Preferential Rules Of Origin Research Articles

A Study on the Effect of FTA Preferential Rules of Origin (PRoO) on Implementation of Preferential Tariff and Export Performance: Focusing on Start-Up Companies

Purpose - This study analyzes the characteristics of preferential rules of origin in terms of restrictiveness, complexity, and uncertainty, and empirically analyzes the effects of these characteristics on the implementation of preferential tariffs for FTAs, and the effects of these on the trade performance of domestic import and export companies. Based on this, we present suggestions.
 Design/Methodology/Approach - In order to achieve the purpose of this study, research models and hypotheses were established through literature studies and case studies, and 207 samples were used for empirical analysis. In addition, this study utilized a structural equation model for hypothesis verification, and used AMOS 18.0 as an analysis tool.
 Findings - The summary of the results of this study is as follows. First, restrictiveness and uncertainty were found to affect the implementation of preferential tariffs. Second, complexity did not appear to affect the implementation of preferential tariffs. Finally, the implementation of preferential tariffs was found to have a statistically significant effect on the trade performance of start-ups.
 Research Implications - This study provided academic implications by analyzing the factors that affect the implementation of preferential tariffs into Restrictiveness, Complexity, and Uncertainty through literature research. In addition, by analyzing the effect of preferential tariff enforcement on trade performance, practical implications for increasing the FTA utilization rate of companies were provided.

Revisiting the Principle of Territoriality in Preferential Rules of Origin: Are Territoriality Requirements Obsolete?

The article revisits a cornerstone in preferential rules of origin (ROO) – the principle of territoriality. In essence, the principle requires manufacturing processes for the purpose of acquiring originating status to be carried out without interruption in the territory of one or several contracting parties to a preferential trade agreement (PTA). Territoriality requirements are found to be at odds with recent developments in global trade and production practice, particularly the emergence of global value chains (GVCs) since they hinder the fragmentation of production. Moreover, the requirement of uninterrupted production in one single country also contravenes the objective of liberalizing preferential ROO through the introduction of full cumulation because the notion of counting all working and processing carried out in various eligible countries would prove impossible. In addition, the principle of territoriality may affect the precise determination of origin because it fails to accord equal treatment to conventional and unconventional inputs for production. For trade-facilitating origin regimes to be effective, territoriality requirements need to be revisited and relaxed. rules of origin, territoriality, global value chains, cumulation, PTA, servicization

Rules of Origin in the EU-UK Trade and Cooperation Agreement: Conceptual and Practical Challenges

In the context of preferential trade agreements, Rules of Origin have attracted negative attention for their propensity to serve protectionist objectives. Against this background, the author seeks to shed light on several conceptual and practical challenges in connection with the Rules of Origin negotiated in the EU-UK Trade and Cooperation Agreement. The discussion proceeds from two basic propositions: first, the Rules of Origin included in this agreement resemble, in essential terms, those included in other modern EU trade agreements with advanced-economy partners; and second, preferential Rules of Origin, such as those agreed between the EU and the UK, embody the outcome of reconciling the divergent interests of import-competing and export industries by the negotiating partners. The author has identified and analysed the following specific challenges posed by the Rules of Origin in the EU-UK Trade and Cooperation Agreement: (1) limited possibilities for origin cumulation; (2) protectionist potential of transitional origin requirements and origin quotas; (3) trade-hindering effect with respect to Northern Ireland; and (4) chilling effect of the potential review of inward processing schemes on trade. Based on the analysis conducted, the author concludes that these challenges negatively affect trade because they operate to foreclose the expansion of legitimate trade opportunities under the EU-UK Trade and Cooperation Agreement. Origin, Rules of Origin, Preferential Origin, Free Trade Agreements, EU-UK Trade and Cooperation Agreement, Brexit, Inward Processing, Returned Goods, Diagonal Cumulation, Origin Quotas

A Primer on Rules of Origin as Non-Tariff Barriers

An explosion of different preferential rules of origin (PROO) has accompanied the spread of preferential trade agreements (PTAs) around the world. Complying with PROO requirements entail costs for producers, exporters, and customs officials. Observers, firms, customs officials, and policymakers have advocated simplification as well as harmonization. The paper surveys the literature drawing on the extensive database in ITC’s Rules of Origin Facilitator (ROF) database covering 54,000 distinct PROO spread across 370 PTAs to illustrate the issues covered in the literature. We review what we know about the compliance costs associated with PROO requirements. We illustrate these costs graphically and summarize through mathematical decomposition of compliance costs along two dimensions: distortionary costs resulting from the restrictiveness of PROOs and administrative costs. We survey the existing evidence in literature by themes: (i) determinants of the utilisation of preferences; (ii) effects on third countries outside the PTA; (iii) choice of rule; (iv) preference margin and complexity of rules; (v) trade deflection; and (vi) firm-level evidence. In conclusion, drawing lessons from the empirical literature is a complicated exercise because preference uptake, an important indicator of compliance costs, is only available for a handful of PTAs at the disaggregated product level.

