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Multilateralising Regionalism: Relaxing the Rules of Origin Or Can Those Pecs Be Flexed?

  • Patricia Augier
  • Michael Gasiorek

    ()

  • Charles Lai-Tong

    (Centre for the Analysis of Regional Integration at Sussex, Department of Economics, University of Sussex)

In this paper we first explain why rules of origin are a necessary feature of preferential trading arrangements, but why they also serve to distort trade and can therefore be used for protectionist purposes, and why they have a powerful natural impetus towards strengthening the spaghetti bowl effect in international trade. Secondly, we then examine the impact of the relaxation of the potential constraining impact of rules of origin in the European context which was achieved through the introduction of the Pan-European Cumulation system (PECS). We provide empirical evidence at both the aggregate and sectoral level which reveals the positive impact of the relaxation of rules of origin via the introduction of “diagonal cumulation” arrangements between the EU and its’ trading partners. Thirdly, the discussion turns to a consideration of appropriate policy options designed both to minimise the spaghetti bowl effect, and to maximise the benefits from regionalism for developing countries.

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Paper provided by Centre for the Analysis of Regional Integration at Sussex, University of Sussex in its series CARIS Working Papers with number 03.

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Length: 28 pages
Date of creation: Sep 2007
Date of revision:
Handle: RePEc:ari:wpaper:03
Contact details of provider: Web page: http://www.sussex.ac.uk/Units/caris/

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  1. I-Hui Cheng & Howard J. Wall, 2005. "Controlling for heterogeneity in gravity models of trade and integration," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 49-63.
  2. Jose Anson & Olivier Cadot & Antoni Estevadeordal & Jaime de Melo & Akiko Suwa-Eisenmann & Bolorma Tumurchudur, 2004. "Rules of origin in north-south preferential trading arrangements with an application to NAFTA," Research Unit Working Papers 0406, Laboratoire d'Economie Appliquee, INRA.
  3. Arvind Panagariya & Rupa Duttagupta, 2003. "Free Trade Areas and Rules of Origin; Economics and Politics," IMF Working Papers 03/229, International Monetary Fund.
  4. Paul Brenton & Miriam Manchin, 2003. "Making EU Trade Agreements Work: The Role of Rules of Origin," The World Economy, Wiley Blackwell, vol. 26(5), pages 755-769, 05.
  5. Patricia Augier & Michael Gasiorek & Charles Lai-Tong, 2004. "Rules of Origin and the EU-Med Partnership: The Case of Textiles," The World Economy, Wiley Blackwell, vol. 27(9), pages 1449-1473, 09.
  6. Deardorff, Alan V., 2001. "International provision of trade services, trade, and fragmentation," Policy Research Working Paper Series 2548, The World Bank.
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  8. Soloaga, Isidro & Winters, L. Alan, 1999. "How has regionalism in the 1990s affected trade?," Policy Research Working Paper Series 2156, The World Bank.
  9. Jiandong Ju & Kala Krishna, 1996. "Market Access and Welfare Effects of Free Trade Areas without Rules of Origin," NBER Working Papers 5480, National Bureau of Economic Research, Inc.
  10. Rod Falvey & Geoff Reed, 1998. "Economic effects of rules of origin," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 134(2), pages 209-229, June.
  11. Deardorff, A.V., 1995. "Determinants of Bilateral Trade : Does Gravity Work in a Neoclassical World?," Papers 95-05, Michigan - Center for Research on Economic & Social Theory.
  12. P. J. Lloyd, 1993. "A Tariff Substitute for Rules of Origin in Free Trade Areas," The World Economy, Wiley Blackwell, vol. 16(6), pages 699-712, November.
  13. Sapir, Andre, 1998. "The political economy of EC regionalism," European Economic Review, Elsevier, vol. 42(3-5), pages 717-732, May.
  14. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-16, March.
  15. Kala Krishna, 2005. "Understanding Rules of Origin," NBER Working Papers 11150, National Bureau of Economic Research, Inc.
  16. Jiandong Ju & Kala Krishna, 2005. "Firm behaviour and market access in a Free Trade Area with rules of origin," Canadian Journal of Economics, Canadian Economics Association, vol. 38(1), pages 290-308, February.
  17. James E. Anderson & Eric van Wincoop, 2001. "Gravity with Gravitas: A Solution to the Border Puzzle," NBER Working Papers 8079, National Bureau of Economic Research, Inc.
  18. Rod Falvey & Geoff Reed, 2002. "Rules of Origin as Commercial Policy Instruments," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(2), pages 393-408, May.
  19. Laszlo Matyas, 1997. "Proper Econometric Specification of the Gravity Model," The World Economy, Wiley Blackwell, vol. 20(3), pages 363-368, 05.
  20. Ronald W. Jones & Sugata Marjit, 2001. "The Role of International Fragmentation in the Development Process," American Economic Review, American Economic Association, vol. 91(2), pages 363-366, May.
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  22. Kala Krishna & Anne Krueger, 1995. "Implementing Free Trade Areas: Rules of Origin and Hidden Protection," NBER Working Papers 4983, National Bureau of Economic Research, Inc.
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