Transcript MARKET ACCESS ISSUES IN RTAs RULES OF ORIGIN RoO AND

Regional Policy Dialogue
V Meeting of the Trade and Integration Network
Impact of Free Trade Agreements on Trade
Antoni Estevadeordal
Integration,Trade and Hemispheric Issues Division
Inter-American Development Bank
Washington, D.C. 14-15 Agosto 2003
TRADITIONAL MARKET ACCESS ISSUES IN RTAs
• Instruments: MFN and Preferential Tariffs;
NTMs and Rules of Origin
• Preliminary empirical assessment impact
regional market access liberalization on
trade
MARKET ACCESS ISSUES IN RTAs
The Good News…
MFN and Preferential Average Tariffs in selected LAC Countries 1985-1997
50
40
MFN Tariff (Average 11 countries)
30
20
10
Preferential Tariffs for 11 countries
with respect to other
RTAs partners
0
1985
1987
1989
1991
1993
1995
1997
MARKET ACCESS ISSUES IN RTAs
The Bad (?) News…
ALCA
Bahamas
Haití
EEUU
Canadá-CA-4EEUU- MCCA
Canadá
EEUU- Chile
Mercosur
Nicaragua
Uruguay
MCCA
Costa Rica
Brasil
Chile
El Salvador
Guatemala
Honduras
República
Dominicana
Panamá
CARICOM Trinidad y
Dominica Surinam Tobago
Jamaica Sta. Lucia Belize
San Kitts y NevisGrenadaBarbados
GuyanaSt. Vincent & Grenadines
Antigua y Barbuda
Paraguay
México
Colombia
Perú Ecuador
Venezuela
CA
ALADI
Bolivia
Argentina
MARKET ACCESS ISSUES IN RTAs
MFN Tariffs
Comparative Tariff Structures (2000),
Frequency Distributions
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
30% - 50%
EU
15% - 30%
CR
0% - 15%
PERU
DR
CHILE
BRAZIL
MEXICO
CANADA
USA
0%
>50%
MARKET ACCESS ISSUES IN RTAs
Preferential Tariff Liberalization
% ITEMS FREE by 2005 under existing agreements
MARKET ACCESS ISSUES IN RTAs
Non-Tariff Measures
Non-Tariff Measure Incidence as a percent of Tariff Lines covered
Argentina
Colombia
México
All NTMs
Uruguay
Technical Measures
Brasil
Venezuela
Quantitative Measures
Perú
Chile
Ecuador
Paraguay
NTM Incidence
Bolivia
0
10
20
30
40
50
60
70
Acuerdos de Libre Comercio and
Intraregional trade, 1990 and 2000
(In millions of 1990 dollars)
El Salvador-Panama
Bolivia-Mexico
CARICOM-Dominican Rep.
CACM-Dominican Rep.
Mexico-Nicaragua
Chile-CACM
Mexico Israel
Costa Rica- Canada
Colombia-Chile
Chile-Venezuela
Costa Rica-Mexico
Chile-Canada
Chile-Peru
Bolivia-Mercosur
Mexico-EFTA
CARICOM
Chile-Mexico
G-3
CACM
Chile-Mercosur
AC
Chile-EU
Mercosur
Mexico-EU
NAFTA
1990
2000
1
10
100
1,000
10,000
100,000
1,000,000
Logarithmic
MARKET ACCESS ISSUES IN RTAs
Do Preferential Agreements matter for trade?
Gravity Model Estimates
ln (Bilateral Total Tradeijt) =
0 + D ln (Distanceijt) +
Y ln (YitYjt) + y ln (yityjt) +
L Landlockedijt + A Adjacentijt + I Islandijt
+ G Bilateral Preferential Tariffijt +
T MFN Tariffijt +
Other + ijt
Bilateral Trade and Preferential Tariffs
Dependent variable: Ln (Trade)
Panel Estimates 1985-1997
Log PreferentialTariff
-0.772
(5.34)
Log GDP Importer
0.798
(107.16)
Log GDP Exporter
0.943
(133.38)
Log Distance
-0.891
(32.21)
Bilat. Tariff/Avg. Importer Tariff -0.305
(9.46)
Exporter Avg World Tariff
2.628
(8.41)
Log Avg Dist Importer to World -0.114
(1.440)
Log Avg. Dist Exporter to World 0.535
(7.52)
Common Border
0.807
(15.48)
Either Is Landlocked
-0.665
(20.99)
Either Is An Island
-0.028
(0.920)
Common Language
0.198
(6.08)
Constant
-12.151
(14.17)
Observations
9709
R-Squared
0.84
Source: Estevadeordal and Robertson (2002)
Absolute value of t-statistics in parenthesis.
