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Rules of Origin as tools of development? Some lessons from SADC

Olivier Cadot, Antoni Estevadeordal, Akiko Suwa-Eisenmann, and Thierry Verdier

in The Origin of Goods: Rules of Origin in Regional Trade Agreements

Firm level interviews are used to assess the economic implications of the rules of origin (ROO) applied for trade to qualify under the Southern African Development Community (SADC) Trade Protocol. ... More

Firm level interviews are used to assess the economic implications of the rules of origin (ROO) applied for trade to qualify under the Southern African Development Community (SADC) Trade Protocol. Approaches to ROO reflect the tension between regional integration as a platform for improving competitiveness in international markets, and using it as a ‘policy tool for development’ to obtain privileged access to a larger protected market. The analysis of selected SADC ROO in agriculture and manufacturing shows that these will prevent efficiency gains from being realized by the Free Trade Area by maintaining the pre-Trade Protocol protection and trade patterns. ROO that seek to influence the sourcing of inputs through fiat will encourage trade diversion and reduce international competitiveness.Less

Rules of Origin for services: economic and legal considerations

Olivier Cadot, Antoni Estevadeordal, Akiko Suwa-Eisenmann, and Thierry Verdier

in The Origin of Goods: Rules of Origin in Regional Trade Agreements

Little analytical attention has so far been devoted to the issue of rules of origin in a services and investment context. This chapter wades into this largely uncharted territory by advancing a few ... More

Little analytical attention has so far been devoted to the issue of rules of origin in a services and investment context. This chapter wades into this largely uncharted territory by advancing a few thoughts on a range of economic and legal considerations arising from the way in which various agreements seek to determine and condition who gets to benefit from services trade and investment liberalization. It focuses on the practice of preferential and non-preferential services trade liberalization as found in various bilateral and regional trade and investment agreements as well as the World Trade Organization’s (WTO) General Agreement on Trade in Services (GATS). It addresses a range of conceptual issues relating to services trade that impinge upon the design and implementation of rules of origin for services. The discussion draws attention to a number of salient characteristics of trade in services that limit the usefulness of concepts and approaches to origin developed in the context of trade in goods. Attention is also drawn to a number of economic considerations that should inform the design of rules of origin for services trade to minimize the potentially adverse effects of trade and investment diversion, and maximize the economy-wide gains in allocative efficiency that well-designed services liberalization can entail.Less

Trade preferences for Africa and the impact of Rules of Origin

Olivier Cadot, Antoni Estevadeordal, Akiko Suwa-Eisenmann, and Thierry Verdier

in The Origin of Goods: Rules of Origin in Regional Trade Agreements

This chapter presents information on the utilization by the sub-Saharan African developing countries of EU, US, and Japanese trade preferences, and explores the reasons why rules of origin may ... More

This chapter presents information on the utilization by the sub-Saharan African developing countries of EU, US, and Japanese trade preferences, and explores the reasons why rules of origin may constrain the take-up of the preferences. Unlike previous studies, which have concentrated on the overall level of utilization of available preferences, the variations in the rate of utilization of preferences across beneficiaries and across the three developed-country preferential schemes are highlighted.Less

Mapping and measuring Rules of Origin around the world

Olivier Cadot, Antoni Estevadeordal, Akiko Suwa-Eisenmann, and Thierry Verdier

in The Origin of Goods: Rules of Origin in Regional Trade Agreements

This chapter breaks new ground in dissecting preferential trading arrangements (PTAs) by focusing on rules of origin (ROO), a crucial yet poorly understood market access discipline included in ... More

This chapter breaks new ground in dissecting preferential trading arrangements (PTAs) by focusing on rules of origin (ROO), a crucial yet poorly understood market access discipline included in virtually every PTA. It presents a global mapping of the existing ROO regimes, and puts forth an analytical coding scheme for the types of product-specific and regime-wide ROO employed in these regimes. The most immediate contribution of this chapter is to advance the understanding of the ROO regimes around the world, and provide analytical tools for empirical studies on ROO’s economic effects.Less

Preferential trade arrangements production, and trade with differentiated intermediates †

Olivier Cadot, Antoni Estevadeordal, Akiko Suwa-Eisenmann, and Thierry Verdier

in The Origin of Goods: Rules of Origin in Regional Trade Agreements

This chapter focuses on the difference between free trade agreements with rules of origin and customs unions. The first part develops a model to assess the trade and production in intermediate and ... More

