Legal status of duty drawbacks under FTAs/customs unions and WTO

What is it about?

Some FTAs/customs unions restrict the use of duty drawbacks which may work against WTO rules. The nature of international trade has changed dramatically. Today, intermediate goods account for nearly 60% of the world merchandise trade, with the import content of the average export amounting to 40%. Global value chains increase the importance of duty drawback—a common practice of refunding duties on imported inputs either incorporated in finished goods for export or re-exported in the same state. Despite their great role in promoting overseas sales of products, drawback programmes have been handled under regional trade agreements (RTAs) in different ways due to a divergence of opinion on their pros and cons. This article provides a legal assessment of drawback schemes as permitted and prohibited within preferential trade areas. The main conclusion is that the no-drawback rule contained in many RTAs can have negative implications for non-parties, lacks justification under World Trade Organization’s rules, and needs to be liberalized.

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Why is it important?

This was a hot issue in Korea-EU FTA negotiations and will possibly affect other RTAs too

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