MARKET ACCESS ISSUES IN RTAs
RULES OF ORIGIN
Objectives
• Two types of RoO: non-preferential and preferential
• The justification for preferential RoO is to ensure that non-members do
not obtain access to regional preferences (avoid trade deflection)
• However, RoO can be a powerful trade policy instrument:
– RoO effects in the S/R different than in the L/R
– RoO can fully insulate an industry from the consequences of an
FTA
– RoO can protect intermediate good producers by favoring intraPTA supply links
– RoO can be used to attract investment in strategic sectors
– Very limited theoretical and empirical work
MARKET ACCESS ISSUES IN RTAs
RULES OF ORIGIN
Types of Product Specific RoO
Wholly obtained or produced
Where only one country enters into consideration in attributing origin
Substantial transformation
Where two or more countries have taken part in the production process
Change in Tariff Classification
Requires the product to change its tariff heading, chapter, heading, subheading, or item under the HS system, in the originating country
Domestic Content Rule or Regional Value Content
Requires a MIN % of local value added in the originating country (or a MAX
% of value originating in non-member countries)
Technical Requirement
Prescribes that the product must undergo specific manufacturing processing
operations in the originating country
MARKET ACCESS ISSUES IN RTAs
RULES OF ORIGIN
Types of Regime-Wide RoO
• Provisions adding leniency to RoO:
–
–
–
–
De minimis
Roll-up or absorption principle
Cumulation
Self-certification
• Provisions that may make RoO more restrictive:
–
–
–
–
Lists of operations insufficient to confer origin
No-drawback rule
Complex certification methods
Inefficient or non-transparent verification by customs
• Details matter a lot!
– RVC Rule: Definition of “cost”
– CTC Rule: Exceptions to CTC
MARKET ACCESS ISSUES IN RTAs
RULES OF ORIGIN
RoO and TRADE DEFLECTION
Rules of Origin as instruments against trade deflection
NAFTA: The greater the difference between MFN tariffs, the higher
the incentives for trade deflection and, therefore, the higher the
degree of stringency imposed by Rules of Origin.
MARKET ACCESS ISSUES IN RTAs
RULES OF ORIGIN
RoO AND ADMINISTRATIVE COSTS
EC-EFTA FTA: Administrative costs of certifying origin range from
1.4 – 5.7 percent value export transactions.
EFTA: Administrative costs of certifying origin range from 3 – 5
percent value export transactions.
MARKET ACCESS ISSUES IN RTAs
RULES OF ORIGIN
RoO AND UTILIZATION RATES
Restrictiveness vs. Administrative Costs
CUFTA and NAFTA: Key Market Access Change from CUFTA to
NAFTA was RoO Regime (Preferential Tariff Liberalization from
CUFTA was built-in NAFTA agreement):
NAFTA UTILIZATION RATES (Canada exports to US) declined in
those sectors with more stringent RoO [PROTECTION EFFECT vs.
ADMINISTRATIVE COSTS EFFECT]
GSP / AGOA : Similar evidence on low utilization rates due to RoO
Figure 1 – Rules of Origin and Utilization Rates: CUSFTA vs. NAFTA
Percent of
total U.S.
imports from
Canada
100
90
80
Textile sector
Chemical sector*
70
Iron/steel sector*
Average of all products experiencing equal or less
restrictive Rules of Origin (RoO) under NAFTA
Average of all products with more restrictive RoO
under NAFTA
60
1990
1991
1992
1993
1994
* Average of products within the sector with more restrictive Rules of Origin under NAFTA.
Note: 1991 and 1993 data points linearly interpolated.
