Members.

The non-alteration concept does not require systematic evidence of direct consignment except in case of doubt where the EU customs authorities will request the declarant to provide evidence of compliance. However, even in the case where documentary evidence is requested the proof of direct consignment may be given “by any means” not necessarily by a through bill of lading or documentary evidence in the form of a certificate or statement of non-manipulation provided by the Customs authorities of the country of transit.

The two reports were presented and discussed in a meeting during a committee on Rules of Origin on 17-18 October, 2019. The next regular meeting of the committee on rules of origin is tentatively scheduled for late May 2020.