Rules Of Origin Governing Market Access In Textiles And Apparel Under Various Types Of Reciprocal And Non Reciprocal Preferential Trade Agreements Have Often Been Designed To Be Particularly Restrictive
Weaving the Fabric of Regional Cooperation for a Competitive Garment Sector 1-2 June 2005 Beijing, China Session 4 Market Access for Asian and Pacific Exports and Rules of Origin William James Trade Economist Growth through Investment and Trade Indonesia
Rules of origin are essential in preferential trading
Establish criteria for determining the country or customs territory from which a product originates
Allow customs authorities to distinguish between goods that are and are not eligible for preferential treatment
Rules of origin are to prevent trade deflection in FTAs
A FTA differs fundamentally from a customs union in that member countries independently set external tariffs against imports from non-members.
If an FTA were to be established without rules of origin, all imports from non-members would enter through the customs territory with the lowest tariff, effectively making the FTA a customs union with the common external tariff being that of the member with the lowest tariff.
If AFTA were not enforced by rules of origin, it would mean ASEAN had become a customs union with Singapore's external tariff.
No binding WTO disciplines on preferential rules of origin
WTO has yet to establish clear guidelines or disciplines over rules of origin in preferential trade agreements
Rules of origin governing market access in textiles and apparel under various types of reciprocal and non-reciprocal preferential trade agreements have often been designed to be particularly restrictive
For example, NAFTA applies a “yarn-forward” rule that requires that all inputs used in weaving, knitting, dyeing, and finishing fabric as well as forming, cutting and sewing apparel items be done within the member states; in some cases, even the fibers used to spin the yarn must originate within the member states
Administering rules of origin imposes costs on firms and governments. Meeting EC requirements for preferential duties was estimated to cost EFTA-based firms 3-5% of the value of the goods involved; similar calculations have been made for CER.
Too-restrictive rules of origin may lead to non-compliance and defeat the purpose of preferential agreements—trade expansion.
Rules of origin may themselves lead to trade diversion, particularly when combined with high margins of preference.
Lobbying over rules may divert firms from productive economic activities into unproductive rent-seeking.
Proliferation of overlapping systems of rules may distort trade.
Hence, simplification and harmonization of preferential rules of origin is part of the future program of work for the WTO.