Working Paper: CEPR ID: DP5783
Authors: Olivier Cadot; Jaime de Melo; Alberto Portugal-Perez
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.
Keywords: AFTA; ASEAN; Market Access; NAFTA; Paneuro; Preferential Trade Agreements; Rules of Origin
JEL Codes: F13; F15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| stringency of ROO (L66) | utilization rate of preferences (D11) |
| less stringent ROO (L69) | higher utilization of preferential access (L97) |
| complex ROO (R15) | diminished value of preferences (D11) |
| complex ROO (R15) | reduced market access (F69) |
| AFTA partners adopting more complex ROO (F15) | increased costs and reduced efficiency in trade (F12) |