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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
 

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

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    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 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 Presentation Transcript

    • 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
    • Preferential Rules of Origin
    • Preferential Trade Agreements
      • Non-Reciprocal Preference Agreements (i.e., GSP, AGOA, EBA)
      • Limited Preferential Agreements (e.g., European Iron and Coal Community, US-Canada Auto Pact)
      • Free Trade Agreements
      • Customs Unions
      • Common Markets
    • Preferential rules of origin
      • 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
    • Preferential rules of origin
      • Rules of origin determine the eligibility of products for tariff preferences under various types of trade agreements
        • Under the NAFTA, Mexico won quota-free access to the United States market for textiles and apparel in exchange for acceptance of the “yarn-forward” rule
        • Canada was granted a generous increase in tariff rate quotas for woolen suits (i.e., duty-free access up to a cap)
        • The European Communities (EC) rules of origin are slightly less restrictive than the “yarn-forward” rule, but still benefit producers using fabrics originating in the member states
    • Preferential rules of origin (continued)
      • Preferential trade agreements could alter global trade patterns in textiles and apparel significantly, to the advantage of members and to the disadvantage of non-members
      • This can be seen by comparing
        • Markets employing preferences with those that do not
        • Performance of products that have highly restrictive rules of origin (textiles and apparel) with those that do not (footwear, electronics)
        • Performance of quota-markets with quota-free markets
    • Improving preferential rules of origin
      • New preferential trade agreements entered into by the United States and European Communities allow for some flexibility.
      • Under the African Growth and Opportunity Act (AGOA) “least developed members” are entitled to produce apparel for export to the United States from non-originating fabric, subject to a cap.
      • The “yarn-forward” rule of origin applies to U.S. Free Trade Agreements with Singapore, Chile and Morocco. However, for Jordan, only a single transformation rule is used.
      • Some new FTAs between the United States and Central American countries and between the EC and Mediterranean countries allow for “cumulation.”
    • Economic costs of rules of origin
      • 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.
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