   
  
G/RO/W/187  
 
4 October 2019  
(19-6434) Page: 1/9 
Committee on Rules of Origin    
 
 
IMPACT OF DIRECT CON SIGNMENT REQUIREMENT S  
ON PREFERENCE UTILIZ ATION BY LEAST DEVEL OPED COUNTRIES  
NOTE BY THE SECRETAR IAT1 
1  INTRODUCTION  
1.1 In a previous Note (G/RO/W/185), the Secretariat pointed out that  least-developed countries 
(LDCs) were often unable to use non-reciprocal  preferential trade arrangements (PTAs) fully even 
when their exports were subject to a simple origin criterion. The calculation of utilization rates for 
agricultural products, for in stance, revealed that 82% of imports of "fruits, vegetables, plants" from 
LDCs did not receive any tariff preference, despite being eligible for preferential treatment 
(RD/RO/78 and G/RO/M/72) . Since  the majority of these products were subject to the "whol ly-
obtained origin criterion" in all the PTAs examined , variations in preference utilization could not be 
explained by the origin criterion itself. Consequently, other factors, such as certification of origin 
and/or transportation requirements had to expla in underutilization, at least for such cases.  
1.2  This note examines  utilization rates in light of preference -granting Members' transportation 
requirements in order to identify the impact that these requirements may have on the ability of LDCs 
to fully utilize trade preferences.  
2  WHAT ARE "DIRECT CON SIGNMENT" REQUIREMEN TS? 
2.1 The obligation that goods being granted preferential market access  must be transported 
directly from the country claiming preferential treatment to the country granting preferences i s a 
common requirement in preferential trade agreements whether reciprocal (regional trade 
agreements, RTAs) or non -reciprocal (preferential trade arrangements, PTA s). This requirement 
reflects the principle that the determination of origin should focus on  processes that occurred 
exclusively in the territory of the countries eligible for preferences (principle of territoriality). 
The direct consignment rule aims at ensuring that the goods that left the beneficiary country are the 
same as the ones that will enter the preference -granting country.  
2.2 Different terms are used to refer to this obligation. Agreements refer most commonly to "direct 
shipment", "direct consignment", "direct transportation" or "tran sshipment". A variation of this 
obligation is the pr inciple that goods may be trans shipped but must not be altered during transit 
("non -alteration rule"). This note employs the term "direct consignment" to refer to all obligations 
related to the transportation and consignment of goods.  
2.3 Irrespective of the terms used, the objective of this provision in all cases is to ensure that no 
further processing takes place in a third country  (or territory) , when the goods are in transit from 
the beneficiary Member to the preference -granting Member. It is a provisi on that mitigates the risk 
of preferences being abused. It is not possible, however, to enforce this provision strictly. In fact, 
not all countries are connected to each other through direct commercial freight routes. Landlocked 
territories almost always d epend on transit for their imports and exports. In addition, goods may be 
transported by air, sea or land (rail and/or road), with different combinations and connections . It is 
therefore common that internationally traded goods transit through local, regional or global logistical 
hubs. As a result, preferential rules of origin must balance the imperative of managing the risk of 
                                                
1 This document has been prepared under the Secretariat's own responsibility and is without prejudice to 
the positions of Members or to their rights and obligations under the WTO.  G/RO/W/187  
 
