Executive Training on Negotiating and Drafting Rules of Origin - - PowerPoint PPT Presentation

Executive Training on Negotiating and Drafting Rules of Origin Measuring restrictiveness of RoO (2)

• Experience from RTAs

Stefano Inama Division for Africa, Least Developed Countries and Special Programmes, UNCTAD 21 April 2015 Florence, Italy

United Nations Conference on Trade and Development Division for Africa, Least Developed Countries and Special Programmes ( ALDC )

[1] Trade creation is defined as the reduction in the domestic production of goods, which are substituted by imports from partner countries. [2] 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.

Trade creation and trade diversion effects in FTAs and RoO trade effects

• 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.

Trade Effects of Rules of Origin in FTAs

Trade Effects of Rules of Origin in FTAs

Trade creation Stringency of rules of origin Trade diversion Stringency of rules of origin

Trade restrictiveness of RoO in Theory

• Absence of Multilateral rules
• Very few analytical studies.
• Forthcoming study by UNCTAD [2014]
• Existence of models : NAFTA inspired rules, Pan-Euro

RoO

• Absence of models in South-South FTAs
• Different practices in administering origin

Drafting RoO in FTAs: Do we have a golden model ?

• The lessons may be drawn from :
• Low utilization of a FTA or other preferential PTAs
• Changes in practice in the way RoO are drafted since

administrations found that some RoO are easier to administer than others.

• Need to adapt RoO to fragmentation of production vs.

vertical industrial integration

• There are those that are learning more and those

who are learning less …

Drafting RoO in FTAs: We just have some lessons learned

First lesson learned: RoO should match Industrial capacity - Trade effects of EU reform

EU imports from LDCs and GSP utilization rates Art of apparel & clothing access, HS 61 knitted/crocheted and HS62 not knitted/crocheted

200 400 600 800 1'000 1'200 1'400 1'600 1'800 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Total Imports (USD Millions) Utilization Rates Utilization Rate HS 61 (left axis) Utilization Rate HS 62 (left axis) Total Imports HS 61 (right axis) Total Imports HS 62 (right axis)

Second lesson learned: RoO should match value chains – Bicycles from Cambodia

0.0% 12.5% 25.0% 37.5% 50.0% 62.5% 75.0% 87.5% 100.0% 50 100 150 200 250 300 350 400 2006 2007 2008 2009 2010 2011 2012 2013 Utilization Rate USD Millions

EU imports and Utilization rate

Total Imports (left axis) Utilization Rate (right axis)

TITLE OF PRESENTATION

Third: RoO may be stringent, however utilization high, RoO well drafted, what would happen with RoO less strict ?

Imports from MEX Utilization Rate (Right axis)

94.5 95 95.5 96 Utilization rate (%) 150 200 250 300 Import value (USD billions) 2005 2006 2007 2008 2009 2010 2011 2012

US Imports from Mexico and NAFTA Utlilization Rates

Fourth: Is compliance with RoO worth the effort ?

Imports from CAN Utilization Rate (Right axis)

85 90 95 100 Utilization rate (%) 200 250 300 350 Import value (USD billions) 2005 2006 2007 2008 2009 2010 2011 2012

US Imports from Canada and NAFTA Utlilization Rates

Fifth: Those who seems Learning less: ASEAN Total Imports Utilization rates [2010]

BRN (Jan-Jun) KHM (Jan-Dec) IDN (Jan-Dec) LAO (Jan-Mar) MYS (Jan-Dec) MMR (Jan-Dec) PHL (Jan-Dec) THA (Jan-Sep) VNM (Jan-Jun) Form D (USD millions) 20 792 7'385 14 4'976 10 6'694 5'126 1'019 Intra- ASEAN (USD millions) 585 1'682 38'912 404 44'907 1'993 16'270 22'681 7'587 Utilization (%) 3.34 47.1 18.98 3.44 11.08 0.49 41.15 22.6 13.44 Source: SEOM Chairman's report to the AEM-25th AFTA Council Meeting of 10 August 2011, Manado, Indonesia

Sixth: Those who seems Learning less-Reported averages

• f Utilization Rates in COMESA and SADC [2010]

80.6 46.3 44.3 50.7 30.5 73.8 21.7

10 20 30 40 50 60 70 80 90 100 Utilization rate (%) 100 250 400 550 700 850 1000 Import value (USD millions) BDI ETH MDG MUS MWI RWA SDN

Imports from TFTA Utilization Rate Average Rate (39.7%)

Imports from TFTA and Average Utilization Rates

• RoO matching industrial capacity are trade creating

and generate value chains [Cambodia]

• RoO may be stringent and predictable leading to high

utilization rates in NAFTA. Counterfactual : what if RoO were less stringent ?

• The less trade creating: RoO are not predicable and/or

do not reflect industrial capacity [ASEAN ,COMESA and SADC]

What we can learn ?

• Abandon use of value added/net cost calculations when using

percentage criterion

• Use value of materials calculations
• Move from across the board to Product- Specific RoO

[PSROs].This does not necessarily mean to have PSROs for all products

• Distinguish the issue of ‘form’ from ‘substance’ when drafting

PSROs

• Cumulation is not a substitute for liberal RoO
• Insert rules on value tolerance and intermediate materials

There are clear lessons in drafting and administering RoO

• The classical model of the certifying authorities and

the certificate of origin

• Stamps only (GSP)
• Variations: approved exporters and registered

exporters(EU reform)

• Importer declaration (US)
• Stamps and signatures : RTAs in Africa and Asia
• There is clear evidence from utilization rates that the

latter is the less trade facilitating

Lessons learned in Administering RoO

Thank you for your attention