   
  
G/RO/W/161/Rev.1  
 
29 September  2023 
(23-6563) Page: 1/6 
Committee on Rules of Origin    
 
 
MODALITIES FOR THE CALCULATION OF "PREFERENCE UTILIZATION"  
NOTE BY THE SECRETARIAT1 
Revision  
The 2015 Nairobi Ministerial Decision ( WT/L/917/Add.1 ) on rules of origin for least developed 
countries (LDCs)  mandates the Committee on Rules of Origin (CRO) to agree on modalities for the 
calculation of  utilization  rates (Paragraph  4.3). These modalities have been agreed to by Members 
in 2016-2017 (item 3.3 in G/RO/M/67  and item 4.4 in G/RO/M/68 ). This revised note updates a 
previous one prepared by the Secretariat which assist ed Members  in these  discussions.  It reflects 
methodological issues which have been recently raised in the CRO in relation to the calculation of 
utilization rates.  
 
1  DEFINING  PREFERENCE  UTILIZATION FOR PURPOSES OF THE WORK OF THE CRO  
1.1.  There are many possible definitions of the term "prefere nce utilization". For example, utilization 
of trade preferences can be understood more generally as the ability of beneficiary countries to 
increase exports, attract productive investments, create jobs and increase income. According to this 
macro definitio n, successful beneficiaries would be those  that "actively us e preferences"  to leverage 
economic development2. Under this definition, factors that impede preferences from fully deploying 
their benefits include for example  the absence of trade -related infrastructure, lack of resources, the 
lack of a clear export strategy,  or also lack of knowledge at the firm level among other reasons .3 
1.2.  This general understanding of "preference utilization" is relevant . It seeks to answer the 
question : "to what extent are strategies in place to actively utilize trade preferences available and 
to promote economic development?" . However, this definition  is not specific enough to guide the 
work of WTO Members in the Committee on Rules of Origi n (CRO). The answer the  work of the CRO 
seeks to address is "to what extent are the applicable rules of origin and origin requirements 
facilitating or hindering the utilization of such preferences?".  
1.3.  For this reason, in the context of the work of the CRO, a more specific definition is needed. 
"Preference utilization" can be described simply as the extent to which trade flows  which are eligible 
for trade preferences are  in practice  imported under these preferences  rather than under Most 
Favoured Nation (MFN)  conditions . In more technical terms,  the preference utili zation rate is the 
amount  of imports which are granted a preferential tariff on entry, as a proportion of the total value 
of imports which may be eligible for a preferential tariff.  Utilization rates therefore speak to the 
capacity of economic operators to actually seize market  access  opportunities  which  are available  to 
them through  reciprocal  or non-reciprocal  preferences.  
 
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.  
2 This is the understanding taking in articles such as " AGOA Utilization 101 ", Mwangi S. Kimenyi, 
23 March  2015.  https://www.brookings.edu/articles/agoa -utilization -101/ (accessed 28 July 2023)  or "African 
Growth and Opportunity Act: Program usage, trends, and sectoral highlights ", Landry Signé, 1 August 2022.  
https://www.brookings.edu/artic les/african -growth -and-opportunity -act-program -usage -trends -and-sectoral -
highlights/  (accessed 28 July 2023) . 
3 Here's why US -Africa trade under AGOA has been successful for some countries but not others, 
Landry  Signé, 11 July 2023.  https://www.brookings.edu/articles/heres -why-us-africa -trade-under -agoa-has-
been-successful -for-some -countries -but-not-others/  (accessed 28 July 2023)  G/RO/W/161/Rev.1  
 
