rules of origin in the world trading system antoni estevadeordal kati suominen integration, trade...
TRANSCRIPT
![Page 1: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/1.jpg)
Rules of Origin in the World Trading System
Antoni Estevadeordal
Kati Suominen
Integration, Trade and Hemispheric Issues Division
Integration and Regional Programs Department
Inter-American Development Bank
PREPARED FOR THE SEMINAR ON
REGIONAL TRADE AGREEMENTS & THE WTO
WORLD TRADE ORGANIZATION
NOVEMBER 2003
![Page 2: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/2.jpg)
Facilitating or hindering trade: the role of rules of origin in RTAs
I. Rules of Origin: Key Issues
II. (a) Product-Specific Rules of OriginII. (b) Regime-Wide Rules of Origin
III. (a) Measuring Restrictiveness of Product-Specific RoOIII. (b) Constructing a Facilitation Index of Regime-Wide
RoO
IV. Empirical Analysis to Evaluate the Impact of RoO
V. Policy Conclusions: Is Harmonization the Key to Mitigating RoO’s Negative Effects?
![Page 3: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/3.jpg)
Rules of Origin: Key Issues
![Page 4: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/4.jpg)
• Two types of RoO: non-preferential and preferential• The justification for preferential RoO is to ensure
that non-members do not obtain access to regional preferences (avoid trade deflection)
• However, RoO can be a powerful trade policy instrument:– RoO’s effects in the S/R different than in the L/R– RoO can fully insulate an industry from the consequences
of an FTA– RoO can protect intermediate good producers by
favoring intra-PTA supply links– RoO can be used to attract investment in strategic sectors– Very limited theoretical and empirical work
• Details matter a lot!
Objectives of RoO
![Page 5: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/5.jpg)
Rules of Origin and WTO
• Non-Preferential Rules of Origin are being harmonized under Uruguay Round Agreements
• Preferential Rules of Origin would be a key element of discussion under Doha mandates on Regional Agreements (Rules Negotiations):
“We also agree to negotiations aimed at clarifying and improving disciplines and procedures under the existing WTO provisions applying to regional trade agreements. The negotiations shall take into account the developmental aspects of regional trade agreements.”
![Page 6: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/6.jpg)
Product-Specific RoO
![Page 7: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/7.jpg)
• Wholly obtained or producedWhere only one country enters into consideration in attributing origin
• Substantial transformationWhere two or more countries have taken part in the production process
– Change in Tariff Classification (CTC)Requires the product to change its HS tariff heading, chapter, heading, sub-heading, or item in the originating country
– Import Content Rule (MC) or Regional Value Content (RVC)Requires a MIN % of local value added in the originating country (or a MAX % of value originating in non-member countries)
– Technical Requirement (TECH)Prescribes that the product must undergo specific manufacturing
processing operations in the originating country
Types of Product-Specific RoO
![Page 8: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/8.jpg)
Source: World Trade Organization (2002).