- 2 - 
 
  with the realities of international freight transportation and distribution. This  balancing exercise is 
different in each preferential agreement, translating into different levels of restrictiveness.  
3  LINKING DIRECT CONSIGNMENT REQUIREM ENTS AND PREFERENCE UTILIZATION  
3.1 A product will only be grante d preferential  market access  treatment if : (i) the exporting 
country is eligible under a preferential scheme ; and (ii) the product is covered by such preferences. 
When both conditions are met, preferential treatment will only be granted if the product comp lies 
with three simultaneous origin requirements:  
(i) origin criteri a: a good must either be wholly obtained or satisfy minimum substantial 
transformation requirements so that any imported materials are sufficiently transformed to 
acquire the origin of the  beneficiary country (as prescribed in general or product -specific origin 
criteria in the RTA or PTA);  
(ii) proof of origin : a good must prove that it complies with the relevant origin criteria. This  can 
be attested by a third party (using a certificate of  origin which contains information as 
prescribed in the text of the RTA or PTA) or by the producer (self -certification);  
(iii) direct consignment : a good must be transported from the beneficiary country directly to the 
preference -granting country.  
3.2 Because these three components must be met simultaneously, non -compliance with any of 
them can disqualify a product from receiving preferen tial market ac cess. For this reason, the lack of 
capacity to comply with direct consignment provisions could explain why  some products, such as 
those subject to the wholly -obtained origin criterion, do not utilize preferential market access to the 
full extent . It is in this context that the relationship between direct consignment rules and utilization 
rates may yield intere sting lessons for identifying best practices and reforming preferential rules of 
origin for LDCs.  
3.3 Trade statistics as compiled by the WTO, however, do not allow for a differentiation between 
the share of imports which were consigned directly or indirec tly. Goods which were directly consigned 
would presumably meet by default these requirements. Neither do the statistics allow for the 
identification of the share of consignments which are transported by land, sea or air. One could 
assume that air freight w ould more easily meet direct consignment obligations. In addition, it is not 
possible to infer from WTO statistics which share of imports did not receive preferences specifically 
for failing to comply with direct consignment requirements. As a result of th ese data limitations, an 
examination of the impact of direct consignment rules on preference utilization needs to use indirect 
statistical indicators rather than clear statistical evidence.  
Graph 1: Under utilization rates (%), landlocked LDCs vs. LDCs with  sea access (all 
products and all PTAs)  
 
Source:  WTO Integrated Database, 2019.  
3.4 A possible starting point is to verify whether there are differences in preference utilization 
between landlocked LDCs and other LDCs with sea access. Both groups should have an identical or 
similar ability to utilize trade preferences if direct consignmen t obligations have no impact on 
preference utilization. Conversely, a lower utilization rate by landlocked countries would indicate 
that direct consignment rules are not merely technical requirements but rather that they influence 
the ability of LDC export ers to utilize preferences. As can be seen in Graph 1, over 50% of all imports  21%52%
0%10%20%30%40%50%60%
sea access landlockedG/RO/W/187  
 
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  from landlocked LDCs do not receive any tariff treatment (52%)  despite being eligible for 
preferences . That is more than double the underutilization rate for LDCs with sea acces s (21%).2 
3.5 It could be argued, nonetheless, that such a comparison is influenced by the type of products 
exported by each of these two groups of LDCs as well as by the origin criteria that apply to these 
products. It would be useful, as a result, to iso late direct consignment requirements from other 
origin -related requirements, in particular variations in the substantial transformation criteria. In 
order to narrow down the analysis, Graph 2 reflects utilization rates only for agricultural products 
subjec t to the wholly -obtained criterion. In this manner, identical origin criteria and a similar pool of 
products are considered. As can be seen in the graph, underutilization is higher for landlocked LDCs 
(29%) than for LDCs with sea access (14%). This is a cl ear indication that transportation 
requirements have an impact on preference utilization.  
Graph 2: Underutilization rates (%) and total preferential imports in USD million, 
landlocked LDCs vs. LDCs with sea access (agricultural products subject to wholly -
obtained origin criterion only, all PTAs)  
 
