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Rules of Origin for Preferential Trading Arrangements: Implications for AFTA of EU and US Regimes

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  • Cadot, Olivier
  • de Melo, Jaime
  • Portugal-Pérez, Alberto

Abstract

With FTAs under negotiation between Japan and AFTA members and between Korea and AFTA members, preferential market access will become more important in Asian regionalism. Protectionist pressures will likely rise with Rules of Origin (RoO), the natural outlet for these pressures. Based on the experience of the EU and US experience with RoO, this paper argues that, should these FTAs follow in the footsteps of the EU and the US and adopt similar RoO, trading partners in the region would incur unnecessary costs. Using EU trade with its GSP and ACP partners, the paper estimates how the utilization of preferences would likely change if AFTA were to veer away from its current uniform RoO requiring a 40% local content rate. Depending on the sample used, a 10 percentage point reduction in the local value content requirement is estimated to increase the utilization rate of preferences by between 2.5 and 8.2 percentage points.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5783.

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Date of creation: Aug 2006
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Handle: RePEc:cpr:ceprdp:5783

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Keywords: AFTA; ASEAN; market access; NAFTA; PANEURO; preferential trade agreements; rules of origin;

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  1. Ozden, Caglar & Sharma, Gunjan, 2004. "Price effects of preferential market access : the Caribbean Basin Initiative and the apparel sector," Policy Research Working Paper Series 3244, The World Bank.
  2. Avinash K. Dixit & Gene M. Grossman, 1981. "Trade and Protection with Multistage Production," NBER Working Papers 0794, National Bureau of Economic Research, Inc.
  3. O G Dayaratna Banda & John Whalley, 2005. "Beyond Goods and Services: Competition Policy, Investment, Mutual Recognition, Movement of Persons, and Broader Cooperation Provisions of Recent FTAs involving ASEAN Countries," NBER Working Papers 11232, National Bureau of Economic Research, Inc.
  4. Marcelo Olarreaga & Çaglar Özden, 2005. "AGOA and Apparel: Who Captures the Tariff Rent in the Presence of Preferential Market Access?," The World Economy, Wiley Blackwell, vol. 28(1), pages 63-77, 01.
  5. Paul Brenton & Miriam Manchin, 2002. "Making EU Trade Agreements Work: The Role of Rules of Origin," International Trade, EconWPA 0203003, EconWPA.
  6. Miriam Manchin, 2006. "Preference Utilisation and Tariff Reduction in EU Imports from ACP Countries," The World Economy, Wiley Blackwell, vol. 29(9), pages 1243-1266, 09.
  7. Kala Krishna, 2005. "Understanding Rules of Origin," NBER Working Papers 11150, National Bureau of Economic Research, Inc.
  8. Sanyal, Kalyan K & Jones, Ronald W, 1982. "The Theory of Trade in Middle Products," American Economic Review, American Economic Association, vol. 72(1), pages 16-31, March.
  9. �aglar Özden & Gunjan Sharma, 2006. "Price Effects of Preferential Market Access: Caribbean Basin Initiative and the Apparel Sector," World Bank Economic Review, World Bank Group, World Bank Group, vol. 20(2), pages 241-259.
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