Lao PDR has obtained preferential trade benefits from almost 50 countries around the world including for exports under Free Trade Agreements (FTA) and Generalized System of Preferences (GSP) from developed and developing countries. Lao exports to those markets are basically free of import tax or dutiable at a low rate. However, why do we not yet take full advantage of those preferential trade benefits? The results of a study on the ASEAN-Korea Free Trade Agreement show that minimal trade benefits are still applied to ASEAN member states exporting to Korea, only 30 percent approximately in the first year of starting the agreement in year 2008 and grown rapidly to 65 percent in year 2011. Nonetheless, the countries which receive the most preferential trade benefits are Myanmar, Brunei and Philippines (from 94 percent deceasing to 69 percent) in the same year.
The reason for applying little preferential trade benefits can be explained by various factors. Firstly, there is still lack of production capacity in our country and we are not able to supply the market needs not only in quantity but also in terms of quality. Secondly, it also depends on difficulties in market access, one of which are the Rules of Origin (ROO).
Principally, Rules of Origin (ROO) are used to consider offering preferential trade benefits like a reduced or free tariff if it possible to certify that the exported goods originate from Laos. Another objective is to surreptitiously protect the use of goods that do not originate from Lao. This means that, the exporter needs to certify that product was extracted, produced or processed in Lao PDR.
In the case of import of raw materials for processing, it is necessary that not less than a total of 40% should originated from the ASEAN member countries’ group in order to meet ROO requirements for exporting to the EU and obtain GSP tariff free and no quota for “everything but arms” (EBA).
Therefore, the requirement to identify raw materials that have a rate lower than 20% sourced from one region or are entirely of domestic origin creates a barrier for obtaining the GSP. This means that ROO are used as a trade barrier indirectly even if there are exemptions or a reduced tariff rate. Equally, it uses many complex requirements which not only are difficult to understand for the business sector but also increase their costs.
The study on the ASEAN-Korea Trade Agreement found that rules of origin affect 3,077 commodities in 26 categories (6 digit HS Code) that have a reduced tariff rate. Most of them (covering 77 percent) did not entail more barriers, as a change of the heading number in the tariff Nomenclature or use of raw material from the region also can also meet the requirement. However, there are almost one thousand commodities for which it is confusing and difficult to determine the origin such as using all raw materials in domestic production or that require for processing some product categories or specific exemptions or apply to all components. Consideration of the commodity found that agricultural product especially of chapters “live animal” and “food products” entail the most strictly certificate of origin for export to Korea as well as for the Chapter of “textile and garment”.
As stated above these are tools that create difficulties for the business sector in producing approval of evidence of a certificate of origin and cause rejection of the GSP if the requirement cannot be implement. Therefore, what should an exporter consider in term of arrangements for what products and to which market to export? They should not only consider the tariff rate but also the Rules of Origin (ROO).
In terms of Marco-aspect the officers who are working on negotiations for Lao PDR need to address , review and conduct the negotiation not only for the ASEAN Free Trade Area but also for the Generalized System of Preferences, to determine the Rules of Origin of trade partners with no confusion as well as easy access and implementation for the business sector so that they are able to use raw material from another free trade area besides the ASEAN group, increase the rate of consumption of raw material from outside, reduce the conditions and documents required for the certificate of origin needed to demonstrate the origin, etc. Additionally, the government should continue and enhance its activities to support and strengthen the business sector such as training and information dissemination especially to small and medium enterprises (SMEs) on GSP, using technology for the administration of the process of Certification of Origin such automating the request for a Certificate of Origin, partly using the Chamber of Industry and Commerce to issue the Certificate of Origin and, furthermore, allowing self-certification of origin by the business sector. Basically, it should aim at creating the fundamentals and facilitating the Lao Business Sector to be able to simplify the implementation of certification origin so that they are likely and able to export and receive GSP at a low cost.
Currently, the Lao Government has implemented many facilities including giving authority to the Chamber of Industry and Commerce at central level and at each province to be able to issue certificates of origin in GSP format for many countries in addition to the ones previously authorized. Since the middle of year 2013, Lao PDR has also participated in the second ASEAN self-certification pilot project to export to Indonesia and the Philippines. In the year 2017, the EU will also have a platform for authorization using a self-certification automated system for some countries that are ready.
By: B.Vilavong.
Please share your feedback below and help us improve our content.