Source:  WTO Integrated Database, 2019  
3.6  Products which are subject to underutilization in this category concern primarily fresh fruits, 
vegetables and plants (60% by underutilized value for all LDCs) foll owed by other agricultural 
products and animal products3. Not all LDCs are concerned by underutilization to the same extent. 
Underutilization rates for each LDC reflect the type of products exported as well as the main export 
destinations. For several LDCs , underutilization is close to zero (Lesotho; Malawi; Haiti; The Gambia; 
Tanzania; Uganda; Mauritania; Madagascar and Senegal). For others, however, it is close or 
above  50% (Myanmar and Angola (underutilization of 44%); Lao  People's  Democratic Republic 
(84%); Yemen (90%); Nepal (91%), Guinea (94%) and Afghanistan (99%).  Finally, it should also 
be noted that imports of agricultural products subject to the wholly obtained rule correspond to a 
small share of total imports eligible for preferences under PTAs ( about 4%). Therefore, the analysis 
is based on a small subset of products. Also, imports of these products are almost negligible under 
some PTAs (Australia, Canada, Chinese Taipei) but quite significant under others (EU, India, 
Thailand).  
4  NATIONAL PRACTICE S REGARDING DIRECT C ONSIGNMENT  
4.1 In order to further test the hypothesis that direct consignment rules influence preference 
utilization, another possibility would be to compare the utilization rates under schemes which apply 
a more liberal or a stricter direct consignment requirement. This would require a review of national 
practices in this respect. Annex 1 to this note contains a table summarizing national requirements 
                                                
2 The calculations of preference utilization rates in this note are based on WTO Members' notifications to 
the WTO Integrated Database. Import statistics were available for the following PTAs: Australia (2017);  Canada 
(2017); Chile (2016); China (2016); EU (2017); India (2015); Japan (2017); Republic of Korea (2016); Norway 
(2016); Switzerland (2017); Chinese Taipei (2017); Thailand (2016); United States (GSP -LDC and AGOA, 2017) . 
3 Table for of document G/RO/W/185 contains a more detailed breakdown of underu tilization rates for 
different agricultural subsectors.   
 86%
71%14%
29%
 - 500 1,000 1,500 2,000 2,500
sea access landlockedin million US$
utilization underutilizationG/RO/W/187  
 
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  under standardized categories. As the table shows, there are many variations in the w ay this 
requirement is enforced, including variations regarding the documentary evidence which applies by 
each preference -granting Member.  
4.2  Australia is the only preference -granting Member with no direct consignment requirements. 
This mirrors Australia 's practices in other preferential trade agreements. All other preference -
granting Members enforce some type of direct consignment principle, albeit with significant 
variations. Japan explicitly excludes small value consignments from any documentary requir ements.  
4.3 In general, all preference -granting Members require that goods claiming preferences must not 
undergo operations other than unloading and reloading if transit is required. In addition, it is 
common for preference -granting Members to require that  the goods remain under customs 
supervision during transit (except for Chinese Taipei; the European Union  (EU); New Zealand; 
Norway; Switzerland and Turkey). This requirement is sometimes enforced by way of requesting the 
importer to present a "certificate  of non -manipulation" prepared by the customs authorities of the 
transit country. Such certificate may be requested in all cases (Chile; India; Japan; Republic of 
Korea; Russian  Federation; and Thailand) or upon request (China). In some cases, a non -
manipu lation certificate is replaced by or combined with the obligation to present a single 
transportation document or a "through bill of lading" (Canada; Chile; India; Japan; Russian 
Federation; and Thailand)4. In the case of the United States  (US)5, documentary evidence will only 
be requested if the US is not mentioned as the final destination of the goods in the transport 
documents. In addition, there may be a requirement that transportation documents must mention 
the name of a national consignee f or the goods (Canada and Norway). In Japan, the importer is 
given the choice of documents to present among several options.  
4.4 The application of the rules in the EU, Norway, Switzerland and Turkey differ s from others 
because the direct consignment obliga tion is replaced with a "non -alteration principle". According to 
that principle, transit through third -countries is allowed as long as the goods do not undergo any 
manufacturing or further processing ("alteration") other than small operations (aimed at pre serving 
the goods in good condition or affixing marks or labels). A certificate of non -manipulation confirming 
that the goods were not altered during transit will only be requested in case of doubt.  
4.5 The requirements that goods be kept under customs con trol during their transit is sometimes 
nuanced by some flexibilities. For instance, small operations to preserve the goods during transit 
are commonly accepted (except for Chinese Taipei; Japan; Korea; and New Zealand). With few 
exceptions (New Zealand; Th ailand; and the US), the goods may be stored temporarily in the transit 
country/countries and a single consignment may also be split in a transit country for distribution to 
different destinations (allowed by Canada; Chile; EU; Norway; Switzerland; and Tur key). In some 
cases, the rules explicitly allow the goods to be exhibited at fairs during their transit as long as they 
remain under customs control (Japan; Korea; Russian Federation; Kazakhstan; and Kyrgyz 
Republic).  
4.6 In several cases, documentary requ irements are waived for small -value consignments. With 
few exceptions, these requirements are identical or very similar to the requirements which prevail 
in major RTAs.  
5  IDENTIFYING STRICTER  AND MORE FLEXIBLE D IRECT CONSIGNMENT PR OVISIONS  
5.1 Given the numb er of variations and the possible combinations of the various requirements 
and flexibilities, it is difficult to establish an objective rank of the obligations from stricter to most 
flexible. Moreover, it is not clear how some requirements are enforced in practice. For instance, it is 
not possible to know how frequently a document must be presented when it is to be presented only 
"upon request". Also, the fact that some rules do not explicit ly authorize certain practices (e.g. 
                                                
