| Abstract: |
With preferential trade agreements on the rise worldwide rulesof origin—which are necessary to prevent trade deflection—areattracting increasing attention. At the same time, preferenceerosion for Generalized System of Preferences (GSP) recipientsis increasing resistance to further multilateral negotiations.Drawing on different approaches, this article shows that thecurrent system of rules of origin that is used by the EuropeanUnion and the United States in preferential trade agreements(including the GSP) and that is similar to systems used by otherOrganisation for Economic Co-operation and Development countriesshould be drastically simplified if developed economies reallywant to help developing economies integrate into the world tradingsystem. In addition to diverting resources for administrativetasks, current rules of origin carry significant compliancecosts. More fundamentally, it is becoming increasingly clearthat they are often been designed to force developing economiesto buy inefficient intermediate products from developed economiesto "pay for" preferential access for the final product. Theevidence also suggests that a significant share of the rentsassociated with market access (net of rules of origin compliancecosts) is captured by developed economies. Finally, the restrictivenessof rules of origin is found to be beyond the levels that wouldbe justified to prevent trade deflection, suggesting a captureby special interest groups. The article outlines some alternativepaths to reforms. JEL codes: F13, F15 |