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  1.4.  This definition enables the identification of trends in trad e flows and hence offers an indicator 
about the impact that rules of origin and origin requirements have on the ability of businesses to 
tap into preference programmes.  
2  UTILIZATION  RATES  AS A TOOL TO EXAMINE  RULES  OF ORIGIN  
2.1.  If a tariff preference is available, it would seem paradoxical that economic operators would pay 
MFN duties instead of utilizing trade preferences. This choice or incapacity to use preferences could , 
nevertheless, be explained by a variety of reasons, one of which relates to the design of rules of 
origin and origin -related documentary requirements . In fact, the granting of trade preferences 
requires compliance with specific conditions. In practice, a  good must simultaneously satisfy three 
requirements:  
(i) A good must be wholly obtained in the beneficiary country or comply with minimum substantial 
transformation requirements (that is, satisfy general or product -specific rules of origin);  
(ii) a good m ust demonstrate compliance with such requirements by being accompanied by the 
prescribed proof of origin (namely, a certificate of origin delivered by a designated competent 
authority or certifying body, or a self -declaration of origin); and  
(iii) a good m ust in principle be directly consigned from the beneficiary country to the preference 
granting country to avoid any risks of further manipulation in third or transit countries or, in 
case of transit, goods must satisfy the prescriptions in relation to docu mentary evidence about 
non-manipulation (or non -alteration) in transit.  
2.2.  Only when all three requirements are met will the preferential tariff rate be granted by the 
customs authorities of the preference -granting, importing party . 
2.3.  It is for this reason that  utilization rates have been proposed as a useful indicator to monitor 
and assess the effectiveness of preferences in general and of preferential rules of origin in particular4. 
The full utilization of a preference indicates that all import requirements w ere met: the rule of origin 
and other origin requirements were fully complied with. Conversely, the non -utilization of a 
preference indicate s that the importer either chose not to claim a preference or was unable to meet 
all the requirements  to claim it . As a resul t, this  could be an indicator  that the applicable origin 
requirements are either too stringent or not well understood . 
2.4.  It should be noted, nonetheless, that there are also limitations to the use of utilization rates as 
a tool to examine the impact  of rules of origin. In fact, utilization rates could be low for reasons 
which are not necessarily related to the design of a rule of origin or its administrative requirements. 
Common explanations include that the  economic operator is not aware that a preference is available 
or that the operator prefer s to pay MFN duties because the preferential margin is not  sufficiently  
attractive (that is, the preferential margin does not work as an incentive to use the preferences)  to 
cover the costs related to fulfil o rigin requirements . 
2.5.  Another explanation for low utilization rates is that imports are receiving tariff preferences 
under other available preferential schemes . If multiple preferences are available, economic operators 
may opt for the scheme that offer s equivalent or greater preferential advantages. For example, they 
might prefer  to use a  reciprocal regional trade agreement (RTA) instead of a non-reciprocal 
preferential trade agreement (PTA) due to better knowledge about the requirements, or a more 
attractive  preferential margin or less restrictive rules of origin.  The same reasoning applies when  
other tariff concessions are available, such as temporary tariff co ncessions or duty drawback 
schemes.  
2.6.  It is for this reason that the WTO Secretariat has proposed to complement the analysis of 
utilization rates with that of "non -utilization" or "underutilization".5 Underutilization rates 
demonstrate the extent to which t rade occurs under MFN conditions, even though imports would be 
 
4 For instance, a communication of the LDC Group reported the utilization for preferential exports from 
LDCs to Canada; the EU; Japan; and the US and examined extensively h ow rules of origin could be impacting 
utilization rates (document G/RO/W/148 ). 
5 See as well G/RO/W/185 , G/RO/W/1 87, G/RO/W/187/Rev.1 , G/RO/W/203 , G/RO/W/204 , 
G/RO/W/212 . G/RO/W/161/Rev.1  
 
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  eligible for one or more preferences. Therefore, "non -utilization" or "underutilization" rates offer a 
complementary tool to identify areas in which origin requirements could have a restrictive  impact.  
2.7.  In sum, rules of origin have a direct impact on the ability of traders to use trade preferences. 
Utilization rates are therefore a useful tool to assess the appropriateness or the restrictiveness of 
rules of origin requirements. However, since oth er factors may also influence the ability of producers 
to export under trade preferences, no definite conclusions can be drawn from utilization rates alone.  
3  CALCULATION  METHODOLOGIES  
3.1.  Preference utilization is the proportion  of imports which actually receiv e preferential tariff  
treatment when  imported  out of the total imports which could benefit from any tariff preference . 
Because the utilization rate is a ratio  of many transactions within a given time period , it is expressed 
as a percentage value between 0 and 100. Generally, however, not all imports necessarily qualify 
for preferences; hence utilization rates should consider only trade which would be, all conditions 
being met, eligible to receive preferential treatment.  This information is compiled by custo ms, based 
on the treatment granted to importers at the moment of importation.  
3.2.  There are different possible methodologies to calculate preference utilization rates. Below is a 
description of some of the main possible calculation methodologies6: 
(a) The first option is to base Preference utilization rates ( purvalue) on the " reported value" of 
preferential imports : that is, the value  of those imports that have reportedly benefited from 
a preferential duty scheme as a proportion of imports on tariff lines eligible for preferential 
duty treatment. This method sheds light on the utilizati on of individual preference programmes  
and disregards the availability of other tariff preferences . Tariff lines with a zero MFN duty 
rate are excluded from the calculations , as a preferential scheme does not offer any additional 
advantages for these lines . 
Members agreed to use this methodology to calculate the rates of utilization of individual 
preference programmes in the context of the CRO.  
𝑝𝑢𝑟𝑖𝑣𝑎𝑙𝑢𝑒=∑∑𝑃𝑇𝐴𝑖,𝑗,𝑝𝑟𝑒𝑝𝑜𝑟𝑡𝑒𝑑
𝑝 𝑗
∑∑𝑃𝑇𝐴𝑖,𝑗,𝑝𝑒𝑙𝑖𝑔𝑖𝑏𝑙𝑒
𝑝 𝑗 
𝑝𝑢𝑟𝑖𝑣𝑎𝑙𝑢𝑒: PREFERENCE UTILIZATION RATE (%) based on import value  (or quantity)  by preference granting 
Member  
where:  i 
j = preference granting Member  
= preference receiving Member  
 P = product  
 PTAreported = imports reported to have taken place under the PTA preferential duty scheme  
 PTAeligible = imports under any eligible tariff line, i.e. preferential duty < MFN duty rate.  
 