4 A "through bill of lading" (or a "house air waybill" or a "through air waybill" is a transport document 
which contain, in a single contract, information about the complete transportation of a good, from the origin to 
the preferential destination, including any possible transit through third -countries.  
5 There are no differences in the direct consignment rules under the US' General System of Preferences 
(GSP) and the African Growth and Opportunity Ac t (AGOA). Both PTAs are therefore considered together in this 
note. G/RO/W/187  
 
- 5 - 
 
  splitting of consignments) doe s not mean that they prohibit them, at least under certain 
circumstances.  
5.2 One possible tool to identify best practices could be the text of the Nairobi Ministerial Decision 
on preferential rules of origin for LDCs. It contains provisions which require preference -granting 
Members to refrain from requesting a certificate of non -manipulation. As a principle, such certificate 
should only be requested in case " there are concerns regarding trans shipment, manipulation, or 
fraudulent documentation" (WT/L/917/Ad d.1, paragraph 3.1(a)). In addition, the Decision also 
requires preference -granting Members to "consider measures to streamline customs procedures, 
such as minimizing documentation requirements for small consignments". The LDC Group had 
reviewed national p ractices in light of these requirements in a presentation to the Committee on 
Rules of Origin (CRO) in 2017 (RD/RO/57).  
5.3 Considering these limitations and guidelines, two groups of PTAs may be proposed for 
analysis:  
(i) Group 1  (More flexible requirements): Australia; Chinese Taipei; EU; Switzerland; Turkey;  
and US; 
(ii) Group 2  (Stricter requirements): Canada; Chile; China; India; Japan; Republic of Korea; 
New Zealand; Norway; Russian Federation (and other Members of the Euro -Asian Economic 
Union); and Thailand.  
5.4 It would seem reasonable to group Australia (no requirement), EU, Switzerland and Turkey 
(non-alteration principle), Chinese Taipei and the US (documentary evidence requested only if the 
transport documents do not sh ow the US as the final destination of the goods) together. 
Requirements of all other PTAs are stricter at least in some aspect. For instance, Norway, despite 
applying similar requirements to the EU, requests that a national consignee be mentioned in the 
transportation documents. Canada, Chile, India, Japan, the Russian  Federation and Thailand request 
a through bill of lading (or an equivalent "single transportation document"). The Republic of Korea 
requests a certificate of non -manipulation in all cases.  
Graph 3: Under utilization rates (%) – PTAs with less strict direct consignment rules vs. 
PTAs with more strict requirements (a gricultural products subject to the wholly -
obtained origin criterion only, all PTAs)  
 