This chapter focuses on the difference between free trade agreements with rules of origin and customs unions. The first part develops a model to assess the trade and production in intermediate and final goods under these two forms of preferential trading arrangements. The second part performs a cross-sectional econometric analysis of bilateral trade in finished motor vehicles and parts in the OECD area. The findings suggest that ROO can be an effective barrier against third-party suppliers of intermediate goods, and that the ‘border effect’ on trade is mitigated within customs unions.Less

Implementing PTAs in the Southern Cone region of Latin America: Rules of Origin

Olivier Cadot, Antoni Estevadeordal, Akiko Suwa-Eisenmann, and Thierry Verdier

in The Origin of Goods: Rules of Origin in Regional Trade Agreements

This chapter looks at the role of Rules of Origin in the implementation of Preferential Trade Agreements (PTAs) in the southern cone region of Latin America. It considers the (imperfect) Custom Union ... More

This chapter looks at the role of Rules of Origin in the implementation of Preferential Trade Agreements (PTAs) in the southern cone region of Latin America. It considers the (imperfect) Custom Union (CU) of Mercosur and the Free Trade Agreements (FTAs) signed between Mercosur and Chile, and Mercosur and Bolivia. These PTAs allow the study of the potential contrast in the design of ROOs under CU and FTA. The following key questions are addressed: Was there any significant difference in the design of ROOs under CU and FTAs? Were the latter more restrictive? To what extent did normative vis-à-vis political economy considerations play any role in the determination of ROOs in the Southern Cone?Less

Rules of Origin and US trade policy

Olivier Cadot, Antoni Estevadeordal, Akiko Suwa-Eisenmann, and Thierry Verdier

in The Origin of Goods: Rules of Origin in Regional Trade Agreements

Rules of origin (ROOs) in US free-trade agreements (FTAs) provide particularized benefits to industries like textiles and autos. In so doing, they have helped win Congressional approval of ... More

Rules of origin (ROOs) in US free-trade agreements (FTAs) provide particularized benefits to industries like textiles and autos. In so doing, they have helped win Congressional approval of controversial pacts like NAFTA (1993) and CAFTA (2005). ROOs are a form of hidden protection, reducing overall welfare, but they help US officials build winning coalitions for specific FTAs in the absence of a broad societal consensus in favor of trade liberalization.Less

Understanding Rules of Origin

Olivier Cadot, Antoni Estevadeordal, Akiko Suwa-Eisenmann, and Thierry Verdier

in The Origin of Goods: Rules of Origin in Regional Trade Agreements

This chapter surveys recent work on the economic effects, both theoretical and empirical, of Rules of Origin (ROO) in a Free Trade Area (FTA).

Rules of Origin as export subsidies †

Olivier Cadot, Antoni Estevadeordal, Akiko Suwa-Eisenmann, and Thierry Verdier

in The Origin of Goods: Rules of Origin in Regional Trade Agreements

This chapter estimates the effect of NAFTA’s rules of origin (ROO) on Mexican access to the US market, treating ROO as politically-determined. Econometric estimates of bilateral disaggrated trade, ... More

This chapter estimates the effect of NAFTA’s rules of origin (ROO) on Mexican access to the US market, treating ROO as politically-determined. Econometric estimates of bilateral disaggrated trade, with tariff preference and endogenous ROO as determinants, suggest that the creation of a captive market for upstream US intermediate-good producers is indeed one of the political determinants of NAFTA.Less

Are different Rules of Origin equally costly? Estimates from NAFTA †

Olivier Cadot, Antoni Estevadeordal, Akiko Suwa-Eisenmann, and Thierry Verdier

in The Origin of Goods: Rules of Origin in Regional Trade Agreements

Using data on the preference and utilization rates of NAFTA for Mexican exports to the United States in 2001, this chapter proposes a method to estimate the likely costs of different Rules of Origin ... More

Using data on the preference and utilization rates of NAFTA for Mexican exports to the United States in 2001, this chapter proposes a method to estimate the likely costs of different Rules of Origin (ROO) for final and intermediate goods, and compares these results with those obtained using the synthetic index proposed by Estevadeordal (2000). Econometric results indicate that changes in tariff classification are more costly for final goods than for intermediate ones, and that technical requirements are the most constraining. For activities subject to regional value content minima, illustrative simulations are carried out to indicate what tariff preference margin would be necessary to compensate for the import content minima. Cost estimates suggest that, at least in the case of NAFTA, preferential market access is quite small, leading to speculations that these conclusions may carry over to other North-South preferential schemes.Less

