Rules of Origin: World Map and Economic Effects

Transcription

1 Rules of Origin: World Map and Economic Effects Antoni Estevadeordal and Kati Suominen Integration, Trade and Hemispheric Issues Division Integration and Regional Programs Department Inter-American Development Bank RoO Video Conference 16 June 2005 The World Bank, Washington, DC

2 Motivation Preferential trading arrangements (PTAs) have proliferated spectacularly around the world to govern nearly half of world trade However, there are very few mappings of the various trade disciplines (services, investment, safeguards, rules of origin) that PTAs carry, and very little understanding of the economic effects of these disciplines Rules of origin are included in virtually all PTAs and widely considered a protectionist trade policy instrument, or NTB in disguise However, the universe and effects of RoO are largely unknown RoO are a central market access topic in the on-going FTA talks, incl.between the US and Andean countries However, lack of policy recommendations on non-distortive RoO hampers a sound design of RoO regimes

3 Purpose This presentation strives to: (1) advance the understanding of RoO by (a) charting the universe of RoO regimes; and (b) presenting the latest finding on the economic effects of RoO; and (2) provide insights for the design of the RoO regime in a US-Andean FTA

4 Organization I. Rules of Origin: Objectives, Relevance, and Heightened Policy Attention II. Charting the World Map of RoO Regimes: (a) Product-Specific RoO (b) Regime-Wide RoO (c) RoO Innovations III. Measuring RoO and RoO Regimes (a) Restrictiveness Index of Product-Specific RoO (b) Facilitation Index of Regime-Wide RoO IV. Reviewing evidence on the economic effects of RoO (a) Aggregate Trade in (b) Intermediate Goods Trade in 5 Sectors in (c) Some preliminary evidence of impact on FDI flows V. Lessons for the Design of the RoO Regime in the Future US-Andean FTA

5 Rules of Origin: Objectives, Relevance, & Heightened Policy Attention

6 Objectives of RoO Two types of RoO: non-preferential and preferential Preferential RoO define the share of inputs that have to be procured or production processes that have to be performed within the PTA area in order for the good to be considered originating = RoO establish a minimum cost share that has to arise within the PTA The justification for preferential RoO: ensure that non-members do not obtain access to PTA preferences (to avoid trade deflection)

7 Why Do RoO Matter? RoO can (but do not necessarily) create two types of costs: The technical requirements of RoO can entail production costs If causing final goods producers to purchase inputs or carry out production processes in the PTA area when extra-pta sources were cheaper, RoO can increase the costs and reduce the competitiveness of the final goods producer The administrative requirements to meet RoO (certification of origin etc. paperwork) can entail administrative costs Example 1: the cost of a certificate for a single shipment is $6-20 in Brazil, $7 in Chile, etc. Example 2: Average export transaction from EFTA to EC in 1980s = 35 documents and 360 copies (Holmes and Shephard 1983) In the aggregate, administrative costs estimated to rise to 1-6% of the value of exports in EC-EFTA (Koskinen 1983), and 2% of Mexican exports to US in NAFTA (Cadot et al. 2002)

8 Policy Implications RoO can tempt political economy uses RoO can fully insulate an industry from the consequences of an FTA RoO can protect intermediate good producers by favoring intra-pta supply links RoO can attract investment in strategic sectors In a given PTA: if RoO are restrictive enough to increase production and/or administrative costs vis-à-vis the pre- PTA world, they can undermine (1) the utilization rates of PTA preferences; and (2) PTA s liberalizing and trade-creating potential In the global system of PTAs: differences across RoO regimes can complicate operations particularly for producers in PTA spokes Consider: Chile in FTAs with US, Mercosur, EU, CACM, Korea, etc.

9 Percent of total U.S. imports from Canada RoO and Utilization Rates: Canada-US FTA vs. NAFTA 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 * Average of products within the sector with more restrictive Rules of Origin under NAFTA. Note: 1991 and 1993 data points linearly interpolated.

