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WTO session on the utilization of trade preferences

Following the formal meeting of the Committee on Rules of Origin, on 7th April 2022, WTO Members participated in the second installment of the dedicated sessions that explore the utilization of trade preferences. These sessions started at the request of Members to provide them with a platform to share experiences and understand the impact of existing rules of origin in international trade. The last event was held in May 2021, where six Members shared their observations on calculating the use of trade preferences in free trade agreements (FTAs).

During the latest session, Members benefited from several presentations that examined different aspects of trade preference utilization in regional and free trade agreements. The WTO Secretariat delivered a presentation that explored possible areas of contribution, such as serving as a forum to consider measures that hinder the utilization of trade preferences and acting as a depository for preferential rules of origin and origin requirements.

The United States shared information on their unilateral preference programs that span different regions and products. Rules of origin under these programs are based on whether a good is a product of the beneficiary country and the amount of content in the good, originating from the region, which is measured as a percentage of the good’s value. Based on their analysis, these preference programs have been advantageous for numerous industries, including apparel in Sub-Saharan Africa and rum from Jamaica. However, companies do not always use preferences, even when it is simple to establish the origin of the goods, which raises the question of why full utilization of this scheme is not sought after.

With 22 FTAs currently in force, and several pending, Turkey shared results from their analysis of preference utilization based on two case studies. Their findings revealed low utilization rates, possibly due to low MFN rates in industrial products, small differences between the MFN rate and the preferential rate, a fluctuation of trade in commodities, or potentially the effect of origin requirements or customs procedures.

EFTA conducted a similar study with the aim of understanding the extent to which companies use FTAs and the difference between imports and exports to determine whether agreements are mutually beneficial in practice. They found that trade under all preferential schemes can be sizeable and, overall, there is good use of preferences, but results vary among countries and product groups. Among their findings, they acknowledged that data availability is the main bottleneck in this analysis.

Finally, Chile and Canada presented their results after examining the utilization of regional and plurilateral trade agreements. In Canada, data on preference utilization rates is not publicly available, but current analysis is underway to explore the challenges and limiting factors in utilizing FTA preferences.

Overall, the results from these studies reveal that preference utilization rates fluctuate and data availability is limited. However, both parties to an FTA benefit from such data exchanges and findings from these studies can support businesses through concrete efforts that seek to promote the use of these FTAs, especially for SMEs.