Frequency of Various Product-Specific RoO Criteria
![Page 9: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/9.jpg)
• The product-specific RoO of the EU’s PANEURO system cover more than 65 PTAs, both across Europe and in EU’s recent extra-regional PTAs with Mexico, Chile, and South Africa
• PANEURO model mainly combines CTC (usually CH) with RVC and/or TECH
Product-specific RoO in Europe
![Page 10: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/10.jpg)
Four RoO families can be identified:
1. LAIA, Andean Community, Caricom -across-the-board CH or VC
2. NAFTA, Mexico’s FTAs, Can-Chi, US-Chi, Chi-Cacm-high degree of variation in RoO across products-different types of CTC in combinations with VC
and/or TECH
3. Mercosur and its FTAs with Chile and Bolivia -mainly CH; also CH and VC or TECH
4. CACM-falls between NAFTA and Mercosur models:
mainly CTC but also combinations
Product Specific RoO in the Americas
![Page 11: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/11.jpg)
• RoO are based on an across-the-board VC criterion (usually RVC of 25-50 percent)
• Alternative, across-the-board RoO usually involves a change in heading or change in subheading
• More complex RoO regimes emerging: - SADC - Japan-Singapore FTA- US-Singapore FTA- Chile-Korea FTA- Some moves to renegotiate RoO in Africa
Product-specific RoO in Asia and RoW
![Page 12: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/12.jpg)
• Harmonization work carried out since July 1995 by the WTO and the World Customs Cooperation Council
• The most common RoO is change in heading; however, also important amounts of sectoral selectivity
• Some 90 (mainly political rather than techncical) issues affecting about 20% of tariff lines have yet to be resolved
• Main sticking points: - RoO in machinery: CTC- or RVC-based?- Disagreements over related trade policy issues (SPS,
EEZ, trademarks, geographic indications, etc.)- Disagreements over role of RoO in anti-dumping
Product-specific NON-PREFERENTIAL RoO
![Page 13: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/13.jpg)
Distribution of CTC Criteria by Agreement
![Page 14: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/14.jpg)
Type and Height of RVC Criteria
Selected PTAs
![Page 15: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/15.jpg)
RoO Combi-nations
Selected PTAs
Requirement PANEURO NAFTA AFTA ECOWAS SADC GULF CC Non-prefNC 0.39 0.54NC+ECTC 2.39NC+TECH 1.39 0.72NC+ECTC+TECH 0.00NC+VC 11.46 100 100 11.48NC+ECTC+VC 1.57NC+VC+TECH 0.08 0.34NC+WHOLLY OBTAINED CHAPTER 7.62 9.39NC+WHOLLY OBTAINED HEADING 0.70SUBTOTAL 25.60 0.54 100.00 0.00 0.00 100.00 21.93CI 3.64CI+ECTC 0.02 0.12CI+TECH 1.39 0.08CI+ECTC+TECHCI+VCCI+ECTC+VC 0.02CI+VC+TECHSUBTOTAL 0.00 0.04 0.00 0.00 1.39 0.00 3.84CS 0.20 1.29 100 1.16 13.53CS+ECTC 0.00 2.52 0.64CS+TECH 1.90 0.04CS+ECTC+TECH 0.00 0.40CS+VC 0.27CS+ECTC+VC 0.00 0.10CS+VC+TECH 0.00CS+ECTC+VC+TECH 0.00SUBTOTAL 2.37 4.35 0.00 100.00 1.16 0.00 14.17CH 32.99 17.09 68.65 40.13CH+ECTC 4.60 19.18 3.35 11.64CH+TECH 0.00 0.02 0.36CH+ECTC+TECH 6.66 0.14 6.52CH+VC 13.01 3.54 0.13CH+ECTC+VC 0.37 0.58CH+VC+TECH 0.00 0.10CH+ECTC+VC+TECH 0.02 0.03SUBTOTAL 57.65 40.65 0.00 0.00 78.65 0.00 52.13CC 2.16 30.95 0.68 7.86CC+ECTC 1.02 17.71 0.1CC+TECH 0.04 0.02CC+ECTC+TECH 11.02 5.76 18.09CC+VC 0.00CC+ECTC+VC 0.00CC+VC+TECH 0.00CC+ECTC+VC+TECH 0.00SUBTOTAL 14.24 54.44 0.00 0.00 18.77 0.00 7.96TOTAL 100 100 100 100 100 100 100
![Page 16: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/16.jpg)
Regime-Wide RoO
![Page 17: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/17.jpg)
• Provisions adding leniency to RoO:– De minimis
– Roll-up or absorption principle
– Cumulation
– Self-certification
• Provisions that may make RoO more restrictive:– Lists of operations insufficient to confer origin
– No-drawback rule
– Complex certification methods
– Inefficient or non-transparent verification by customs
Types of Regime-Wide RoO
![Page 18: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/18.jpg)
Source: World Trade Organization (2002).