10 Japan Americas Spaghetti Bowl Korea Nicaragua CAFTA FTAA USA Canada-CA-4 Canada Bahamas Haiti US-Chile MERCOSUR Uruguay Paraguay EU CACM Costa Rica Mexico Chile Brazil Dominican Republic El Salvador Guatemala Honduras Panama Argentina CARICOM Dominica, Suriname, Jamaica, St. Lucia, Belize, Trinidad & Tobago St. Kitts & Nevis, Grenada, Barbados, Guyana, St. Vincent & the Grenadines, Antigua & Barbuda Colombia Venezuela Peru Ecuador AC Bolivia ALADI

11 s 2004 Bhutan, Maldives, Nepal, Pakistan Banglades h India Sri Lanka Lao s Myanmar Cambodia Viet Nam Malaysia Thailand New Zealand Indonesia Brunei Darussalam Philippines Singapo re Russia USA Costa Rica Dominican Republic Nicaragua El Salvador Chile Guatemala Honduras Panama Paraguay BrazilArgentina Uruguay Mexico Japan People s Rep. of China Peru Hong Kong, China Chinese Taipei Australia Korea Canada Colombi a Venezuela Bolivia Ecuador Fiji, Solomon Islands, Vanuatu Papua New Guinea Bahamas Haiti Fed. States of Micronesia, Marshall Islands, Kiribati, Palau, W. Samoa,Tonga, Vanuatu, E. Timor, Cook Islands, Nauru, Niue, Tuvalu Dominica, Suriname, Jamaica, St. Lucia, Belize, St. Kitts & Nevis, Grenada, Barbados, Guyana, St. Vincent & the Grenadines, Antigua & Barbuda, Trinidad & Tobago ASIA AMERICAS

12 Growing Multilateral Policy Attention on RoO RoO are feared to breach Article XXIV of the GATT The WTO has raised preferential RoO to a systemic issue in the Doha Trade Round Non-Preferential RoO are being harmonized under Uruguay Round Agreements

13 Product-Specific RoO

14 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 (CTC) Requires the product to change its HS tariff heading, chapter, heading, sub-heading, or item in the originating country Import Content Rule (MC) or Regional Value Content (RVC) MC prescribes a MAX % of value originating in non-member countries; RVC the MIN % of local value added in the originating country Technical Requirement (TECH) Prescribes the specific manufacturing processing operations the product must undergo in the originating country

15 Frequency of Various Product-Specific RoO Criteria PTAs CTH Customs unions (6) 6 FTAs and other PTAs (87) 83 Criterion VALUE CONTENT TECH MC RVC VP (40-60%) (35-60%) (30-60%) (25-65%) Source: World Trade Organization (2002).

16 Product-specific RoO in Europe The product-specific RoO of the EU s PANEURO system cover more than 65 PTAs, both across Europe and in EU s recent extra-regional PTAs with Mexico, Chile, and South Africa PANEURO model mainly combines CTC (usually CH) with MC and/or TECH Note! EU expansion => many PANEURO PTAs disappeared overnight

17 Product Specific RoO in the Americas Four RoO families: 1. LAIA, Andean Community, Caricom -across-the-board CH or VC 2. NAFTA, US-Chile, CAFTA, Mexico s FTAs, Canada-Chile, Chile-CACM -high degree of variation in RoO across products -different types of CTC in combinations with VC and/or TECH 3. Mercosur and its FTAs with Chile and Bolivia -mainly CH; also CH and VC or TECH 4. CACM -falls between NAFTA and Mercosur models: mainly CTC but also combinations

18 Product-specific RoO in Asia and RoW RoO are based on an across-the-board RVC criterion (usually RVC of percent) Alternative, across-the-board RoO usually involves a change in heading or change in subheading More complex RoO regimes emerging: - SADC - Japan-Singapore FTA - US-Singapore FTA - Chile-Korea FTA - Some moves to renegotiate RoO in Africa

19 Product-specific NON-PREFERENTIAL RoO Harmonization work carried out since July 1995 by the WTO and the World Customs Cooperation Council The most common harmonized RoO is change in heading; however, there is also important degrees of sectoral selectivity Some 90 issue areas affecting about 20% of tariff lines have yet to be resolved

20 Distribution of CTC Criteria by Agreement NAFTA US-CHI CAFTA G-3 MEX-CR MEX-BOL CAN-CHILE CACM-CHI MERCOSUR-CHILE MERCOSUR-BOL LAIA CHI-KOR US-JORDAN US-ISRAEL PANEURO EU-MEX EU-CHILE EFTA-MEX ANZCERTA SAFTA SPARTECA AFTA BANGKOK AGR JSEPA ECOWAS COMESA NAMIBIA-ZIMB SADC GULF CC No change of classification specified Change of item and/or sub-heading Change of heading Change of chapter

21 Type and Height of RVC Criteria Selected PTAs

22 RoO Combinations Selected PTAs

23 Regime-Wide RoO

24 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

25 Frequency of General RoO Provisions PTAs Customs unions (6) FTAs and other PTAs (87) DE TYPE OF CUMULATION MINIMIS Bilateral Diagonal Full ROLL-UP Source: World Trade Organization (2002).