1995
1996
1997
MARKET ACCESS ISSUES IN RTAs
RULES OF ORIGIN
Rules of Origin in around the World
• Comparative Analysis of the Structure of RoO Regimes:
–
–
–
–
–
–
Europe
Americas
Asia
Africa
The Middle East
Non-Preferential RoO
• Comparisons of the Restrictiveness of Product-Specific RoO across
RoO Regimes
• Comparisons of the Regime-Wide “Trade-Facilitating” RoO
Provisions
F
RE
-P
N
O
N
EL
RA N
IS DC A
S- RC
U JOG
B
SIM
U
-Z
IB
M C
A D
N SA AS
W
O SA
EC E OK
MK
CON G
A
BA
EC
RTTA
AF A
SP A RT
ETA
ZCF
NSA L
A
O
-B
C IAHIM
ER A-C C
M LCCA
EREMIL
L
CH BO
EX R
M -C
EX
M
EX
TA
F-3M
AAG 97
NT EE F PR
EU HI
-C X
EU-MERO
U
EUNE
PA
A greement
Source:
Estevadeordal
and
Suominen
(2003)
4
RoO Index
8
7
6
Restrictiveness
of RoO,
Selected
RTAs
5
3
2
1
0
RegimeWide
RoO in
Selected
RTAs
Source:
Estevadeordal and
Suominen (2003)
De minimis
(percentage)
Roll-Up
PTA
PANEURO (50)
PE (15)
10
10
Yes
Yes
EU-South Af.
EU-Mexico
EU-Chile
EFTA-Mexico
NAFTA
G3
Mexico-CR
Mexico-Chile
Mexico-Bolivia
Canada-Chile
CACM-Chile
15
10
10
10
7
7
7
8
7
9
8
Yes
Yes
Yes
Yes
Yes except automotive
Yes
Yes
Yes
Yes
Yes
Yes
CACM
7
N/A
Yes
No
Mercosur
Mercosur-Chile
Mercosur-Bol
Caricom
Caricom-DR
ANZCERTA
SAFTA
SPARTECA
AFTA
BANGKOK
COMESA
ECOWAS
SADC
GULF CC
No
Not mentioned
Not mentioned
Not mentioned
7
2
2
2
No
Not mentioned
No
Not mentioned
10
Not mentioned
Yes except automotive
Yes
Yes
Not mentioned
Not mentioned
Yes
Yes
Yes
Not mentioned
Yes
Yes
Not mentioned
Yes
Not mentioned
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
No
No
No
No
No
Yes (full)
No
Yes (full)
No
No
No
No
No
No
US-Jordan
US-Israel
Not mentioned
No
Not mentioned
Yes
Yes
Yes
10
10
Yes
Yes
Yes
Yes
No
No
Yes
(with US)
No
Canada-Israel
Mexico-Israel
Cumulation
Bilateral
Diagonal
Yes
(full in EEA)
Yes
Yes
Yes
Yes with ACP
(full with SACU)
Yes
Yes
No
Yes
No
Yes
No
Yes
No
Yes
No
Yes
No
Yes
No
Yes
No
Yes
No
Yes
No
Drawback
Allowed?
No
No
Not mentioned
No after 2 years
No after 4 years
No after 3 years
No after 7 years for Mex.
Not mentioned
No after 7 years
Not mentioned
No after 8 years
Not mentioned
Not mentioned
Yes
Yes (except automotive
imports from Argentina and
Brazil)
Yes
Yes
Possibly
Not mentioned
Yes
Not mentioned
Yes
Yes
Not mentioned
Not after 10 years
Not mentioned
Not mentioned
Not mentioned
Not mentioned
Yes
Not mentioned
Not mentioned
Certification
Method in
Selected
RTAs
Source:
Estevadeordal and
Suominen (2003)
PTA
PANEURO
PE
EU-South Africa
EU-Mexico
EU-Chile
NAFTA
G3
US-Chile
Mexico-CR
Mexico-Bolivia
Canada-Chile
CACM-Chile
CACM
Mercosur
Mercosur-Chile
Mercosur-Bolivia
CAN
CARICOM
CARICOM-DR
LAIA
ANZCERTA
SAFTA
SPARTECA
AFTA
BANGKOK
Japan-Singapore
Chile-Korea
COMESA
ECOWAS
SADC
US-Jordan
Certification method
Two-step private and public; limited self-certification
Two-step private and public; limited self-certification
Two-step private and public; limited self-certification
Two-step private and public; limited self-certification
Two-step private and public; limited self-certification
Self-certification
Two-step private and public
Self-certification
Self-certification
Self-certification (two-step private and public during first 4 years)
Self-certification
Self-certification
Self-certification
Public (or delegated to a private entity)
Public (or delegated to a private entity)
Public (or delegated to a private entity)
Public (or delegated to a private entity)
Public (or delegated to a private entity)
Public (or delegated to a private entity)
Two-step private and public
Public (or delegated to a private entity)
Public (or delegated to a private entity)
Not mentioned
Public (or delegated to a private entity)
Public (or delegated to a private entity)
Public (or delegated to a private entity)
Self-certification
Two-step private and public
Public (or delegated to a private entity)
Two-step private and public
Self-certification
Facilitation Index for Selected RTAs
Source: Estevadeordal and Suominen (2003)
5
4
Facil Index
3
2
1
0
Agreement
MARKET ACCESS ISSUES IN RTAs
RULES OF ORIGIN
Do RoO matter for trade?