Straining the Spaghetti Bowl: Re-Evaluating the Regulation of Preferential Rules of Origin

ABSTRACT Preferential rules of origin (PROOs) are a hallmark of the modern Regional Trade Agreement network. However, the ever-rising use of PROOs has revealed their dual economic function: to prevent trade deflection from occurring, and to export domestic State protectionism to the regional level. This paper challenges existing scholarship and reassesses the WTO disciplines applicable to PROOs. Using the United States-Mexico-Canada Agreement as a case-study, it examines the ways in which PROOs have obstructed trade liberalization at the regional level in favour of embedding protectionism in certain sectors. The disciplines under Article III:4 GATT, Annex II of the Agreement on Rules of Origin, and the Trade Facilitation Agreement are then shown to limit Members’ discretion in adopting PROOs. Finally, the internal and external conditions of Article XXIV GATT further restrain the extent to which Members may lawfully export their domestic protectionism through Regional Trade Agreements. Crucially, violations of the restraints under Article XXIV GATT are unlikely to be justified based on Article XX(d) GATT.

An Empirical Study on the Characteristic Influences of the Rules of Origin on the Implementation of Preferential Tariffs and Trade Performance

Purpose - This study categorizes factors that influence the utilization of preferential tariffs based on the characteristics of rules of origin (RoO) and identifies and analyzes the influence of these characteristics on the utilization of preferential tariffs and the trade performance of companies. Design/methodology - In this study, we categorized factors that have an influence on the utilization of preferential tariffs based on the characteristics of RoO and investigated and tested the influence of these characteristics on the utilization of preferential tariffs and the trade performance of companies. For empirical analysis, we categorized the characteristics of RoO into restrictiveness, complexity, and uncertainty. We then developed a research model and formulated hypotheses based on previous studies, and tested the hypotheses using statistical software-(SPSS 25.0 and AMOS 18.0.) Findings - Previous studies suggested that each characteristic of RoO is determined by unique features of a Regional Trade Agreement (RTA). This study conducted an empirical analysis on the influence of the characteristics of RoO on the utilization of preferential tariffs and trade performance. The results confirmed that, overall, the characteristics of preferential rules of origin (PRoO) are related to and influence Korean companies’ utilization of preferential tariffs and trade performance. As for the degree of the influence, the characteristics were in the order of uncertainty> restrictiveness> com-plexity. Nevertheless, complexity turned out not to have an influence large enough to change a company’s decision on the utilization of preferential tariffs. Based on these results, this study identified unique features of PRoO and related problems for Korean companies that want to utilize preferential tariffs and suggested countermeasures for their effective utilization of preferential tariffs in the future. Originality/value - Companies that want to use preferential tariffs in international trade have to satisfy PRoO. The issue of origin can be regarded as an essential part of an RTA and RoO, are a crucial criterion in using preferential tariffs. The rules are requirements to claim benefits of preferential trade agreements and are the primary reasons companies have trouble in utilizing preferential tariffs. In this sense, this study categorized the characteristics of RoO, which are a key part of an RTA, and surveyed working-level professionals in charge of international trade at Korean companies to investigate the relationship between these characteristics and the utilizations of preferential tariffs and trade performance of the companies.

Standardization of Complex and Diversified Preferential Rules of Origin

The growing number of free trade agreements (FTAs) and economic partnership agreements (EPAs) and the divergent contents of their preferential Rules of Origin (RoO) have led to the increasing complexity and diversity of such regulations. This has caused considerable concern among all parties involved in international trade. Although there has been some progress in attaining convergence of RoO in some product areas, particularly chemicals, similar initiatives have not been successful in other sectors, such as agricultural products, textiles, iron, steel and machinery. Instead, preferential RoO in these industries remain heterogeneous and often incompatible. This article examines the current state of preferential RoO. The regulatory rationale is analysed by separating the ‘content of rules’ from the ‘way of expressing rules’, with a focus on the World Trade Organization’s HarmonizationWork Programme of Non-Preferential Rules of Origin (HWP) and how this has influenced the development of preferential RoO. In addition, this article proposes the standardization of preferential RoO in key product sectors by harmonizing and simplifying the ‘way of expressing rules’ according to the ‘content of the rules’ to reduce disparities in the regulations. Rules of Origin, Preferential Rules of Origin, Non-Preferential Rules of Origin, Free Trade Agreements, Economic Partnership Agreements, World Trade Organization, Harmonization Work Programme