Frequency of General RoO Provisions
![Page 19: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/19.jpg)
Regime-Wide RoO
Selected PTAs
![Page 20: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/20.jpg)
Certifi-cation Method
Selected PTAs
PTA Certification methodPANEURO Two-step private and public; limited self-certificationPE Two-step private and public; limited self-certificationEU-South Africa Two-step private and public; limited self-certificationEU-Mexico Two-step private and public; limited self-certificationEU-Chile Two-step private and public; limited self-certificationNAFTA Self-certificationG3 Two-step private and publicUS-Chile Self-certificationMexico-CR Self-certificationMexico-Bolivia Self-certification (two-step private and public during first 4 years)Canada-Chile Self-certification CACM-Chile Self-certificationCACM Self-certificationMercosur Public (or delegated to a private entity)Mercosur-Chile Public (or delegated to a private entity)Mercosur-Bolivia Public (or delegated to a private entity)CAN Public (or delegated to a private entity)CARICOM Public (or delegated to a private entity)CARICOM-DR Public (or delegated to a private entity)LAIA Two-step private and publicANZCERTA Public (or delegated to a private entity)SAFTA Public (or delegated to a private entity)SPARTECA Not mentionedAFTA Public (or delegated to a private entity)BANGKOK Public (or delegated to a private entity)Japan-Singapore Public (or delegated to a private entity)Chile-Korea Self-certificationCOMESA Two-step private and publicECOWAS Public (or delegated to a private entity)SADC Two-step private and publicUS-Jordan Self-certification
![Page 21: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/21.jpg)
Measuring the Restrictiveness of Product-Specific RoO
![Page 22: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/22.jpg)
• Restrictiveness measured by Estevadeordal’s (2000) index ranging from 1 (least restrictive) to 7 (most restrictive)
• Construction of index:
- Degree of CTC: CC more restrictive than CH, CH more restrictive than CS, etc.
- Exceptions to CTC, RVC and TECH add to restrictiveness
Measuring and Comparing Restrictiveness of RoO Regimes
![Page 23: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/23.jpg)
Restrictiveness
of RoO
Selected PTAs
Agreement
RoO
Inde
x
8
7
6
5
4
3
2
1
0
![Page 24: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/24.jpg)
Sectoral Restrictiveness of RoO by HS Sections, Selected FTAs
SADC1. Live Animals 7 6 5.3 5.9 7 6.22. Vegetable Products 6.6 6 4 5.6 6.6 6.63. Fats and Oils 4.7 6 4 3 7 44. Food, Bev. and Tobacco 5 4.7 4.4 3.7 5.4 4.65. Mineral Products 3.5 6 3.5 5.3 4 4.86. Chemicals 3.9 5.3 3.8 2.6 4 2.57. Plastics 4.9 4.8 4.9 3.2 4.7 48. Leather Goods 3.3 5.6 3.5 3.7 3.8 3.49. Wood Products 2.9 4 2.9 3.2 4.8 3.310. Pulp and Paper 4.4 4.8 4.6 4.1 4.3 3.911. Textile and Apparel 6.1 6.9 6.1 4.5 6.1 3.412. Footwear 2.8 4.9 4.1 3.5 2.6 3.713. Stone and Glass 3.7 4.9 3.7 4.2 3.7 3.514. Jewelry 3.7 5.3 3.7 4 3.7 3.415. Base Metals 4.2 4.6 4.2 3.8 3.9 3.416. Machinery and Electrical Equipment 4.8 3.2 4 4.3 4.1 3.617. Transportation Equipment 4.7 4.8 4.2 3.4 3.8 3.818. Optics 5 4 4.4 4 3.9 3.519. Arms and Ammunition 4 4.7 4 4 3.1 420. Works of Art, Misc. 4.1 5.1 4.1 3.6 4 3.3
Average 4.5 5.1 4.2 4 4.5 3.9
Chile-CACM
Non-Pref. Av.HS Section PANEURO NAFTA
EFTA-MEX
![Page 25: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/25.jpg)
Profiles of Sectoral Restrictiveness of EU, NAFTA, and SADC RoO by HS Sections
Section
21
20
19
18
17
16
15
