DP5783 Rules of Origin for Preferential Trading Arrangements: Implications for AFTA of EU and US Regimes

Author(s): Olivier Cadot , Jaime de Melo , Alberto Portugal-Pérez

Publication Date: August 2006

Keyword(s): rules of origin , preferential trade agreements , market access , NAFTA , PANEURO , AFTA , ASEAN

JEL(s): F13 , F15

Programme Areas: International Trade and Regional Economics

Link to this Page: www.cepr.org/pubs/dps/DP5783.asp.asp

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.