(b) A second option could be to base preference utilization rates ( purvalue) on the sum of 
"reported value" of imports under both PTA and other  preferential schemes  (either 
Regional Trade Agreement s (RTAs) or other temporary or special tariff concessions ). This 
methodology compares the amount of imports that have benefited from a tariff preferen ce 
with the amount of imports that would be eligible for preferences under any existing scheme . 
This methodology takes into account the existence of any preferential tariff opportunity and 
does not focus on  a single scheme. T ariff lines with a zero MFN duty rate are excluded from 
calculations , as a preferential scheme does not offer any additional advantage for these lines.  
This formula has the advantage of considering tariff preferences received under any 
preferential scheme available. It offers a more comprehensive view of the benefits being 
received by LDCs. However, it could lead to wrong assumptions about the utilization of 
individual preference programmes.  
 
6 Other methodologies are possible, including, for instance, one based on customs duties paid 
(described in paragraph 3.2(b) of G/RO/W/161 ). For a more general discussion, see A. Keck, and A. Lendle, 
(2012) "New evidence on preference utilization", WTO Staff Working Paper ERSD -2012-12, revise d for the 
Journal of International Economics.  G/RO/W/161/Rev.1  
 
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  𝑝𝑢𝑟𝑖𝑣𝑎𝑙𝑢𝑒=∑∑𝑃𝑇𝐴𝑖,𝑗,𝑝𝑟𝑒𝑝𝑜 𝑟𝑡𝑒𝑑+𝑂𝑡ℎ𝑒𝑟𝑠𝑖,𝑗,𝑝𝑟𝑒𝑝𝑜𝑟𝑡𝑒𝑑
𝑝 𝑗
∑∑𝑃𝑟𝑒𝑓𝑒𝑟𝑒𝑛𝑐𝑒𝑖,𝑗,𝑝𝑒𝑙𝑖𝑔𝑖𝑏𝑙𝑒
𝑝 𝑗 
𝑝𝑢𝑟𝑖,𝑝𝑣𝑎𝑙𝑢𝑒: PREFERENCE UTILIZATION RATE (%) based on import value  (or quantity)  by preference granting 
Member  
where:  i 
j = preference granting Member  
= preference receiving Member  
 p = product  
 PTAreported  
Othersreported = imports reported to have taken place under the PTA preferential duty scheme  
= imports reported to have taken place under other preferential duty scheme  
 Preferenceeligible = imports under any eligible tariff line, i.e. preferential duty < MFN duty rate.  
 