14
13
12
11
10
9
8
7
6
5
4
3
2
1
Ro
O I
nd
ex
8
7
6
5
4
3
2
1
0
PANEURO
NAFTA
SADC
![Page 26: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/26.jpg)
• Sectoral restrictiveness is very similar across the main regimes
• Non-preferential RoO echo the PANEURO and NAFTA models
• Highest restrictiveness values in sectors with relatively high tariffs especially in EU and the US:– Agriculture
– Textiles and apparel
– Transportation equipment
• Trade-weighted restrictiveness of RoO deviates little from unweighted restrictiveness
Comparing the Restrictiveness of RoO Regimes
![Page 27: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/27.jpg)
Constructing a Facilitation Indexof Regime-Wide RoO Provisions
![Page 28: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/28.jpg)
• Comprised of mechanisms that add flexibility to the application of the product-specific RoO
• Based on a scheme that considers five components: – De minimis– Diagonal cumulation – Full cumulation – Drawback– Self-certification
Regime-Wide RoO: A Facilitation Index
![Page 29: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/29.jpg)
Facilitation Index for Selected PTAs
0
1
2
3
4
5
Agreement
Fac
il In
dex
![Page 30: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/30.jpg)
RoO Innovations
• Further, it is important to consider innovative ad hoc features in some regimes that can alleviate the impact of stringent RoO:
- differential application of RoO due to differences in the partners’ development levels (esp. drawback)
- phase-in of the level of value content RoO (esp. footwear, vehicles)
- permanent sectoral deviations from standard RoO (esp. from the PANEURO model in EU-Mexico and EU-Chile FTAs)
- TPLs where RoO revoked on a certain amount of imports (esp. NAFTA-based regimes)
- flexibility in the calculation of RVC (esp. when partner lacks domestic processing, as in Singapore’s FTAs):
Stage1 Stage 2 Stage 3
Singapore Foreign Country Singapore Exported
Conventional RoO Stage 3 = Local Content
Recognition of OP Stage 1 + Stage 3 = Local Content
![Page 31: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/31.jpg)
Measuring the Impact of RoO
![Page 32: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/32.jpg)
• Important growing pool of theoretical evidence: restrictive RoO distort trade, investment, and production patterns
• Increasing number of empirical studies assessing the economic impacts of preferential RoO on:
– Firms’ administrative costs
– Degree of utilization of RTAs (or GSP) conferred trade preferences
– Trade patterns in final and intermediate goods
Summary of Empirical Evidence
![Page 33: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/33.jpg)
• RoO are used “legitimately” as instruments to curb trade deflection
– Estevadeordal (2000): Sectoral restrictiveness of NAFTA RoO positively and significantly related to MFN tariff differentials between US and Mexico
– Sanguinetti (2003): Sectoral restrictiveness of MERCOSUR RoO positively and significantly related to MFN tariff differentials between Argentina and Brazil
• However, RoO are also used for political economy purposes– The restrictiveness of RoO in NAFTA(Estevadeordal 2000), Mercosur
(Sanguinetti 2003), and EU (Suominen 2004) appears to be driven by the same political economy variables as drive tariffs
Summary of Empirical Evidence: RoO and Trade deflection
![Page 34: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/34.jpg)
Summary of Empirical Evidence: Firms’ Administrative Costs
