Are Rules of Origin Building Regional Value Chains or Constraining Them?
This is the industrial-policy question at the heart of the debate. Rules of Origin can be viewed narrowly as mechanisms for preventing products from outside a free-trade area from entering through the lowest-tariff member and receiving preferential treatment.
But they can also perform a much broader economic function. If preferential treatment depends on the use of qualifying inputs or sufficient transformation within Africa, demand for African intermediate goods can increase.
A garment factory sourcing fabric from another African country creates demand for regional textile production. A textile mill sourcing yarn regionally creates demand for spinning capacity. A spinner sourcing cotton from another African country creates demand for African fibre. In this way, Rules of Origin can potentially help transform a continental tariff agreement into a network of interconnected production systems. This is the concept of cumulation, allowing qualifying production or inputs from participating countries to be considered within the originating framework under applicable rules.
Recent UNCTAD research highlights the potential importance of cumulation for regional value chains in Sub-Saharan Africa, including textiles and apparel. The research finds that these value chains could expand if firms are better able to source inputs regionally and meet origin requirements, while also emphasizing that transport costs, administrative burdens, infrastructure constraints and limited awareness can undermine regional sourcing.
But the reverse is also possible. If origin requirements are difficult to understand, costly to document, poorly administered or disconnected from actual African productive capacity, firms may decide that using the preference is not worth the administrative burden.
UNCTAD has warned that overly complex or costly Rules of Origin can cause firms to forego preferences altogether. It has also emphasized that the design and implementation of origin rules can influence the development and depth of African regional value chains.
This produces a critical policy tension. Rules need to be strong enough to encourage genuine African production, but practical enough for African manufacturers to use. The objective should be to maximize the amount of productive capacity, regional sourcing, and value addition generated by preferential access.