(c) Finally, one approach which avoids the shortcomings of the methods described above is 
one which focuses on "non -utilization" or "under -utilization" instead of utilization. The 
underutilization rate corresponds to eligible trade entering under  the Most Favored Nation 
(MFN) status  despite being available for preferential treatment under any avail able scheme : 
 
𝑝𝑢𝑢 𝑟𝑖𝑣𝑎𝑙𝑢𝑒=∑∑𝑀𝐹𝑁𝑖,𝑗,𝑝𝑝𝑟𝑒𝑓  𝑒𝑙𝑖𝑔𝑖𝑏𝑙𝑒
𝑝 𝑗
∑∑𝑃𝑟𝑒𝑓𝑒𝑟𝑒𝑛𝑐𝑒𝑖,𝑗,𝑝𝑒𝑙𝑖𝑔𝑖𝑏𝑙𝑒
𝑝 𝑗 =1− ∑∑𝑃𝑇𝐴𝑖,𝑗,𝑝𝑟𝑒𝑝𝑜𝑟𝑡𝑒𝑑+𝑂𝑡ℎ𝑒𝑟𝑠𝑖,𝑗,𝑝𝑟𝑒𝑝𝑜𝑟𝑡𝑒𝑑
𝑝 𝑗
∑∑𝑃𝑟𝑒𝑓𝑒𝑟𝑒𝑛𝑐𝑒𝑖,𝑗,𝑝𝑒𝑙𝑖𝑔𝑖𝑏𝑙𝑒
𝑝 𝑗 
𝑝𝑢𝑢 𝑟𝑖,𝑝𝑣𝑎𝑙𝑢𝑒: PREFERENCE UNDERUTILIZATION RATE (%) based on import value by preference granting Member  
where:  i 
j = preference granting Member  
= preference receiving Member  
 p = product  
 PTAreported  
Othersreported  
MFNpref eligible  = imports reported to have taken place under the PTA preferential duty scheme  
= imports reported to have taken place under other preferential duty scheme s. 
= imports under any eligible tariff line, i.e., preferential duty < MFN duty rate 
that are reported to  have taken place  under the Most Favored Nation (MFN) 
status.  
 Preferenceeligible = imports under any eligible tariff line, i.e. preferential duty < MFN duty rate.  
 
3.3.  In sum, using both the rates of utilization of individual preferential schemes and the rates of 
"non-utilization" of any available scheme offer advantages and disadvantages. As a result, both 
methods of calculation are complementary and can be usefully combined to identify schemes, sectors 
or products for which rules of origin could be hinde ring preferential market access for LDCs . 
4  DATA  NOTIFICATION AND LIMITATIONS  
4.1.  A corollary for the calculation of utilization rates (irrespective of the method chosen) is the 
availability of complete data sets describing trade between preference -granting Members and 
beneficiary LDCs. In fact, data available with the WTO Secretariat is based on Members' annual 
notification of tariff and trade data (imports) in compliance with the Transparency Mechanism for 
Preferential Trade Agreements ( PTA), established by General Council Decision on 14 December 2010 
(WT/L/806 ). Members shall notify, on an annual basis7:  
(a) Applied MFN import tariffs at the national customs tariff nomenclature (at the most detailed 
level, for example HS codes with 8, 9, or 10 dig its, as normally applied by the Member's 
customs administration);  
(b) Import statistics in the same national tariff nomenclature as the corresponding MFN applied 
tariffs for the same year (i.e. same HS version and with the same level of disaggregation), 
including value (in USD or national currency) and volume (quantity and unit), by country of 
origin and by tariff line;  
(c) Data elements required by the Transparency Mechanism for Preferential Trade Arrangements8, 
which include:  
(i) Preferential applied ta riffs and import statistics, for preferences by developed countries 
to developing and least -developed countries in accordance with the Generalized System 
of Preferences (GSP)9, including the list of countries or separate customs territories on 
which they apply.  
 
7 See G/MA/367 , paragraph 1.1 . 
8 See WT/L/806 , Section D, paragr aphs 15 -17, and Annex 1.  
9 Paragraph 2(a) of the Enabling Clause.  G/RO/W/161/Rev.1  
 