• Koskinen (1983): Administrative costs of certifying origin in EC-EFTA FTA 1.4 – 5.7 % of value export transactions
• Herin (1986): Administrative costs of certifying origin in EFTA 3 – 5 % of value export transactions
• Holmes and Shephard (1983): Average export transaction EFTA to the EC requires 35 documents and 360 copies
• Today, official certification of RoO for a single shipment costs $7 in Chile, $6-$20 in Brazil, but free in general in EU countries
• Cadot et al. (2004): NAFTA’s non-RoO related administrative costs approximate 2% of the value of Mexican exports to the US
![Page 35: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/35.jpg)
A Summary of Empirical Evidence: Utilization of Trade Preferences
• Estevadeordal and Miller (2002): Canada’s utilization rates of preferences to US market declined in sectors where NAFTA RoO became more stringent than CUFTA RoO
• Cadot et al. (2002, 2004): the mere 64% utilization rate of NAFTA preferences due in part to restrictive RoO
• Brenton and Manchin (2003): low utilization rates of the EU’s trading partners in the textile sector owe to the excessive stringency of EU RoO
• Inama (2004): Evidence on low utilization rates due to restrictive RoO in GSP, ACP, and AGOA
![Page 36: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/36.jpg)
Percent of total U.S. imports from CanadaRules of Origin and Utilization Rates:
Canada-US FTA vs. NAFTA
![Page 37: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/37.jpg)
Summary of Empirical Evidence:RoO and Trade Patterns
• Cadot, Estevadeordal and Suwa (2003): Mexican exports to the US have been undermined by restrictive NAFTA RoO
• Appiah (1999): CGE model shows NAFTA RoO distort trade flows and undercut welfare
• James (2004): NAFTA preferences and restrictive RoO have undercut Asian textile and apparel exports to US
• Flatters and Kirk (2004): Restrictive SADC RoO work against efficiency gains that members would reach through extra-regional outsourcing
• Augier, Gasiorek and Lai-Tong (2004): with no cumulation, trade has been 50% lower than expected; the impact is particularly notable in intermediate goods
![Page 38: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/38.jpg)
Estimating the Effects of RoO on Trade Patterns: A Gravity Model Approach
• Estevadeordal and Suominen (2004): Estimate a gravity model for 156 countries, 100 PTAs and 20 years (1981-2001)
– Preliminary results: restrictive product-specific RoO:
(1) curb aggregate trade and
(2) divert trade in intermediates
– Flexible regime-wide RoO facilitate trade, and hence counter the effect of restrictive product-specific RoO
![Page 39: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/39.jpg)
Gravity Model Estimates:RoO and Bilateral Aggregate Trade
Ln(Bilateral Trade) = b0 + b1ln(GDP_PRODij) +
b2ln(DISTANCEij) +
b3ln(BORDERij) +
b4ln(COMMON_LANGUAGEij) +
b5ln(COLONIAL RELATIONSHIPij) +
b6ln (COMMON COLONIZERij) +
b7ln(FTAij) +
b8ln(RoO_RESTRICTIVENESSij)
+
b9ln(RoO_FACILITATIONij) +
![Page 40: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/40.jpg)
Regression Results: Aggregate Trade and RoO (Cross-Section)
I II0.92 0.93
(155.58) (152.64)-0.99 -0.98(42.01) (41.75)
0.74 0.69(6.72) (6.18)0.64 0.59(11.4) (10.43)1.07 1.10(8.09) (8.3)0.54 0.51(8.62) (8.08)0.89 2.32(13.95) (10.3)
RoO Restrictiveness -1.07(6.61)
-21.03 -21.56(62.12) (62.06)
Observations 13,581 13,581Adjusted R-squared 0.67 0.68
Absolute value of t-statistics in parentheses
Table 1 - Aggregate Trade and RoO, 2001 (OLS)Dependent Variable: Ln Imports
Ln (Yi, Yj)
Distance
FTA
Constant