Introduction

Olivier Cadot, Antoni Estevadeordal, Akiko Suwa-Eisenmann, and Thierry Verdier

in The Origin of Goods: Rules of Origin in Regional Trade Agreements

This introductory chapter begins with an overview of the regionalism debate in the light of a rising globalization of the production process. It argues that depending on their design, preferential ... More

This introductory chapter begins with an overview of the regionalism debate in the light of a rising globalization of the production process. It argues that depending on their design, preferential trade arrangements have the power to boost or hamper the development of ‘regional production networks’ and rules of origin are a key element. The theory of rules of origin (ROO) is briefly recalled and introduces a short presentation of the four parts of the book: theoretical perspectives, the complexity of ROO, ROO and special interests, and measuring their impacts.Less

The impact of Rules of Origin on strategic outsourcing: an IO perspective

Olivier Cadot, Antoni Estevadeordal, Akiko Suwa-Eisenmann, and Thierry Verdier

in The Origin of Goods: Rules of Origin in Regional Trade Agreements

This chapter considers the impact of Rules of Origins (ROOs) on two aspects of the international production fragmentation process. First, in an imperfect competitive environment with ‘strategic ... More

This chapter considers the impact of Rules of Origins (ROOs) on two aspects of the international production fragmentation process. First, in an imperfect competitive environment with ‘strategic outsourcing’ by firms, ROOs can fullfill the function of a commitment device to be more or less aggressive in the process of international fragmentation. Second, in a context when firm-suppliers relationships are characterized by some degree of contract incompleteness, ROOs may have important implications for the incomplete contractual problems existing between downward foreign firms and potential suppliers, especially by the way they influence the outside options of the concerned parties. ROOs in such a case can be effective even without been observed as binding in equilibrium. Normative and policy implications are derived.Less

Global and Regional Institutions and the Regulation of Trade

Christel Lane and Jocelyn Probert

in National Capitalisms, Global Production Networks: Fashioning the Value Chain in the UK, US, and Germany

This chapter shows how trade regulations and the global and regional institutions within which they are framed have distinctively shaped the textile and clothing industry for almost fifty years. It ... More

This chapter shows how trade regulations and the global and regional institutions within which they are framed have distinctively shaped the textile and clothing industry for almost fifty years. It reviews the quantitative restrictions imposed by the Multi-Fibre Arrangements (MFA) and the Agreement on Textiles and Clothing (ATC) until their expiry on 31 December 2004; the principal agreements on preferential access that govern tariff rates between the US or the EU on the one hand and their T/C trading partners on the other; and the highly complex pattern of rules of origin that shape the flow of component parts along the various stages of the clothing value chain.Less

Harmonization of Rules Relating to Tariffs

Junji Nakagawa

in International Harmonization of Economic Regulation

This chapter analyzes international harmonization of rules relating to tariffs, comprising tariff classification, tariff evaluation and rules of origin. It traces its history in each regulatory area ... More

This chapter analyzes international harmonization of rules relating to tariffs, comprising tariff classification, tariff evaluation and rules of origin. It traces its history in each regulatory area from European initiatives in the mid-19th century to ongoing harmonization work conducted by the WTO and WCO (World Customs Organization) in the present. A major focus is on efforts to reconcile regulatory differences between Europe and the US and to coordinate the works of the GATT/WTO and the CCC (Customs Cooperation Council)/WCO.Less

The Proliferation of FTAs and Prospects for Trade Liberalization in East Asia

Yung Chul Park and Inkyo Cheong

in China, Asia, and the New World Economy

This chapter analyzes the causes and possible consequences of proliferation of bilateral FTAs, focusing on the case of East Asia. It attempts to find clues as to whether the bilateral FTAs in East ... More

This chapter analyzes the causes and possible consequences of proliferation of bilateral FTAs, focusing on the case of East Asia. It attempts to find clues as to whether the bilateral FTAs in East Asia that are completed or under discussion could be building or stumbling blocks for regional as well as global trade integration. Section 4.2 discusses some of the factors behind the increase in bilateral FTAs. Section 4.3 is devoted to an analysis of economic effects of the proliferation of FTAs. Section 4.4 examines the quality of East Asia's FTAs in terms of the coverage of tariff elimination and rules of origin. Section 4.5 discusses consequences of the proliferation of FTAs in East Asia. It is argued that for a number of institutional constraints, the proliferation is not likely to lead to the creation of a single East Asian FTA.Less