Overcoming the Challenges in Documentary Procedures and Transparency in the Implementation of Effective Rules of Origin for the African Continental Free Trade Area

The United Nations Conference on Trade and Development (‘UNCTAD’) recently published a report on Economic Development in Africa. The purpose of this article is to consider the part of the report titled ‘Made in Africa: Rules of Origin for Enhanced intra-African Trade’, one of the main findings and make policy recommendations thereof. Preferential rules of origin are applied to goods by members of a contractual or autonomous trade regime in order to determine whether or not they qualify for preferential treatment and therefore beyond the scope of application of the general MFN principle. The ultimate test of effectiveness of rules of origin, therefore, depends on the so-called preference margin. The preference margin is the difference between the applicable most favoured nation tariff and the preferential tariff and the costs of compliance with the rules of origin that apply in terms of the specific free trade or preferential trade agreement area. However, Africa faces unique challenges in this regard. These are geographical, political and technological in nature. This article aims to contribute to the discussion of how, through creative and innovative use of rules of origin, Africa may begin to overcome these challenges to the implementation of the African Continental Free Trade Area (AfCFTA). Rules of Origin, AfCFTA, Africa, Development, Regional Value Chains

Rules of Origin in the EU, a Simplification?

Determining under which circumstances a good originates in a certain country is often an extremely complicated exercise. This is mainly caused first, by the fact that each Free Trade Agreement (‘FTA’) establishes a different set of rules of origin. Second, effectively claiming preferential treatment is also hindered by the fact that (1) preferential rules of origin are often designed in a very restrictive way and (2) a complicated administrative procedure usually needs to be followed in order for origin to be conferred to a good. Moreover, these procedures strongly differ from one FTA to another. This article analyses the ways in which the EU strives towards the application of more simple and modern rules of origin and origin procedures. More specifically, first, modernized rules of origin and origin procedures are included in FTAs recently concluded by the EU. Second, the Regional Convention on pan-Euro-Mediterranean preferential rules of origin will replace about 60 bilateral protocols on rules of origin with a single legal instrument. Third, the Registered Exporter (REX) system simplifies certification of origin of goods. Rules of origin, Origin Procedures, EU–Japan FTA, CETA, Free Trade Agreement (FTA), Association Agreement, PEM Convention, Registered Exporter System (REX)

Rules of Origin in the Mercosur–UE Agreement

Preferential rules of origin have increased with the proliferation of trade agreements between two or more countries. They are regarded as instruments that allow privileged market access. Following the evolution of these rules in Mercosur and the ones negotiated in the Mercosur–UE Agreement we will focus in certain sectors to suggest that these guidelines are crucial in the negotiation process as they reflect a definition of economic policy, productive development and commercial integration. Mercosur, European Union FTA, ALALC, ALADI, Accumulation, Automotive Sector, Vehicles, Beverages, spirits and vinegar, Footwear, preferential rules of origin

Rules of Origin in Brazil

The article compiles essential information regarding the Rules of Origin provided in the trade agreements to which Brazil is a party, including the Free Trade Agreement (FTA)’s signed by Mercosur. The focus is to point out the differences in the preferential Rules of origin provided in the different trade agreements signed by Brazil and Mercosur, especially in relation to the value-added requirement when imported inputs from non-state parties are used to manufacture a finished product. Rules of origin, preferential rules of origin, non-preferential rules of origin, Brazil, Certificates of Origin

Rules of Origin and the FTAs: Major Issues in India

Free Trade Agreements (FTAs) feature heavily in the contemporary global trading system and these are popular form of reciprocal arrangements between nations. Over the past years, an unswerving increase has been observed in the multilateral and bilateral trade agreements contracted by nations and trade blocs around the world. This surge in FTAs is experienced as most nations around the world rely upon these agreements to facilitate trade and investment amongst them. India, like most of the WTO members, has contracted and executed several FTAs. Each FTA provides for rules to determine origin of goods to ensure that benefits of the FTA are extended only to those goods which are originating in a contracting party. Preferential Rules of Origin under the FTAs provide for criteria such as wholly obtained test, minimum value addition test, tariff jump etc. to determine origin of goods. However, due to varying criteria of origin with respect to minimum value addition and tariff jump etc. coupled with lack of standard provisions, for instance, of third country invoicing, under the different rules of origin, there is a lot of confusion and conundrum around the rules of origin in India. This article attempts to provide a brief analysis of various criteria laid down to test origin of goods under rules of origin for FTAs and major challenges faced with respect to these rules in India.