Border
Language
Colonial relationship
Common colonial past
![Page 41: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/41.jpg)
Regression Results: Aggregate Trade and RoO (Cross-Section)
I II III0.93 0.93 0.93
(152.64) (152.74) (152.74)-0.98 -0.98 -0.98(41.75) (41.65) (41.66)
0.69 0.69 0.68(6.18) (6.2) (6.13)0.59 0.57 0.57(10.43) (10.2) (10.14)
1.10 1.10 1.11(8.3) (8.35) (8.37)0.51 0.53 0.53(8.08) (8.49) (8.5)2.32 2.23 1.74(10.3) (9.87) (3.47)
RoO Restrictiveness -1.07 -1.54 -1.18(6.61) (8.37) (3.15)
Facilitation Index 0.43 0.80(5.35) (2.26)
Interaction RoO*Facilitation -0.09(1.09)
-21.56 -21.58 -21.58(62.06) (62.16) (62.14)
Observations 13,581 13,581 13,581Adjusted R-squared 0.68 0.68 0.68
Absolute value of t-statistics in parentheses
Table 2 - Aggregate Trade and RoO, 2001 (OLS)Dependent Variable: Ln Imports
Ln (Yi, Yj)
Distance
FTA
Constant
Border
Language
Colonial relationship
Common colonial past
![Page 42: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/42.jpg)
Regression Results: Aggregate Trade and RoO (Panel 1981-2001)
I II0.55 0.54(34.36) (33.91)-1.24 -1.23
(187.39) (185.24)0.26 0.24(10.21) (9.24)
0.35 0.33(23.77) (22.52)
1.30 1.30(41.84) (42.16)
0.65 0.62(39.21) (37.77)
0.55 2.30(28.3) (37.19)
RoO Restrictiveness -1.39(29.83)
-1.80 -1.49(2.26) (1.87)
Observations 187,639 187,639Adjusted R-squared 0.73 0.73
Absolute value of t-statistics in parenthesesBoth regressions with year and country fixed effects
Constant
FTA
Language
Colonial relationship
Common colonial past
Dependent Variable: Ln Imports Table 3 - Aggregate Trade and RoO, 1981-2001 (OLS)
Border
Ln (Yi, Yj)
Distance
![Page 43: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/43.jpg)
Regression Results: Aggregate Trade and RoO (Panel 1981-2001)
I II III0.54 0.54 0.54(33.91) (33.93) (33.89)-1.23 1.23 1.23
(185.24) (184.27) (184.16)0.24 0.24 0.24(9.24) (9.47) (9.3)0.33 0.33 0.33(22.52) (22.71) (22.5)
1.30 1.30 1.30(42.16) (42.14) (42.16)
0.62 0.63 0.63(37.77) (38.2) (38.29)
2.30 2.23 1.94(37.19) (35.6) (15.54)
RoO Restrictiveness -1.39 -1.59 -1.36(29.83) (30.1) (13.41)
Facilitation Index 0.19 0.39(7.91) (4.9)
Interaction RoO*Facilitation -0.05(2.65)
-1.49 -1.20 -1.18(1.87) (1.63) (1.61)
Observations 187,639 187,633 187,633Adjusted R-squared 0.73 0.73 0.73
Absolute value of t-statistics in parenthesesAll regressions with year and country fixed effects
FTA
Constant
Table 4 - Aggregate Trade and Rules of Origin, Panel 1981-2001 Dependent Variable: Ln Imports
Border
Language
Colonial relationship
Common colonial past
Ln (Yi, Yj)
Distance
![Page 44: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/44.jpg)
RoO’s Effects on Trade in Intermediate Goods
Ln(Bilateral Trade in Inputs) = b0 + b1ln(GDP_PRODij) +
b2ln(DISTANCEij) +
b3ln(BORDERij) +
b4ln(COMMON_LANGUAGEij) +
b5ln(COLONIAL RELATIONij) +
b6ln (COMMON COLONIZERij) +
b7ln(RoO_REST. FINAL Goodsij) +
b8ln(RoO_FACILITATIONij) +
![Page 45: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/45.jpg)
RoO’s Effects on Trade in Intermediate Goods: Key Variables• Dependent variable: total imports at the 6-digit level of
intermediate products = products classified as intermediates by section of the Harmonized System and that are used particularly intensely in the HS section in question (as opposed to being used in other sectors)– Examples: man-made filaments in textile products; conveyor
belts in vehicles
• Key independent variable: Average sectoral RoO restrictiveness of the 6-digit level final goods = key products classified as final by section of HS – Five sectors: chemicals, machinery, TV and radio transmitters,