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  (ii) Preferential applied tariffs and import statistics, in case of preferential treatment 
accorded by any Member to products of least -developed countries, including the list of 
countries or separate customs territories on which they apply.  
(iii) Preferential applied tariffs and import statistics, in case of non -reciprocal preferential 
arrangements authorised under the WTO Agreement, including the list of countries or 
separate customs territories on which they apply.  
4.2.  In addition,  Members are encoura ged10 to submit comprehensive applied tariff and import 
information, to the extent possible and particularly when the information is already publicly available 
in a national website, by notifying the following information:  
(a) Applied non -MFN tariffs, including : 
(i) Preferential tariffs applied in the context of regional trade agreements (for example free 
trade agreements or customs unions), including arrangements under Article XXIV of the 
GATT 1994 and Paragraph 2(c) of the Decision on "Differential and More Fa vourable 
Treatment Reciprocity and Fuller participation of Developing countries" (Enabling 
Clause)11. The submission should include list of countries or separate customs territories 
covered by each of these agreements; and  
(ii) Other applied non -MFN tariffs, for example tariffs applied on imports originating in 
non-WTO Members, if applicable, including the list of countries or separate customs 
territories on which they apply.  
(b) Preferential import statistics under regional trade agreements (for exam ple free trade 
agreements or customs unions), including arrangements under Article XXIV of the GATT 1994 
and Paragraph 2(c) of the Enabling Clause. They should include the value (in USD or national 
currency) and volume (i.e. quantity and unit), disaggregat ed by country of origin, by tariff 
line, and by the duty regime under which each product was imported. The statistics should 
distinguish at the tariff line level, and for each of the beneficiary partners, the imports entered 
under MFN conditions from the i mports entered under preferential conditions.  
(c) Ad valorem  equivalents (AVEs) of non -ad valorem  (NAV) duties, as calculated by the Member.  
(d) Applied internal taxes and other duties and charges (ODCs), when available at the tariff line 
level.  
(e) Import s or proportion of imports (value and volume) under tariff rate quotas (TRQs) for each 
identified tariff line associated with the relevant TRQ, in particular in case the in -quota and 
out-of-quota imports are recorded under the same tariff line code. In cas e the data 
corresponds to a bound TRQ, the TRQ identification (TQ ID) as contained in the CTS.  
4.3.  This information should include a list of countries or separate customs territories covered by 
each agreement and preferential import statistics, such as value a nd volume (quantity and unit) of 
imports, disaggregated by country of origin, tariff line, and duty regime. It is crucial to distinguish 
imports entered under Most Favored Nation (MFN) scheme from those under preferential schemes 
at the tariff line level f or each beneficiary partner. While the practice is not compulsory, Members 
are encourage d to submit comprehensive data, including tariff lines entering regional trade 
agreements, to avoid any potential inconsistencies in calculating preference utilization rate and 
preference underutilization rate.  
4.4.  Second, the preference regime notified to the WTO by some Members might be  the duty 
scheme as  "requested" or "claimed" by economic operators (e.g. importers), not necessarily the 
scheme  actually applied after cust oms clearance.  As a result, figures for preferential trade may be  
somewhat  overestimated.  
 
10 Paragraph 1.2  of G/MA/367   
11 Decision of 28 November 1979, GATT document L/4903 . Paragraph 2(c) provides that: "Regional or 
global arrangements entered into amongst [developing country Members] for the mutual reduction or 
elimination of tariffs and, in accordance with criteria or conditions which ma y be prescribed by the 
CONTRACTING PARTIES, for the mutual reduction or elimination of non -tariff measures, on products imported 
from one another".  G/RO/W/161/Rev.1  
 
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  4.5.  Third, data may also be impacted by variations of duty rates during the year. In fact, Members' 
import data notifications to WTO IDB are annual and would not capture temporary variations . 
This may be particularly important if seasonal duties or tariff rate quotas are applied.  
4.6.  Lastly, the comparison between preferential and MFN duties may also be affected if a  
non-ad valorem duty is used.  In such cases, the conversion into ad valorem equivalents is  
necessary.12 
5  ACCESSING  UTILIZATION  RATES  THROUGH  WTO TOOLS  
5.1.  The WTO Secretariat provides access to preferential import data to Members and authorized 
users through its Tariff Analysis Online porta l (http://tao.wto.org ). The enhanced functionality of the 
tariff line report allows to consult import data for preferential trade arrangements (as notified to the 
Secretariat following the adoption of the PTA Transparency Mechanism outlined in document 
WT/L/806 ). Aggregated summary s tatistics can be consulted on the PTA online database 
(http://ptadb.wto.org ). Both online resources provide access to preferential import data in 
accordance with the "Decision on the Mod alities and Operation of the Integrated Database" adopted 
by the Committee on Market Access (see document G/MA/367 ). 
5.2.  As PTA preference granting Members are subject to notify detailed import statistics by tariff 
line, it is possible to calculate preference utiliza tion rates for each PTA notified by Members using 
simply the methodology described in paragraph 3.2(a) above.  
__________  
 
12 A detailed explanation of non -ad valorem  duties and their conversion can be found in the 
WTO Secretariat N ote in document TN/MA/20 . 