Origin in Major FTAs” Comments on “Rules of

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RIETI Policy Symposium
Assessing Quality and Impacts of Major FTAs
March 22-23, Tokyo
Comments on “Rules of Origin
in Major FTAs”
by Inkyo CHEONG and CHO Jungran
Antoni Estevadeordal
Principal Advisor
Integration and Regional Programs Department
Inter-American Development Bank
Cheong-Cho: Analysis of
“representative” FTAs / RoO
FTAs considered
D
C
B
A
NAFTA
EU-Mexico
Australia-NZ CER
Japan-Singapore EPA
Japan-Mexico EPA
ASEAN-China FTA
Korea-Mexico FTA
Chile-Korea FTA
Why preferential RoO ?
‘The main justification for preferential RoO is to
avoid TRADE DEFLECTION (ensure that nonmembers do not obtain access to PTA
preferences)
‘RoO define the share of inputs that have to be
used or production processes that have to be
performed within the PTA area in order to
benefit from preferential access.
Why RoO are so important?
‘FTAs (RoO) have proliferated around the world
‘RoO can insulate an industry from the FTA
‘RoO can protect intermediate good producers by
favoring intra-PTA supply links
‘RoO can attract investment in strategic sectors
‘RoO effects in the S/R different than in the L/R
What are the economic
impacts of RoO?
• Theoretical literature shows that restrictive RoO may
distort trade, investment, and production patterns
• We need more empirical evidence:
• Good news: Evidence that RoO are used to avoid
trade deflection
• Bad news: RoO have potential negative impacts on:
– Administrative costs for firms
– Low utilization of preferences
– Effects on final and intermediate goods trade
(and investment) patterns
Product-Specific RoO
(restrictiveness)
‘ Wholly obtained or produced
Where only one country enters into consideration in
attributing origin
‘ Substantial transformation
Where two or more countries have taken part in the
production process
– Change in Tariff Classification
– Regional Value Content
– Technical Requirement
Regime-Wide RoO
(facilitation)
‘ Provisions adding leniency to RoO:
– De minimis
– Cumulation
– Self-certification
– Roll-up or absorption principle
‘ Provisions that may make RoO more restrictive:
– Lists of operations insufficient to confer origin
– Complex certification methods
– Inefficient customs verification and administration
Cheong-Cho: Analysis of
“representative” FTAs / RoO
Conclusions:
D
C
B
A
East Asia RoO
Divergence…
Potential for SB
Effects…
East Asian FTA…
Comment #1:
On East Asia Divergence…
Intra-regional vs. extra-regional divergence…
E
D
A
C
G
B
F
E
Comment #2:
On SB Effects in East Asia…
Aggregate effects vs. country effects…
E
D
A
C
G
B
F
E
Comment #3:
On East Asia FTA…
Convergence and
Region-wide
FTAs…
A
E
D
C
G
B
F
E
Comment #1:
On East Asia Divergence…
“within” region vs. “between” regions divergence…
E
D
A
C
G
B
F
E
N
A
F
U T
C S- A
an C
ad hi
a- le
C
hi Chi
le
-K le
or
e
SA a
FT
JS A
E
PA
A A
N F
Z T
M CE A
ex
R
ic
T
o- A
E
M FT
ex
A
ic
oC EU
hi
M
le
ex
-E
ic
U
oC
G
M osta -3
ex
ic Ric
oa
C Bo
h
li
C ile- via
hi
C
A
le
-M C
M
er
co
U
su
SJo r
r
U dan
SIs
r
B ael
an
PA gk
N ok
E
U
R
E
O
C
O
W
C
O AS
M
E
SA
SA
D
G C
ul
fC
C
Product Specific RoO:
CTH / RVC / TECH Combinations
within APEC
(Cheong-Cho sample)
CTC
RVC
With APEC Member
CTC+RVC
CTC+RVC+TECH
Rest of the
World
100%
80%
60%
40%
20%
0%
OTHER
Comment #2:
On SB Effects in East Asia…
Aggregate effects vs. sector effects vs. country effects…
E
D
A
C
G
B
F
E
Trade Effects of PTAs with
Rules of Origin
3
2
1
0
-1
-2
PTA Effect
RoO Effect
Facil Effect
Do RoO Divert Trade in Intermediate Goods?
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
Chemicals
Machinery
TV and Radio
Transmitters
RoO Effect
Textiles
Facil Effect
Vehicles
Trade in intermediates is very
important in East Asia…
Export share of parts and components 1980-2002
16
14
12
10
8
6
4
2
0
East Asia
and Pacific
Latin
Europe and Middle East South Asia Sub-Saharn
American Central Asia and N. Africa
Africa
and
Caribbean
Building a computer hardisk in
Thailand…
Comment #3:
On East Asia FTA…
Convergence &
Region-wide
FTAs…
A
E
D
C
G
B
F
E
Why convergence in RoO
Regimes?
‘Countries’ operating in two or more RoO theaters:
– Complicate firms’ supply relations
– Force specialization of production to a certain market(s)
when RoO are strict
– Increase transaction costs when certification methods
diverge
– Particularly important for developing countries that are
often spokes to different RoO hubs
Do pre-conditions exist ?
‘Potential for effective “cumulation”
areas among existing FTAs depends
on:
– Degree of intra-regional tariff
elimination / sequencing…
– Degree of common RoO regimes…
– Potential for negotiation “regional”
cumulation regime…
What are the policy options?
‘ Negotiate simple, non-restrictive RoO in RTAs?
‘ Regional/multilateral harmonization of RoO
(Doha mandate)?
‘ Creation of a broader-single integration zones
(FTAAP, AFTAA)?
‘ Promote convergence and cumulation across
existing RTAs?
‘ Silver bullet: multilateral tariff liberalization?
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