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A62 EXCISE LAW TIMES [ Vol. 372

companies in developing and transition economies, sophisticated and expensive
accounting procedures. Without such procedures, it is difficult for companies to
show precisely the geographic breakdown of the inputs they have used. An im-
portant feature of most preferential trade schemes is the requirement of direct
consignment or direct transport. It stipulates that goods for which preferences
are requested are shipped directly to the destination market. If they are in transit
through another country, documentary evidence may be requested to show that
the goods remained under the supervision of the Customs Authorities of the
country of transit, that they did not enter the domestic market there, and that
they did not undergo operations other than unloading and reloading. In practice,
it may be very difficult to obtain the necessary documentation from foreign cus-
toms offices. Finally, it is important to note that Customs Authorities are typical-
ly responsible for implementing the system of rules of origin. Customs usually
has the responsibility for checking the certificate of origin and may also be in-
volved in issuing origin certificates for local exporters. Implementation of prefer-
ential trade agreements increases the burden on customs. Limited resources and
weak administrative capacity in many developing countries mean that these
trade agreements have inevitable repercussions for trade facilitation. At the very
least, when designing trade agreements, issues of administrative capacity in cus-
toms need to be taken into account. Complicated systems of rules of origin in-
crease the complexity of customs procedures and the burden on origin-certifying
institutions. In general, rules of origin that are clear, straightforward, transpar-
ent, and predictable and that require little or no administrative discretion will
place less of a burden on customs than will complex rules. The use of general
rather than product-specific rules appears to be most appropriate for preferential
rules of origin applied by and to developing countries. Less complicated rules of
origin stimulate trade between regional partners by reducing the transaction
costs of undertaking such trade, in comparison with more complex and restric-
tive rules of origin.
Conclusion
The nature of rules of origin typically reflects the purpose that is set for
them, the transparency of the process by which they are determined, and the
composition of the group involved in that process. Within preferential trade
areas, complex and restrictive rules of origin act to dampen competition for final
producers within a country from suppliers in partner countries and to stimulate
intra-area exports of intermediate products by diverting demand away from
third-country suppliers. Such rules typically emerge when the process by which
they are determined lacks transparency and openness and is dominated by input
from domestic industry. If the purpose of preferential rules of origin is simply to
prevent trade deflection, then a simple and less restrictive set of rules of origin
implemented through general rather than product-specific rules is appropriate.
In the current globalized world market, less restrictive rules are more likely to
stimulate trade and investment in the partner region by giving producers as
much flexibility as possible in sourcing their inputs without compromising the
ability to prevent transshipment of goods from third countries that are not mem-
bers of the agreement. If the objective of the trade agreement is to foster trade
and development, it is best achieved through simple and liberal rules of origin,
rather than by using rules of origin as opaque measures of trade protection.
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