Cross-Cumulation Arrangement as FTA Under GATT Article XXIV

ABSTRACT A cross-cumulation arrangement helps manufacturers meet the demands of the global value chain economy by facilitating the sourcing of intermediate products within the territories of participants in the arrangement. It is a de facto free-trade area formed by a network of bilateral free-trade areas underpinning the arrangement. However, a cross-cumulation clause provided in a bilateral free-trade area that underpins a cross-cumulation arrangement is inconsistent with General Agreement on Tariffs and Trade (GATT) Articles I and III because the intermediate products from the participants in the arrangement are more favorably treated than products from non-participants in the arrangement. The GATT inconsistencies of a cross-cumulation clause cannot be justified by the GATT Article XXIV exception, because a cross-cumulation clause of a bilateral free-trade area derogates from the free-trade area’s aim by facilitating trade in intermediate products between the free-trade area parties and non-parties to the free-trade area that are participants in the arrangement. In contrast, a cumulation clause provided in a free-trade area contributes to the free-trade area’s aim by facilitating trade in intermediate products between the parties to the free-trade area. To bring a cross-cumulation arrangement such as the Regional Convention on Pan-Euro-Med Preferential Rules of Origin into conformity with World Trade Organization law, the arrangement and its underlying free-trade areas should be recognized as a de jure free-trade area under GATT Article XXIV and notified to the World Trade Organization as such. A large cross-cumulation arrangement as a mega-free-trade area is likely to contribute to the world trading system by harmonizing divergent free-trade area rules of origin and providing an efficient mechanism for the formation of a mega-free-trade area.

특혜원산지규정에 대한 국제통상규범의 적용 범위

특혜원산지규정에 대한 국제통상규범의 적용 범위

The Impact of Liberalizing Preferential Rules of Origin on Trade and Upgrading in the Clothing Industry: A Review of the Evidence

This paper seeks to explore the relationship between the rules of origin (ROO) governing preferential trade regimes and trade and investment flows. We focus on the regimes in the key markets of the EU and the US. Firstly we look at overall imports, where we do not find liberal ROO to be a key factor defining sourcing choices, although it seems to impact on growth rates. We explore trade and investment flows in key clothing sources subject to liberal ROO and find large variations in the extent to which they appear to be capturing value added. Bangladeshi industry is largely domestic and has low levels of imported inputs, while Nicaragua, Jordan and Cambodia are highly reliant on FDI and seem to import the vast majority of the inputs to their clothing industries. Our findings underline the complexity of structuring trade (and indeed investment) regimes in a manner which encourages sustainable economic development.

A Study on the Dispute Settlement Procedure for the Preferential Rules of Origin

The preferential Rules of Origin (RoO) govern tariff preferences that are given in accordance with the FTA. However, relatively few studies have been devoted to the procedures in settling disputes that are relevant to RoO under the FTA. This study is a first attempt at analyzing the applicability and the potential improvement in dispute settlement procedures in FTAs targeted at the preferential RoO. By exploring three dispute cases involving the preferential RoO, it is suggested that restrictiveness, complexity, and uncertainty that are inherent in the preferential RoO may trigger political tension and dispute. Forming a panel that is capable of mitigating political tension, facilitating participation and early cooperation of experts and stakeholders, and establishing a well-structured enforcement procedure are essential in dispute settlement procedures to resolve disputes involving cases on RoO. Furthermore, the current dispute settlement procedure that hinders the private sector’s access should be changed to one that is more open to private sector entities, such as companies, to facilitate the enforcement of the decision. Given that more improved FTA dispute settlement procedure may guarantee the enforcement and application of the FTA preferential treatment in relation with more politically powerful states and foster genuine free trades, more in-depth studies must be conducted on this topic.

Do Preferential Rules of Origin Reverse Trade Creation and Trade Diversion?