Source:  WTO Integrated Database, 2019  
5.5 A comparison of the underutilization rates of these two groups of PTAs confirms that stricter 
direct consignment requirements are associated with lower utilization rates. Underutilization rates 
(for agricultural goods subject to the wholly obtained or igin criterion) are significantly higher for 
PTAs in Group 2, that is, those applying stricter direct consignment requirements. For imports from 
landlocked LDCs, underutilization reaches a rate of 57% under the PTAs with a strict requirement 
and 30% for PT As with a more flexible requirement. For imports of products from LDCs with sea  
 28%60%
30%57%
0%10%20%30%40%50%60%70%
less strict requirements more strict requirements
sea access landlockedG/RO/W/187  
 
- 6 - 
 
  access, the same pattern is observed: PTAs with stricter requirements have an underutilization rate 
of 60%, almost double the rate for PTAs with a more flexible requirement (28 %).6 
6  IDENTIFYING SPECIFIC  RESTRICTIVE ELEMENT S IN THE RULES  
6.1 It would be useful to confirm these findings by examining the specific aspects of direct 
consignment rules which are conducive to higher or lower utilization rates. There are, however, a 
series of limitations to these calculations. The first is that not all PTAs can be examined but rather 
only those for which import statistics are available with the Secretariat7. Second, the volume of 
imports from LDCs under some of the PTAs analysed is small. This means that drawing general 
conclusions may be difficult. Third, limiting the analysis to agricultural products subject to the wholly -
obtained criterion reduces the number of statistical observations. Finally, it may be challenging to 
attribute variati ons in utilization rates to a single element, isolating these aspects from other 
elements of direct consignment rules.  
6.2  Notwithstanding these limitations, it may be useful to compare the utilization rates of PTAs 
for which a through bill of lading must  be presented and those which do not contain that obligation. 
The comparison, as shown in graph 4, confirms that underutilization rates are significantly higher 
for the PTAs which contain that obligation. The underutilization rate for landlocked LDCs is 26 % for 
PTAs with no obligation of a single transportation document. The rate is three -times higher when 
the obligation to present a single transportation document is introduced (79%). A similar pattern is 
also observed for LDCs with sea access: the underuti lization rate for PTAs that require a through bill 
of lading is 60% but only 39% when that requirement is removed.  
Graph 4: Under utilization rates (%) - PTAs with and without the obligation to present a 
single transportation document (a gricultural products  subject to the wholly -obtained 
origin criterion only, all PTAs)  
 
Source:  WTO Integrated  Database, 2019  
6.3 Another possible element to examine is the obligation to inform the name of a national 
consignee in the transportation documents. Only the PTAs of Canada and Norway contain these 
requirements. Interestingly, underutilization rates for both PTA s are higher when compared with 
others. Underutilization rates for Norway are significantly higher than those of the EU. This is true 
when agricultural goods subject to the wholly -obtained criterion are considered but is also true for 
all products (Norway and the EU ap ply almost identical origin criteria, so it is possible to broaden 
the range of products examined ). Similarly, underutilization rates for the Canadian PTA tend to be 
higher than those of the US schemes (AGOA and GSP), although the pool of products examined  is 
perhaps too narrow to draw general conclusions.  
                                                
6 The simple average of trade weighted PTA schemes was used to mitigate the effect of significantly 
different sizes of import flows. More specifically trade weighted underutilization rates  for individual PTA schemes 
were calculated and then the simple average between those schemes was used in the graph.  
7 The PTAs of Iceland, Montenegro, New Zealand, the Russian Federation (and other Members of the Euro -
Asian Economic Union), and Turkey cou ld not be included in the calculations. Document G/RO/W/163/Rev.6 
contains the latest list of PTAs for which import statistics has been notified to the WTO Secretariat.   39%60%
26%79%
0%10%20%30%40%50%60%70%80%90%
Obligation to present a single transport document No obligation to present a single transport
document
sea access landlockedG/RO/W/187  
 
