General Issues and Regional Groups
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Edited by Miroslav N. Jovanović
Chapter 8: Understanding the Barriers to Entry Effects of Rules of Origin in Preferential Trading Arrangements with an Application to Asian FTAs
8 Understanding the barriers to entry effects of rules of origin in preferential trading arrangements with an application to Asian FTAs Olivier Cadot, Jaime de Melo and Alberto Portugal-Pérez* 1 INTRODUCTION With more trade taking place on a preferential basis, the adoption of complex rules of origin (ROO) has been attracting increased attention. These ROO include ‘regimewide’ rules and a long list of product-specific ROO (PSRO). It is therefore not surprising that negotiation on preferential trade agreements (PTAs), reciprocal or unilateral has devoted considerable energy to the negotiation of ROO, an instrument that has so far eluded any discipline from the world trading system. With the large number of trading arrangements under way, it is very plausible that lobbying activities will resemble those in other PTAs, especially those involving the US and the EU where powerful lobbies have often managed to justify what appear ex post to be ‘made-to-measure’ ROO which maximise rent extraction to their benefit at the expense of the weaker partners.1 ROO are indeed necessary policy tools to prevent trade deflection in any PTA short of a customs union. Trade deflection occurs when an importer re-exports to a partner a good produced outside the agreement imported through the country with the lowest most favoured nation (MFN) tariff. The problem is that in practice, as shown below (and elsewhere, see, for example, Cadot and de Melo, 2008), ROO are opaque and complicated, reflecting the influence of lobbying activities by interest groups. The issue then is whether ROO...
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