26 Regime- Wide RoO Selected PTAs

27 Certification Method Selected PTAs PTA NAFTA US-Chile CAFTA G3 Mexico-Costa Rica Mexico-Bolivia Canada-Chile CACM-Chile CACM Mercosur Mercosur-Chile Mercosur-Bolivia Andean Community Caricom Caricom-DR LAIA Chile-Korea US-Singapore US-Jordan PANEURO EU-Mexico EU-Chile ANZCERTA SAFTA AFTA Bangkok Agreement Japan-Singapore COMESA ECOWAS SADC Certification method Self-certification Self-certification Self-certification Two-step private and public 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 Self-certification Self-certification 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 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) Two-step private and public

28 RoO Innovations

29 RoO Innovations: Ad Hoc Flexibility Mechanisms Many RoO regimes, and N-S regimes (CAFTA, NAFTA, EU- Mex FTA, etc.), contain further innovative flexibility tools: Phase-in periods for a stringent value content RoO Example: EU-Mex RoO on vehicles = 40% MC. However, Mex applies 55% MC for 2,500 units ; 50% MC ; 40% in 2007 Permanent deviations from the RoO regime Example 1: CAN RoO = 60% MC; however, Ecu and Bol = 50% MC Example 2: EU-Chile FTA Heading (or subheadings thereof) PANEURO EU-Chile FTA 7601 (Unwrought aluminum) CS + TECH CH + VC 50% (Office machines and parts and accessories thereof) VC 60% VC 50% 8481 ( Other appliances under the heading of taps, cocks, valves and similar appliances for pipes, boiler shells, tanks, vats or the like, CH + VC 60% VC 60% 8504 (Power supply units for automatic data-processing machines) VC 60% VC 50% 8509 (Vacuum cleaners, including dry and wet vacuum cleaners; floor polishers CH + VC 60% VC 60% 8517 (Electrical apparatus for line telephony or line telegraphy, including line telephone sets with cordless handsets and telecommunication apparatus for carrier-current line systems or for CH + VC 60% VC 50% 8523 (Prepared unrecorded media for sound recording or similar recording of other phenomena, other than products of Ch. 37) VC 60% VC 50%

30 RoO Innovations Cont. Options/Flexibility in calculating MC/RVC Example 1: Number of ways in NAFTA to calculate RVC in vehicles (as long as intermediate goods are from chapters 40 and 84) Example 2: Outward processing in Singapore s FTAs: Stage1 Stage 2 Stage 3 Singapore Foreign Country Singapore Exported Conventional RoO Stage 3 = Local Content Recognition of OP Stage 1 + Stage 3 = Local Content Tariff preference levels (TPLs) Example: NAFTA Textiles NAFTA Schedule 6.B.1: Preferential Tariff Treatment for Non-Originating Apparel and Made-Up Goods Imports into Canada Cotton or manmade fiber apparel from Mex 6,000,000 SME from US 9,000,000 SME Wool apparel from Mex 250,000 SME from US 919,740 SME Imports into Mexico Cotton or manmade fiber from Can 6,000,000 SME from US 12,000,000 SME apparel Wool apparel from Can 250,000 SME from US 1,000,000 SME Imports into United States Cotton or Manmade fiber apparel from Can 80,000,000 SME from Mex 45,000,000 SME Wool apparel from Can 5,066,948 SME from Mex 1,500,000 SME

31 Measuring the Restrictiveness of Product-Specific RoO

32 Measuring and Comparing Restrictiveness of Product-Specific RoO Restrictiveness measured by Estevadeordal s (2000) index ranging from 1 (least restrictive) to 7 (most restrictive) Construction of index: - CC more restrictive than CH, CH more restrictive than CS, etc. - RVC and TECH add to restrictiveness y = 1 if y* CI y = 2 if CI < y* CS y = 3 if CS < y* CS and RVC y = 4 if CS and RVC < y* CH y = 5 if CH < y* CH and RVC y = 6 if CH and RVC < y* CC y = 7 if CC < y* CC and TECH