textiles, vehicles
![Page 46: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/46.jpg)
Regression Results: Trade in Intermediates by Sector and RoO
RoO Restrictiveness 1.26 0.14(80.61) (3.89)
Facilitation Index 0.81(32.72)
Adjusted R-squared 0.32 0.32Observations 241,591 241,591
RoO Restrictiveness 1.19 0.32(82.72) (8.99)
Facilitation Index 0.66(26.52)
Adjusted R-squared 0.32 0.32Observations 241,598 241,598
RoO Restrictiveness 1.30 0.13(78.3) (5.225)
Facilitation Index 0.70(3.89)
Adjusted R-squared 0.33 0.33Observations 241,591 241,591
RoO Restrictiveness 0.49 0.13(59.36) (6.47)
Facilitation Index 0(18.99)
Adjusted R-squared 0.19 0.19Observations 241,598 241,598
RoO Restrictiveness 1.37 0.56(78.17) (12.8)
Facilitation Index 0.63(20.25)
Adjusted R-squared 0.38 0.38Observations 241,591 241,591
Absolute value of t-statistics in parenthesesAll regressions with year fixed effects
Machinery
Television and Radio Transmitters
Textiles
Vehicles
Table 5 - Trade in Intermediates and RoO, 1988-2001Dependent Variable: Ln Imports + 1
Chemicals
![Page 47: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/47.jpg)
Preliminary Results: Summary
• Both the restrictiveness and complexity of rules of origin reduce aggregate trade flows
• Regime-wide RoO—and particularly the combined effects of such RoO—designed to add leniency to the application of product-specific RoO boost aggregate trade
• Both the restrictiveness and complexity of rules of origin in FINAL goods significantly boost trade in INTERMEDIATES
- Restrictive RoO in final goods may thus result in trade diversion in intermediate goods
![Page 48: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/48.jpg)
• EU and NAFTA-based RoO regimes will likely predominate in the future, particularly across Europe and the Americas
• Maybe an emerging Asian/trans-Pacific regime type?
• However, (1) harmonization of non-preferential RoO and
(2) the possible de facto harmonization of preferential RoO due to the spread of the PANEURO and NAFTA models could facilitate future de jure harmonization of preferential RoO
Conclusions: Future Clash or Harmonization of RoO Regimes?
![Page 49: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/49.jpg)
• Countries’ operating in two or more RoO theaters simultaneously will:– Complicate firms’ supply relations– Force specialization of production to a certain market(s) when RoO are strict– Increase transaction costs when certification methods diverge
• This is particularly the case for small exporters in small countries that are spokes to different RoO hubs (PANEURO model, NAFTA model, etc.): even slight differences in RoO can have a big impact on production decisions
• Thus, Doha’s mandating harmonization of preferential RoO could benefit smaller developing countries in particular
Conclusions: Why Harmonize Also Preferential RoO?
![Page 50: Rules of Origin in the World Trading System Antoni Estevadeordal Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional](https://reader031.vdocuments.site/reader031/viewer/2022013003/551503f2550346a80c8b552f/html5/thumbnails/50.jpg)
• Harmonized non-preferential RoO would provide a readily available baseline for harmonizing preferential RoO
• Preferential RoO are restrictive only as long as there are MFN tariffs: the ultimate key to countering RoO’s negative trade effects will lie in the success of multilateral liberalization
Conclusions: How to Harmonize Preferential RoO and Further Mitigate RoO’s Impact ?