Rules of Origin in Preferential Trading Arrangements: Is All Well with the Spaghetti Bowl in the Americas?

Estevadeordal, Antoni; Suominen, Kati

doi:10.1353/eco.2005.0015

Cited by 22 publications

(21 citation statements)

References 10 publications

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“…Most economists deem them highly distortionary because of the detailed product-by-product criteria that have become the norm (see Estevadeordal & Suominen 2005 for details of the criteria employed) and the overlapping but different ROOs present in countries that are members of multiple FTAs. 24 As a result, exporters need to incur bureaucratic costs of proving that exports meet…”

Section: Rules Of Originmentioning

confidence: 99%

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Regional Trade Agreements

2010

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This article reviews the theoretical and the empirical literature on regionalism. The formation of regional trade agreements has been, by far, the most popular form of reciprocal trade liberalization in the past 15 years. The discriminatory character of these agreements has raised three main concerns: that trade diversion would be rampant, because special interest groups would induce governments to form the most distortionary agreements; that broader external trade liberalization would stall or reverse; and that multilateralism could be undermined. Theoretically, all these concerns are legitimate, although there are also several theoretical arguments that oppose them. Empirically, neither widespread trade diversion nor stalled external liberalization has materialized, whereas the undermining of multilateralism has not been properly tested. There are also several aspects of regionalism that have received too little attention from researchers, but which are central to understanding its causes and consequences.

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Section: Rules Of Originmentioning

confidence: 99%

“…Indeed, agriculture, textiles, and apparel tend to have the most restrictive ROOs across regimes (Estevadeordal & Suominen 2005). These are the same products for which trade has been difficult to liberalize historically because of political-economy forces.…”

Section: Rules Of Originmentioning

confidence: 99%

Regional Trade Agreements

2010

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“…27 See Estevadeordal and Suominen (2005) for details of the criteria employed. 28 For example, the EU has more than 500 product-specific rules of origin (applied on preferential imports from outside the EU) on top of regime-wide rules (Cadot and de Melo 2008).…”

Section: Rules Of Originmentioning

confidence: 99%

“…Indeed, agriculture, textiles, and apparel tend to have the most restrictive ROO across regimes (Estevadeordal and Suominen 2005 Opportunity and Growth and Opportunity Act (AGOA). Cadot and de Melo (2008), in a summary of the literature, note that compliance costs associated with meeting ROO requirements range from 3 to 5 percent of final product prices, largely offsetting the small preferences allotted in developed countries.…”

Section: Rules Of Originmentioning

confidence: 99%

Regional Trade Agreements

Freund¹,

Ornelas

2010

Policy Research Working Papers

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This paper reviews the theoretical and the empirical literature on regionalism. The formation of regional trade agreements has been, by far, the most popular form of reciprocal trade liberalization in the last fifteen years. The discriminatory character of these agreements has raised three main concerns: that trade diversion would be rampant, because special interest groups would induce governments to form the most distortionary agreements; that broader external trade liberalization would stall or reverse; and that multilateralism could be undermined. Theoretically, all of these concerns are legitimate, although there are also several theoretical arguments that oppose them. Empirically, neither widespread trade diversion nor stalled external liberalization have materialized, while the undermining of multilateralism has not been properly tested. There are also several aspects of regionalism that have received too little attention from researchers, but which are central to understanding its causes and consequences.

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“…The firm's choice should be either to comply with the ROO required in the FTA of Country 2, or to pay the traditional tariff. When choosing to pay the traditional tariff, the corresponding profit of the firm is Π t 2 (t 2 ), as calculated in Equation (11). On the other hand, when the firm chooses to comply with the ROO to get the tariff exemption provided by the FTA, it should compare e * 2 with e 2 .…”

Section: Discussionmentioning

confidence: 99%

Multinational Firm’s Production Decisions under Overlapping Free Trade Agreements: Rule of Origin Requirements and Environmental Regulation

2016

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Abstract:In this paper, we study the impact of the rule of origin (ROO) requirements accompanied by free trade agreements (FTAs), which specify the minimum portion of supplies that should satisfy the origin requirement, on a multinational firm's production decisions. We consider a multinational firm who exports its product to multiple countries and analyze its production decision in the presence of multiple free trading agreements (FTAs). The ROO requirements in FTAs not only refer to the origin of supplies but are also involved with an environmental regulation of a country of the supplies. As such, meeting multiple ROO requirements can be costly since it may be involved with an adjustment of production facility and suppliers according to different environmental standards. We investigate a multinational firm's choice of the ROO level in its production decision under multiple FTAs. It is well known that, in the presence of overlapping FTAs, the firm may strategically choose not to comply with the minimum ROO requirements in the FTAs. Instead, the firm may choose to comply with an ROO level that is higher than required, or pay the tariff instead without enjoying tariff exemption by the FTA in the new country. Such unintended outcomes in the FTAs are called the Spaghetti Bowl Effect. We characterize and quantify two types of such Spaghetti Bowl Effects with the optimal production decisions of a multinational firm under multiple ROO requirements and derive policy implications.

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Rules of Origin in Preferential Trading Arrangements: Is All Well with the Spaghetti Bowl in the Americas?

Cited by 22 publications

References 10 publications

Regional Trade Agreements

Regional Trade Agreements

Regional Trade Agreements

Multinational Firm’s Production Decisions under Overlapping Free Trade Agreements: Rule of Origin Requirements and Environmental Regulation

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