33 NONPREF AFTA EUCHILE EUMEX PANEURO USISRAEL USJORDAN ANDEAN MERCBOL MERCOCHI CHIKOREA MEXBOLIV MEXCR G3 CAFTA USCHILE NAFTA Restrictiveness of RoO, Selected PTAs

34 Sectoral Restrictiveness of RoO, Selected FTAs NAFTA US-Chile CAFTA G3 Chile- Chile- PANEURO Non- HS Section CACM Korea Pref Avg 1. Live Animals Vegetable Products Fats and Oils Food, Bev. & Tobacco Mineral Products Chemicals Plastics Leather Goods Wood Products Pulp and Paper Textile and App Footwear Stone and Glass Jewelry Base Metals Mach. & Elec. Eq Transportation Eq Optics Arms & Ammun Works of Art, Misc Average Complexity (Stand. Dev.)

35 Comparing the Restrictiveness of RoO Regimes Sectoral restrictiveness is very similar across the main regimes Highest restrictiveness values in sectors with relatively high tariffs especially in the US and EU: Agriculture Textiles and apparel Transportation equipment

36 Facilitation Index of Regime-Wide RoO

37 Regime-Wide RoO: A Facilitation Index Comprised of mechanisms that add flexibility to the application of the product-specific RoO Based on a scheme that considers five components: De minimis Diagonal cumulation Full cumulation Drawback Self-certification Maximum index value is 5: Each component is worth 1 point if permitted by the RoO regime De minimis is worth 1 point when 5% or above

38 Facilitation Index for Selected PTAs NAFTA US-CHILE CAFTA G3 MEX-CR MEX-BOLIV CHILE-KOREA MERC-CHILE MERC-BOL ANDEAN COMM. US-JORDAN US-ISRAEL PANEURO EU-MEX EU-CHILE AFTA

39 Trade & Investment Effects of RoO

40 Summary of Evidence Empirical evidence of political economy of RoO: RoO are used for political economy purposes Theoretical evidence on effects of RoO: restrictive RoO distort trade, investment, and production patterns Latest empirical evidence on effects of RoO: Restrictive RoO undermine the utilization of PTA preferences Restrictive RoO dampen aggregate trade flows between PTA partners Restrictive RoO can result in trade diversion in intermediates to the PTA area Preliminary finding: restrictive RoO are unconducive to FDI inflows

41 Estimating the Effects of RoO on Trade: The Gravity Model Sample: 155 countries, 100 PTAs and 21 years ( ) Dependent Variables: (1) Aggregate Imports (2) Imports in Intermediate Goods in 5 Sectors - Chemicals, Machinery, Textiles, TV & Radio Transmitters, Vehicles Key Independent Variables: ( = Putting RoO and Facil indices to work!) (1) ROORI = Avg. restrictiveness of RoO (in the pair s common RoO regime) (2) ROOSD = Standard deviation of ROORI ( sectoral selectivity of RoO ) (3) FACIL = Facilitation Index

42 RoO and Bilateral Aggregate Trade Gravity Model 1: Ln(Bilateral Trade) = b 0 + b 1 ln(gdp i ) + b 2 ln(gdp j ) + b 3 ln(gdppc i ) + b 4 ln(gdppc j ) + b 5 ln(distance ij ) + b 6 ln(border ij ) + b 7 ln(common_language ij ) + b 8 ln(colonial RELATIONSHIP ij ) + b 9 ln (COMMON COLONIZER ij ) + b 10 ln(pta ij ) + b 11 ln(roo_restrictiveness ij ) + b 12 ln(facil ij ) + ε