The New Regionalism

Richard Pomfret

in The Economics of Regional Trading Arrangements

Analyses the new regionalism that emerged in the mid‐1980s. By downplaying the significance of trade diversion and emphasizing scale‐based and pro‐competitive benefits of integration, the new ... More

Analyses the new regionalism that emerged in the mid‐1980s. By downplaying the significance of trade diversion and emphasizing scale‐based and pro‐competitive benefits of integration, the new regionalism had a more positive vision of RTAs than mainstream customs union theory had. Section 1 introduces economies of scale and imperfect competition. Section 2 analyses non‐tariff barriers to trade. Section 3 covers ‘new areas’ of foreign investment, competition policy, and monetary integration, which had not featured in mainstream customs union theory. Section 4 deals with rules of origin, which had emerged as a major trade policy issue in the 1980s and 1990s.Less

Do Rules of Origin in Free Trade Agreements Comply with Article XXIV GATT?

José Antonio Rivas

in Regional Trade Agreements and the WTO Legal System

This chapter examines whether rules of origin in free trade agreements (FTA) are in compliance with Article XXIV of the General Agreement on Tariffs and Trade (GATT). It argues that FTA rules of ... More

This chapter examines whether rules of origin in free trade agreements (FTA) are in compliance with Article XXIV of the General Agreement on Tariffs and Trade (GATT). It argues that FTA rules of origin qualify as ‘other regulations of commerce’ (ORC) and should therefore satisfy the conditions for ORC set forth in Article XXIV. It discusses the distinction between rules of origin that are overly restrictive and neutral rules of origin which do not add an extra and unlawful layer of protection to the already permitted tariff differentials between the Most Favoured Nation (MFN) tariffs and the FTA tariffs.Less

Managing the Spaghetti Bowl of Trade Agreements

A. Estevadeordal and K. Suominen

in The Sovereign Remedy?: Trade Agreements in a Globalizing World

This chapter focuses on the concerns laid out in Chapter 5 and puts forth ways of managing them. It finds that there are both theoretical and empirical reasons to believe that the PTA spaghetti bowl ... More

This chapter focuses on the concerns laid out in Chapter 5 and puts forth ways of managing them. It finds that there are both theoretical and empirical reasons to believe that the PTA spaghetti bowl does present problems and transactions costs to the member economies and companies operating in the agreements tangle. One and perhaps the politically most feasible solution to the PTA tangle is convergence, a process by which the various existing PTAs become connected to each other. The prospects for convergence vary across sub-sets of PTAs and across economic sectors. There are clear PTA families centered around the United States, EU, and Mexico, in particular, wherein attaining convergence might be easiest. Any convergence drive would, however, require the members to define the scope of their effort and the stakeholders that will have to be involved, and, importantly, guarantee complementarities with the WTO system.Less

Intricate Designs: The Architecture of Trade Agreements

A. Estevadeordal and K. Suominen

in The Sovereign Remedy?: Trade Agreements in a Globalizing World

This chapter dissects the structure of the PTAs, examining some five dozen agreements by their various component parts, such as tariff liberalization, investment rules, and customs procedures. It ... More

This chapter dissects the structure of the PTAs, examining some five dozen agreements by their various component parts, such as tariff liberalization, investment rules, and customs procedures. It concludes that most PTAs involve deep tariff liberalization, freeing 90% of products by the tenth year into the agreement. However, there are a number of outlier PTA parties (in general developing countries) and product categories (particularly sensitive sectors, such as agriculture, textiles and apparel, and footwear) that feature prolonged tariff phase-outs and/or non-tariff barriers. Some countries also trail the general patterns when the actual trade liberalized is being analyzed. Furthermore, a PTA contains such mutually reinforcing provisions as tariff lowering, investment, services, competition policy, government procurement, and trade facilitation, and often spells out these rules with great precision. There are marked variations across PTAs in the coverage of trade-related disciplines; yet, the analysis also shows that PTAs tend to cluster into distinct ‘families’ by the main world regions — Asia, Europe, and the Americas — and, in particular, by some global trade hubs, such as the United States, EU, and Singapore.Less