Rules of origin under U.S. trade agreements with Arab countries: Are they helping and hindering free trade?

Abstract

Rules of origin mechanism used to determine the origin of a product. Rules of origin serve many purposes such as collecting data on trade flows, implementing preferential tariff treatment, and applying anti-dumping duties. Rules of origin can be divided into preferential and non-preferential rules. Preferential rules of origin are used to determine whether a product originates in a preference-receiving country or trading area and hence qualifies to enter the importing country on better terms than products from the rest of the world. Non-preferential rules of origin are used for all other purposes, including enforcement of product- and country-specific trade restrictions that increase the cost of, or restrict or prevent, market entry. Preferential rules of origin differ from non-preferential ones because they are designed to minimize trade deflection. With rapid increase of bilateral and regional trade agreements, the role of rules of origin has become more evident. In the context of bilateral and regional trade agreements, rules of origin prevent free-riders from enjoying the benefits negotiated between the countries concerned. In other words, once the origin of a product is known, a country can extend the benefit of its free trade agreement to its trading partners thus excluding non-partners. In principle, rules of origin are supposed to be straightforward and easy-to-follow methods used to determine origin especially when a product is manufactured in one country, which rarely happens in reality. However, more than often, rules of origin are complex and protectionist method used a barrier to trade. As another case study, the purpose of this article is to examine rules of origin in the U.S.-Arab countries free trade agreements (FTAs). The article begins with a brief discussion of the concept of free trade, its evolution through the GATT and then the WTO, and the recently concluded FTAs between the U.S. and Arab countries. Then, in section three, the article analyzes in details rules of origin in the U.S.-Arab countries FTAs. The analysis includes, among other things, substantial transformation and value-added tests, product specific processes, and other relevant rules of origin. Sections four and five address the documentations and procedures required to prove origin and the costs involved in this process. Finally, the article provides a set of conclusions.