43 Dependent Variable: Ln (Trade) Dependent Variable: Ln(Trade) Independent Variables All pairs PTA Pairs All Pairs PTA Pairs PTA Pairs I II III IV V VI VII VIII XI X XI ln(gdp_imp) (8.18)** (7.55)** (7.58)** (9.86)** (9.68)** (7.58)** (7.56)** (9.80)** (9.72)** (4.86)** (4.84)** ln(gdp_exp) (10.58)** (9.20)** (9.27)** (3.04)** (2.76)** (9.22)** (9.17)** (3.04)** (2.93)** (0.94) (0.86) ln(percap GDP_imp) (13.74)** (14.51)** (14.46)** (8.82)** (8.57)** (14.31)** (14.30)** (8.79)** (8.60)** (9.00)** (8.90)** ln(percap GDP_exp) (14.40)** (15.82)** (15.76)** (2.64)* (2.32)* (15.54)** (15.56)** (2.66)** (2.49)* (0.68) (0.65) ln(distance) (185.94)** (183.73)** (182.75)** (47.45)** (47.29)** (185.22)** (184.45)** (49.01)** (49.09)** (45.61)** (45.70)** Common Border (10.32)** (9.12)** (9.37)** (11.71)** (11.19)** (9.22)** (9.37)** (11.78)** (11.34)** (10.82)** (10.40)** Common Language (24.39)** (23.07)** (23.26)** (0.54) (0.23) (22.99)** (23.06)** (0.23) (0.04) (1.68) (1.87) Colonial Rel (41.74)** (42.07)** (42.04)** (7.99)** (7.63)** (41.68)** (41.60)** (8.43)** (8.17)** (8.19)** (7.87)** Common Colonizer (39.11)** (37.67)** (38.11)** (14.79)** (14.93)** (38.01)** (38.38)** (14.13)** (13.97)** (10.55)** (10.44)** PTA (28.56)** (38.53)** (36.90)** (36.51)** (15.66)** ln(restrictiveness Avg) (31.26)** (31.49)** (6.91)** (7.74)** ln(restrictiveness Sd) (22.71)** (22.74)** (1.13) (0.55) (1.49) (2.63)** Facil (8.02)** (8.47)** (7.10)** (6.85)** (5.53)** Constant (2.59)** (1.28) (1.36) (1.00) (0.88) (1.13) (1.06) (1.23) (1.25) (3.83)* (3.67)** Observations Adjusted R-squared Year FE Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Importer and Exporter FE Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Absolute value of t-statistics in parentheses * significant at 5 percent level; ** significant at 1 percent level

44 Separate Effects of Facil Components Dependent variable: Ln(Trade) Key Independent Variables All Pairs PTA Pairs PTA (11.61)** ln(restrictiveness Avg) (20.22)** (7.91)** De Minimis (5.52)** (4.64)** Diagonal Cumulation (1.58) (2.65)** Full Cumulation (4.11)** (8.41)** Drawback (10.03)** (0.29) Self-Certification (10.04)** (5.59)** Constant (0.61) (0.45) Observations Adjusted R-squared Year FE Yes Yes Importer and Exporter FE Yes Yes Absolute value of t-statistics in parentheses * = significant at 5 percent level; ** = significant at 1 percent level

45 What Are the Effects of RoO over Time? Two plausible answers: 1. The restrictiveness of RoO has increased over time: RoO could be expected to obstruct trade flows increasingly each year 2. Exporters learn to comply with RoO, take advantage of the facilitation terms, and/or alter production strategies to meet the RoO: RoO learning could reduce RoO interference over time Finding supports number 2: the bad effects of RoO do go down somewhat over time.

46 In Sum: Effect of ROORI and FACIL on Aggregate Trade, % 30% 20% 10% RoO Facil 0% % -20%

47 Do Stringent RoOs Divert Trade in Intermediates? Ln(Bilateral Trade in intermediates in sector s) = b 0 + b 1 ln(gdp i ) + b 2 ln(gdp j ) + b 3 ln(gdppc i ) + b 4 ln(gdppc j ) + b 5 ln(distance ij ) + b 6 ln(border ij ) + b 7 ln(common_language ij ) + b 8 ln(colonial RELATIONSHIP ij ) + b 9 ln (COMMON COLONIZER ij ) + b 10 ln(roo_restrictiveness IN FINAL GOODS IN SECTOR s ij ) + b 11 ln(facil ij ) + ε

48 Trade in Intermediates by Sector and ROORI, Chemicals RoO Restrictiveness (64.96)** (9.45)** Facilitation Index (19.81)** Observations Adjusted R-squared Machinery RoO Restrictiveness (67.56)** (14.73)** Facilitation Index (14.06)** Observations Adjusted R-squared Television and Radio Transmitters RoO Restrictiveness (63.85)** (15.25)** Facilitation Index (12.01)** Observations Adjusted R-squared Textiles RoO Restrictiveness (54.47)** (18.31)** Facilitation Index (3.42)** Observations Adjusted R-squared Vehicles RoO Restrictiveness (59.63)** (14.66)** Facilitation Index (10.55)** Observations Adjusted R-squared Absolute value of t-statistics in parentheses * = significant at 5 percent level; ** = significant at 1 percent level All regressions with year and exporter and importer fixed effects

