EPA Review Annex Documents - DFID

that value added in ACP countries often falls well below the thresholds of the EU RoO
regimes. Whilst the results may be driven by an aggregation bias given that the threshold is
applied at the product and firm level and not at the industry level, the results remain striking
and raise important development concerns.
Another often argued problem with the VA rule is that countries may suffer from exchange
rate volatility effects. These may affect the VA calculation of foreign inputs and hence
endanger the application of preferences. A country may meet the VA criteria in one year, but
may not do so the following. To avoid such problems, the rules generally take into account
average VA during a period of three years, but this does not completely eliminate the
problem. This example underlines the need to go further in the application of RoO if
development concerns are to be tackled. From this perspective, it is not obvious what an
ideal RoO would look like. This is explicitly recognised in TAXUD (2007:2) where they
conclude that the impact assessment carried out does “not demonstrate that a single method
is indispensible to simplification or development-friendliness”. Harris (2008) argues that both
lax and strict RoO have similar effects on development. If the goal is to increase productive
capacity in developing countries, then too lax a rule is likely to make preferential countries
transhipment hubs where little industrial production occurs. Alternatively, if the rule is very
strict, then the developing country is not likely to be able to benefit from the preferences
granted. It is therefore clear that, in the case of a VA rule, a low value added will serve as
little as a high value added threshold. It follows that the threshold should be within a range.
However, even if we assume that it is possible to find the appropriate range for a given
country it may be farfetched to assume that this threshold level would serve other countries
party to the same RoO regime. In addition, critics of the VA rule argue that it requires firms to
engage in accounting procedures that may be costly.
5. Differences Across EU RoO regimes
Leaving aside the intrinsic difficulties of finding a fully development-friendly rule governing
the attribution of origin, and given that an econometric assessment is well beyond the scope
of this study, some implications for development are drawn by looking at the changes in time
and across RoO regimes. For ACP countries there are three major regimes that apply.
These are the GSP, the Cotonou and the EPA regimes. Whilst the GSP RoO regime has
been around the longest (since 1993), the Cotonou (2000) and the EPA (2008) regimes
remain, in essence, very similar (Naumann, 2008). Since 2000, ACP countries have
benefited from Cotonou RoO which had provisions for full cumulation across all ACP
countries. However, since 2008, ACP countries are subject to either the GSP or the EPA
regimes. According to Naumann (2008), the EPA regime brings minimal changes in the
general RoO legislation. The main changes occur in the annexes and are to do with
simplifications and concession for agricultural products and textiles and clothing. ‘Wholly
obtained’ definitions are redefined, and lists of insufficient processing operations are
expanded. RoO on fisheries are also significantly revised with important simplifications of
conditions relating to vessels. Where cumulation is concerned, countries that have signed or
initialled the EPAs/IEPAs can cumulate with each other but not with countries that have not
signed. Hence to a certain degree, the change in conditions is a worsening of the terms that
applied with Cotonou. It is not directly clear what the implications are for countries which
have not initialled the EPA/IEPAs but they are likely to fall under the GSP RoO. However,
the EC has, during the last five years, been reviewing its RoO practice in view of simplifying
it and using it as a tool for development. In this respect, the similarity of rules across the
Cotonou and EPA regimes marks the little progress that has been made in finding an
appropriate regime that allows countries to utilise the preferences granted. This is why the
EPA/IEPA agreements include a clause that foresees a review of the RoO in a pre-
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