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  7  CONCLUSION  
7.1 Despite the limitations regarding the type of information which can be inferred from import 
statistics, the calculation of utilization rates in this note offers a clear indication that dire ct 
consignment requirements have a significant influence on the ability of LDCs to utilize trade 
preferences – in particular that of landlocked LDCs. It would be ideal to refine the statistics available 
to identify with greater precision the share of consi gnments which are delivered directly and 
indirectly and, among those, the share of consignments which utilize preferences or are denied 
preferential market access . It would be ideal, in addition, to further this research to identify more 
specifically which  obligations and which flexibilities related to direct consignment have a strongest 
impact on preference utilization. Finally, it would be useful to clarify national requirements and fine -
tune the information available in the notifications made to the Secr etariat.   
  G/RO/W/187  
 
- 8 - ANNEX 1   
DIRECT CONSIGNMENT R ULES IN WTO MEMBERS'  NON-RECIPROCAL TRAD E PREFERENCES FOR LE AST DEVELOPED COUNTR IES (LDCS)  
 
Australia  Canada  Chile China  EU India Japan1 Rep. 
of 
Korea  New 
Zealand  Norway  Russia 
(EAEU)  Switzerland  Chinese 
Taipei  Thailand  Turkey  U.S.A 
(AGOA)  U.S.A 
(LDC)  
Direct 
consignment 
requirement   √ √ √  √ √ √ √  √  √ √  √ √ 
No alteration in 
transit   √ √ √ √ √ √ √  √ √ √ √ √ √ √ √ 
Customs control 
during transit   √ √ √ √ √ √ √  √ √ √  √ √ √ √ 
Goods must not 
enter the market 
of transit 
countries     √  √   √  √   √  √ √ 
Transit must be 
for geographical 
or transport 
reasons       √  √   √   √    
Through Bill of 
Lading (or "single 
transport 
document")   √2(U) √(U)   √ √*    √   √3*    
Bill of Lading      √*(U)         √* √*(U) √ √ 
Consignee in the 
importing 
country must be 
named   √        √        
Other 
transportation 
documents     √ √5*(U)       √*(U)   √5*(U) √ √ 
Certificate by 
customs 
authorities of 
transit country or 
other supporting 
documents    √(U) √5(U)  √ √* √   √ √*(U)  √* √(U √ √ 
Certificate of 
Origin     √6  √  √  √   √ √    
Commercial 
invoice     √  √   √(U)     √  √ √ 
Self-proof of 
direct shipment              √      
  G/RO/W/187  
 
- 9 -  
Australia  Canada  Chile China  EU India Japan1 Rep. 
of 
Korea  New 
Zealand  Norway  Russia 
(EAEU)  Switzerland  Chinese 
Taipei  Thailand  Turkey  U.S.A 
(AGOA)  U.S.A 
(LDC)  
Possibility to alter 
the goods to 
ensure their 
"good condition"   √ √ √ √ √    √ √ √  √ √ √ √ 
Possibility to 
display goods at 
exhibitions or 
fairs under 
customs control        √ √   √       
Goods may be 
stored during 
transit   √7 √ √7 √ √ √ √  √ √ √ √  √   
Consignments 
may be split 
during transit   √ √  √     √8  √   √   
Possibility to affix 
labels during 
transit      √       √      
Source:  Notifications to the WTO Committee on Rules of Origin (G/RO/LDC/N/).  
Notes:  
1 Documentary requirements do not apply to consignments under 200,000 yen.  
2 Or the house air waybill.  
3 Or an air waybill, or a through air waybill, or a multimodal or combined transportation document.  
4 Factual/concrete evidence based on marking/numbering of packages/any evidence related  to the goods.  
5 Not compulsory if Customs has obtained electronic data information of certified documents of tran sshipment.  
6 Not necessary if Customs has received the electronic data information for a CO.  
7 For a period not exceeding 6 months.  
8 Possible in the EU and Switzerland only, with a replacement of proof of origin.  
(U):  document to be provided upon request only  
"*":  the exporter or importer has a choice of which document to present.  
 
 
__________  