49 Trade in Intermediates by Sector and ROOSD, Absolute value of t-statistics in parentheses * = significant at 5 percent level; ** = significant at 1 percent level All regressions with year and exporter and importer fixed effects Chemicals RoO Selectivity (81.61)** (47.06)** Facilitation Index (10.85)** Observations Adjusted R-squared Machinery RoO Selectivity (82.05)** (48.35)** Facilitation Index (13.53)** Observations Adjusted R-squared Television and Radio Transmitters RoO Selectivity (71.27)** (40.05)** Facilitation Index (22.82)** Observations Adjusted R-squared Textiles RoO Selectivity (67.66)** (43.90)** Facilitation Index (0.66) Observations Adjusted R-squared Vehicles RoO Selectivity (20.71)** (11.76)** Facilitation Index (56.12)** Observations Adjusted R-squared

50 Results in Sum Both the restrictiveness and complexity of rules of origin reduce aggregate trade flows Regime-wide RoO and particularly the combined effects of such RoO designed to add leniency to the application of product-specific RoO boost aggregate trade RoO learning erodes RoO interference over time Both the restrictiveness and complexity of rules of origin in FINAL goods significantly boost trade in INTERMEDIATES - Restrictive RoO in final goods may thus result in trade diversion in intermediate goods

51 Lessons and Policy Options

52 US-Andean FTA: Are There Optimal RoO? Here: Optimal RoO = maximum operational flexibility to domestic producers aiming to export within the FTA Do not want: to get stuck to using only the FTA-WIDE pool of inputs and production processes, especially if they are expensive Do want: to enable producers to access the WORLD-WIDE pool of inputs and processing Importantly! The effects of a RoO depend on the product and its production process: the best design might be product-by-product However: change in subheading (vs. change in chapter), low RVC (vs. high one), and no complex technical rules (vs. cumbersome TECH) are good choices across the tariff universe Regime-wide RoO can expand the pool of available supplies High de minimis, diagonal cumulation, drawback, ETC. Ad-hoc tools (1) facilitate adjustment to RoO, and (2) boost RoO s flexibility TPLs Options for calculating RVC Phase-in of RoO, etc.

53 Diagnosis for US-Andean FTA: Good and Less Good News NAFTA-based RoO, especially CAFTA RoO, will likely heavily inform the design of the RoO regime in future US-Andean FTA Good news 1: US-Chile FTA and CAFTA = the underlying NAFTA model has evolved toward greater flexibility in both product-specific and regime-wide RoO Good news 2: NAFTA model has now been adopted in numerous FTAs in the Americas => could help Andean countries both design and adapt to RoO in any future FTA talks, such as with Central America/Mexico or in the FTAA The less great news: NAFTA-type RoO are complex => will require learning by exporters and customs The least good news: RoO in apparel continue rather restrictive

54 How to Get There? Recall: RoO remain in place even AFTER all tariffs have been dismantled and so will RoO s market access implications Some Keys: Learn industrial production patterns and product-specific requirements: Use of surveys, government-private sector consultations, etc. Think long-term: depoliticize RoO => future efficiency Innovate! New ways to boost flexibility of RoO Smart give-and-take in negotiations Seek compatibility with the RoO also in future FTAs

55 Sources Estevadeordal, Antoni and Kati Suominen Rules of Origin in Preferential Trading Agreements: Is All Well with the Spaghetti Bowl in the Americas? Economia (forthcoming in in 2005) Rules of Origin: An Analytical World Map and Methodologies for Measurement. In Cadot, Olivier, Antoni Estevadeordal, Akiko Suwa- Eisenmann, and Thierry Verdier, eds. The Origin of Goods: A Conceptual and Empirical Assessment of Rules of Origin in PTAs. Oxford University Press and CEPR (forthcoming) What Are The Effects of Rules of Origin on Trade? Mimeograph. Estevadeordal, Antoni, José Ernesto López-Córdova and Kati Suominen The Impact of NAFTA s Market Access Provisions on the Location of Foreign Direct Investment In Mexico. Mimeograph.