the significance of roo in international trade · rules of origin in international trade: why they...
TRANSCRIPT
The significance of RoO in international trade
Stefano Inama
1
United Nations Conference on
Trade and Development
Division for Africa, Least Developed Countries
and Special Programmes ( ALDC )
2
Rules of origin in International trade: why they do matter• Rules of Origin (RoO) are determining the nationality of the goods.
• According to the nationality of the goods, duty free entry may begranted, a product may be labeled as “Made in” or an antidumpingduty may be levied.
• Absence of multilateral rules: WTO Agreement on RoO does not coverpreferential RoO and no agreement on non- preferential rules oforigin.
• Every WTO Member is free to design its RoO: this has implications forbusiness.
An underlying concept and differentiation
• Non-Preferential rules of origin: Not associated with
preferential tariffs,used to apply WTO agreements.
• Preferential rules of origin : duty free or reduced
MFN rates.
3
4
Trade effects of RoO
• Rules of Origin are utilized to enforce/implement primary trade policy measures.
• As such, they are a powerful trade policy instrument even if their impact may not be immediately visible
RoO - Marks of origin and trade statistics
• Example: how do I label this Iphone ?
5
Source: Xing and Detert, 2010
What label on Iphone and Shirt ?
IPHONE
• US customs are determining non preferential rules of origin according to a Judge made rule: last place in which it was substantially transformed into a new and distinct article of commerce based on a change in name, character, or use.
• Assembly of parts into a complete Iphone is an origin conferring operation.
SHIRT
• A shirt may be labelled “Made in U.S.A.” only if the shirt is made completely in the U.S. of materials that were made in the U.S.
6
RoO and trade statistics• The WTO Agreement on rules of origin provides that trade statistics should be
based on non preferential rules of origin.
• However the fragmentation and globalization of production has made difficult to implement such provision.
• Example :An Ipod from China is worth 150 dollars when presented to US customs and calculated in US trade statistics while less than 10 of the 150 dollars actually come from China, and all the rest is just re -exportation.
• So, is the China trade surplus with the US really caused by chinese products?
• Made in China , designed in California…
7
The case of the Sport Shoe
• What is the origin of this sport shoe?
8
Total cost of the shoe to the consumer: 100 EURO
Do I get preferential origin under GSP schemes?
9
a) Raw material 8 €b) Wages 0.4 € c) Direct costs of processing 1.6 €
Allowable (assumed) 0.8 €Not allowable (assumed) 0.8 €
b) Profits producer 2 €
Total cost (Ex-Works Price) 12 €
Preferential Rules of Origin
• Unilateral preferences – GSP/AGOA/EBA/
• Contractual trade preferences – Free Trade Areas
Agreements
10
Trade Preferences and Rules of origin
• Preferential rates are granted only upon compliance
with rules of origin
• No compliance – no certificate of origin – MFN rate –
no trade effects
• Persistent low utilization over 30 years of operation of
GSP schemes
11
The mechanics of data on Utilization Rates
12
• Covered goods at the time of customs clearance are granted preferential treatment only if they comply with RoO administrative requirements i.e. CO or exporter declaration of origin,REX
• Failure to show such documentary evidence entails collection of MFN duties= non-utilization of trade preferences
• What are the reasons for not complying ?
1. CO or exporter declarations are issued upon compliance with RoO requirements.If RoO is stringent there is no CO or exporter declaration= Evidence from analysis of utilization rates and counterfactuals from firms
2. Preferential margin too low ? Depends on products and largely anedoctical-See Trump and NAFTA RoO-Preferential margin is 2,5%
3. Ignorance ? Why exporters would know better some FTAs than
others ?
Trade effects of EU reform of RoO
EU imports of bicycles from Cambodia and GSP utilization rates, HS
8712
13
Trade Policy Objectives of Rules of Origin in FTAs
• To avoid deflection of trade and tariff circumvention.
• To make sure that regional inputs are preferred over third
country inputs…
• To offset tariff concessions?
14
Trade creation and trade diversion effects in FTAs and RoO trade effects
• Trade creation is defined as the reduction in the
domestic production of goods, which are substituted by
imports from partner countries.
• Trade diversion is defined as the reduction of imports
from countries that are not members of the FTA and
which are substituted by imports from Partner
countries.
15
Trade Effects of Rules of Origin in FTAs
• The more stringent the rules, the more difficult to
comply, the less trade creation is likely to occur.
• The more stringent the rules, the more trade
diversion is likely to occur when less efficient inputs
from the partner are replacing most efficient
suppliers from third countries, up to the point where
in the absence of partner inputs there is no trade
creation, no trade diversion.
16
Trade Effects of Rules of Origin in FTAs
17
Thank You for your kind attention
Stefano Inama, Chief
Technical Cooperation and Enhanced Integrated Framework
Division for Africa, Least Developed Countries
and Special Programmes ( ALDC )
United Nations Conference on Trade and Development
18