• A modified gravity model to assess the trade effects of:
- Product-specific RoO of different degrees of
(1) restrictiveness and (2) selectivity
- Flexibility provided by regime-wide “facilitation provisions”
• Trade “operationalized” in two ways:
- Aggregate imports (2001)
- Imports in intermediate goods in vehicles (2001)
• Sample:
- 156 countries
- About a hundred PTAs
MARKET ACCESS ISSUES IN RTAs
RULES OF ORIGIN
Do RoO matter for trade?
Gravity Model Estimates
ln (Bilateral Total Tradeijt) =
0 + D ln (Distanceijt) +
Y ln (YitYjt) + y ln (yityjt) +
L Landlockedijt + A Adjacentijt + I Islandijt +
G Rules of Originijt +
Other + ijt
Bilate ral Total Trade and Ave rage Rule s of Origin Re strictive ne ss:
Dependent variable: Ln (Average Bilateral Trade 1999-2001). OLS Estimates
0.94
0.94
0.94
Ln (GDP product)
(131.41)
(130.95)
(131.68)
0.06
0.06
0.05
Ln (GDP p.c. product)
(6.49)
(6.42)
(4.99)
-0.89
-0.89
-0.83
Distance
(37.65)
(37.54)
(33.77)
0.17
0.16
0.18
Island importer
(3.91)
(3.89)
(4.29)
0.17
0.17
0.18
Island exporter
(3.95)
(3.94)
(4.25)
1.12
1.11
1.13
Former colony
(8.09)
(7.99)
(8.18)
0.76
0.76
0.77
Common colonizer
(11.73)
(11.79)
(11.98)
0.62
0.62
0.66
Common language
(10.89)
(10.87)
(11.50)
1.30
1.31
1.31
Common border
(11.50)
(11.60)
(11.66)
-0.61
-0.60
-0.61
Ln (RoO restrictiveness index)
(11.23)
(10.97)
(11.34)
0.61
North-South PTA
(3.80)
0.86
Pan-Euro PTA
(9.14)
Constant
-22.72
(68.22)
-22.68
(68.09)
-23.05
(69.00)
Observations
Adjusted/Pseudo R-squared
14,698
0.684
14,698
0.684
14,698
0.686
S ource: Estevadeordal and S uominen (2003)
Notes: Absolute value of t-statistics in parentheses.
MARKET ACCESS ISSUES IN RTAs
RULES OF ORIGIN
Do RoO matter for trade?
ln (Bilateral “INTERMEDIATE” Tradeijt) =
0 + D ln (Distanceijt) +
Y ln (YitYjt) + y ln (yityjt) +
L Landlockedijt + A Adjacentijt + I Islandijt +
G Rules of Origin on “FINAL GOODS”ijt +
Other + ijt
Bilateral Intermediate Trade and Rules of Origin
on Final Goods [Automotive Sector]
Dep variable: Ln (Intermediate Vehicle Trade 1999-2001).
OLS Estimates
Ln GDP product
1.04
1.05
(59.63)
(60.96)
Ln GDP per capita
0.05
0.02
(2.28)
(0.98)
Distance
-1.07
-0.87
(24.57)
(18.87)
Adjacent
1.31
1.30
(6.50)
(6.51)
Common language
0.28
0.30
(2.17)
(2.40)
Colonial relationship
0.92
0.95
(3.87)
(4.08)
Common colonial relationship
1.01
0.93
(5.79)
(5.47)
Island importer
0.10
0.17
(0.98)
(1.72)
Island exporter
0.19
0.24
(1.94)
(2.52)
RoO "complexity" (sd) Final Goods
3.50
(3.26)
Ln RoO "restrictiveness" (avg) Final
0.77
(11.78)
Constant
-32.68
-34.63
(41.46)
(43.57)
Observations
5,078
5,078
Adjusted/R-squared
0.539
0.55
Source: Estevadeordal and Suominen (2003)
Notes: Absolute value of t-statistics in parentheses.
Regional Policy Dialogue
V Meeting of the Trade and Integration Network
Impact of Free Trade Agreements on Trade
Antoni Estevadeordal
Integration,Trade and Hemispheric Issues Division
Inter-American Development Bank
Washington, D.C. 14-15 Agosto 2003