Using Utilization Rates to Identify Rules of Origin Reforms: The Case of EU Free Trade Area Agreements

Abstract

Governments are increasingly entering FTAs and mega-regionals to secure market access for their firms. Utilization rates are used to monitor whether firms are using these FTAs. This paper is part of a recent stream of studies to dash out enduring myths that preferences are not used when preferential MFN rates are low or for unknown or vague reasons. Contrary to this sort of conventional wisdom this study advocates that low utilization rate is a valuable and unequivocal sign that reform of rules of origin and related administrative procedures is needed to make the FTA attractive and meaningful to the private sector. By using a "repeated offender" methodology this paper identifies a series of product specific rules of origin (PSROs) causing low utilization rates. Such PSROs are the candidate for reforms towards more lenient requirements that are commercially viable for firms.

A (More) Systematic Exploration of the Trade Effect of Product-Specific Rules of Origin

“…12 Nilsson (2016) and Kasteng and Inama (2018) estimate that about two-thirds of EU exporters use tariff-free access in their exports to partners while partners use preferences for over 90% of their exports to the EU. Using data on PURs for the EU, Crivelli et al (2021) identify products with PURs below 70% and preference margins above 2%.…”

Transforming Bangladesh’s Participation in Trade and Global Value Chain

“…Like many of its Asian counterparts, the economy took extensive advantage of unilateral and nonreciprocal duty-and quota-free market access to bolster its trade performance and eventually become a major player in the exchange of ready-made garments (RMG), translating to around 90% of Bangladesh's exports in recent years (Kumar 2022). It is important to note, however, that more favorable rules of origin also facilitated this development-a key argument raised by LDCs in their WTO submissions and ministerial declarations since 2015 (Crivelli and Inama 2021).…”

“…This can be done by assessing the historical performances of trade agreements and identifying the most promising alternative destinations of its highly concentrated goods (exports-wise). For the assessment of trade agreements' historical performances, as more data becomes available, the economy can look into the preference utilization rates of regional trade agreements to gauge their effectiveness and determine which ones are more valuable for improving market access and regulatory convergence (Crivelli and Inama 2021). Low rates may indicate the existence of factors that hinder the utilization of regional trade agreements, such as less favorable rules of origin, high compliance costs, and complex technological requirements.…”

A (more) systematic exploration of the trade effect of product-specific rules of origin

“…However, this data is not public. SeeCrivelli et al (2021) for the use of this data to flag origin requirements that might be up for modification. 9 This data base can be consulted with a search engine to download texts agreements, consult differences between MFN and preferential rates, RWRs and PSRs to help firms choose the best regime in its export decisions.…”

“…15 Australia, Canada, the European Union, Japan and the United States report PURs by HS category under different PTAs.16 Nilsson (2016) andKasteng and Inama (2018) estimate that about two-thirds of EU exporters use tariff-free access in their exports to partners while partners use preferences for over 90% of their exports to the EU. Using data on PURs for the EU,Crivelli et al (2021) identify products with PURs below 70% and preference margins above 2 percent. 17Hayakawa et al (2019) estimate a fixed-cost ratio of PURs for Japan's PTAs.…”