Rules of Origin in North–South Preferential Trading Arrangements with an Application to NAFTA

All preferential trading agreements (PTAs) short of a customs union use rules of origin (ROO) to prevent trade deflection. ROO raise production costs and create administrative costs. This paper argues that in the case of the recent wave of North–South PTAs, the presence of ROO virtually limits the market access that these PTAs confer to the Southern partners. In the case of NAFTA, we find average compliance costs around 6% in ad valorem equivalent, undoing the tariff preference (4% on average) for a large number of tariff lines. Administrative costs amount to 47% of the preference margin. These findings are coherent with the view that North–South PTAs could well be viewed like a principal–agent problem in which the Southern partners are just about left on their participation constraint.     

Disentangling Market Access Effects of Preferential Trading Arrangements with an Application for ASEAN Members under an ASEAN–EU FTA

The paper develops two synthetic measures at the HS‐10 level to depict effective market access for a country receiving preferential access and applies these to the market access ASEAN members would receive following the implementation of an FTA with the EU. First, the measures show that current effective market access for ASEAN EBA members is cut in half by the preferences granted by the EU to countries that compete with these countries in the EU markets. Second, the measures show that about one‐quarter of the preferential margin under the proposed FTA for EBA members would be lost as a result of preferential access granted to ASEAN GSP members. Third, disaggregated estimates of the restrictiveness of rules of origin confirm that rules are more restrictive for products with higher preferential margins and that ASEAN countries usually face tougher rules of origin in the EU because of the composition of their exports.