The Costs of Rules of Origin in Apparel: African Preferential Exports to the United States and the European Union

Abstract

The European Union and the United States offer, simultaneously, preferential market access to exports of a group of African countries. Although similar regarding the extent of preferences for apparel, a key sector for least developed countries, these agreements differ as regards rules of origin (RoO). While the Everything But Arms initiative and the Cotonou Agreement require yarn to be woven into fabric and then made up into apparel in the same country or in a country qualifying for cumulation, the African Growth and Opportunity Act (AGOA) grants a special regime to 'lesser developed countries,' which allows them to use fabric of any origin and still meet the criteria for preferences, thus making a case for a natural experiment. This paper aims to assess econometrically the impact of different RoO on those African countries' exports. The main finding is that relaxing RoO by allowing the use of fabric of any origin increased exports of apparel by about 300 per cent for the top seven beneficiaries of AGOA’s special regime, and broadened the range of apparel exported by those countries.