ABSTRACTRestrictive preferential rules of origin (PROOs) moderate the ‘trade diversion and trade creation’ effects of free trade agreements (FTAs). Moderation effects occur because restrictive PROOs reverse the increase in the relative price of non-member country goods initially caused by FTAs. Such a reversal arises because high compliance costs associated with restrictive PROOs lead to a lower utilization of tariff preferences by member countries. With a lower utilization, the increase in the relative price of non-members country goods would be smaller than it could have been with a full utilization. Thus, restrictive PROOs will lead to less than full trade diversion from non-members to member countries, and less than complete trade creation to member countries. This paper infers the effect of restrictive PROOs on intra-regional trade from the estimated parameters of the revenue function, on the presumption that trade diversion refers to a decrease in the elasticity of substitution between import sources, and that trade creation refers to a difference between the change in import price elasticity and the trade diversion effect. Empirical results support the conjecture that restrictive PROOs move in the opposite direction of FTAs partly undoing the trade diversion and trade creation effects of FTAs.

Ex Ore Tuo Te Iudico: The Value of the WTO Ministerial Decision on Preferential RoO for LDCs

This article discusses one of the outcome of the Bali package for the Least Developed Countries (LDCs), namely the Decision on preferential rules of origin (RoO) for LDCs, the prior proposals and discussions as well as its aftermath and prospects. Preferential RoO are a no man’s land in the multilateral trading system that has so far failed to regulate this important customs law, differently from customs valuation and customs classification. This is one reason why the ink of the Decision on preferential RoO for LDCs (The Decision) was not even dry when practitioners and commentators started to wonder about the value of the Decision. Most observers looked at the ‘big picture’ and rapidly relegated the value of the Decision to the realm of the ‘best endeavours scenario’. This is certainly true since the legal nature of the Decision and its wording do not provide clear guidelines or obligations. However, the real value of the Decision has to be contrasted with the existing background of multilateral disciplines and practices on preferential RoO. This paper argues that when measured against such background, the true value of the Decision may be reviewed under a new light, especially taking into account the possible work that could be carried out in the context of the Decision. In fact, the Decision contains a number of novelties and guidelines on drafting RoO. This holds especially true when the content of the Decision is contrasted with the annexes dealing with RoO contained in Kyoto Conventions of 1974 and 1999, and the ‘Common Declaration with regard to preferential rules of origin’ of the WTO Agreement on Rules of Origin (ARO).The Decision contains a number of interesting recommendations, albeit with a series of limitations, and sets preferential RoO for LDCs as an agenda item of the Committee on Rules of Origin (CRO). Much of the Decision’s value will thus depend on the will and the ability of WTO members, especially of the preference giving countries and LDCs, to build up a meaningful way forward in the context of the CRO to make further progress on suitable RoO for LDC that could benefit the multilateral trading system as a whole in the field of preferential RoO.

Preferential trade agreements between asymmetric countries: Free trade areas (with rules of origin) vs. customs unions

This paper examines differences in welfare implications between a free trade area (FTA) and a customs union (CU) for member countries differing in their market sizes. In a stylized three-country model of trade under oligopoly, we take into account the conditions that FTA members set external tariffs to induce their exporting firms to comply with rules of origin (ROO) within the trade bloc. This approach rules out trade deflection and regime switches in forming an effective FTA. The key findings are as follows: (i) Unless the difference in market size is too large and ROO are too restrictive, an FTA can be welfare-improving to countries with market size differential. (ii) The formation of a preferential trade agreement (either an FTA or a CU) is more likely to emerge between countries of similar market size. However, forming a CU allows for a greater degree of market size asymmetry than forming an FTA. (iii) Compared to the pre-PTA equilibrium, the greater reductions in external tariffs under an FTA than under a CU remain valid even for the case with market size asymmetry and preferential ROO. As such, a non-member country is relatively better off under an FTA. (iv) World welfare is higher under an FTA than under a CU when the market size asymmetry is moderate and ROO are less restrictive.

Free trade areas, the limit of Rules of Origin, and optimal tariff reductions under international oligopoly: A welfare analysis

In this article we analyze the economic effects associated with preferential Rules of Origin (RoO) in a free trade area (FTA). By presenting a stylized three-country model of trade under oligopoly, we show that there exists a maximum limit of RoO below which forming an FTA is welfare-improving. In examining external tariff reductions under FTA, we take into account the constrained conditions that optimal tariffs set by member countries effectively induce the intrabloc exporters to comply with RoO. This approach rules out trade regime switches and helps identify the economic determinants of establishing an effective and welfare-improving FTA with RoO. We further examine whether an FTA with RoO increases total trade or whether the extra trade arises at the expense of nonmembers. Our simple model has implications for economic factors that foster or impede regional economic integration under imperfect completion.