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TRADITIONAL MARKET ACCESS ISSUES IN RTAs

Regional Policy Dialogue V Meeting of the Trade and Integration Network Impact of Free Trade Agreements on Trade Antoni Estevadeordal Integration,Trade and Hemispheric Issues Division Inter-American Development Bank Washington, D.C. 14-15 Agosto 2003. TRADITIONAL MARKET ACCESS ISSUES IN RTAs.

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TRADITIONAL MARKET ACCESS ISSUES IN RTAs

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  1. Regional Policy DialogueV Meeting of the Trade and Integration NetworkImpact of Free Trade Agreements on TradeAntoni EstevadeordalIntegration,Trade and Hemispheric Issues DivisionInter-American Development Bank Washington, D.C. 14-15 Agosto 2003

  2. TRADITIONAL MARKET ACCESS ISSUES IN RTAs • Instruments: MFN and Preferential Tariffs; NTMs and Rules of Origin • Preliminary empirical assessment impact regional market access liberalization on trade

  3. MARKET ACCESS ISSUES IN RTAs The Good News… MFN and Preferential Average Tariffs in selected LAC Countries 1985-1997 50 40 MFN Tariff (Average 11 countries) 30 20 Preferential Tariffs for 11 countries with respect to other RTAs partners 10 0 1985 1987 1989 1991 1993 1995 1997

  4. Guatemala Honduras Trinidad y Tobago Dominica Surinam Jamaica Sta. Lucia Belize Barbados San Kitts y Nevis Grenada Guyana St. Vincent & Grenadines Antigua y Barbuda MARKET ACCESS ISSUES IN RTAs The Bad (?) News… ALCA Bahamas Haití EEUU Canadá - CA-4 - EEUU - MCCA Canadá EEUU - Chile Mercosur Nicaragua Uruguay Paraguay Costa Rica MCCA México Argentina Brasil Chile El Salvador República Dominicana Panamá CARICOM Colombia Ecuador Perú Bolivia Venezuela CA ALADI

  5. MARKET ACCESS ISSUES IN RTAs MFN Tariffs Comparative Tariff Structures (2000),Frequency Distributions

  6. MARKET ACCESS ISSUES IN RTAs Preferential Tariff Liberalization % ITEMS FREE by 2005 under existing agreements

  7. MARKET ACCESS ISSUES IN RTAs Non-Tariff Measures Non-Tariff Measure Incidence as a percent of Tariff Lines covered Argentina Colombia México All NTMs Uruguay Technical Measures Brasil Venezuela Quantitative Measures Perú Chile Ecuador Paraguay NTM Incidence Bolivia 0 10 20 30 40 50 60 70

  8. El Salvador-Panama Bolivia-Mexico CARICOM-Dominican Rep. CACM-Dominican Rep. Mexico-Nicaragua Chile-CACM Mexico Israel Costa Rica- Canada Colombia-Chile Chile-Venezuela Costa Rica-Mexico Chile-Canada Chile-Peru Bolivia-Mercosur Mexico-EFTA CARICOM Chile-Mexico G-3 CACM Chile-Mercosur AC Chile-EU Mercosur Mexico-EU NAFTA 1 10 100 1,000 10,000 100,000 1,000,000 Acuerdos de Libre Comercio andIntraregional trade, 1990 and 2000 (In millions of 1990 dollars) 1990 2000 Logarithmic scale

  9. MARKET ACCESS ISSUES IN RTAs Do Preferential Agreements matter for trade? Gravity Model Estimates ln (Bilateral Total Tradeijt) =0 + Dln (Distanceijt)+ Yln (YitYjt) + yln (yityjt) +L Landlockedijt + A Adjacentijt + I Islandijt + G Bilateral Preferential Tariffijt + T MFN Tariffijt + Other + ijt

  10. MARKET ACCESS ISSUES IN RTAsRULES OF ORIGIN Objectives • Two types of RoO: non-preferential and preferential • The justification for preferential RoO is to ensure that non-members do not obtain access to regional preferences (avoid trade deflection) • However, RoO can be a powerful trade policy instrument: • RoO effects in the S/R different than in the L/R • RoO can fully insulate an industry from the consequences of an FTA • RoO can protect intermediate good producers by favoring intra-PTA supply links • RoO can be used to attract investment in strategic sectors • Very limited theoretical and empirical work

  11. MARKET ACCESS ISSUES IN RTAsRULES OF ORIGINTypes of Product Specific RoO Wholly obtained or produced Where only one country enters into consideration in attributing origin Substantial transformation Where two or more countries have taken part in the production process Change in Tariff Classification Requires the product to change its tariff heading, chapter, heading, sub-heading, or item under the HS system, in the originating country Domestic Content Rule or Regional Value Content Requires a MIN % of local value added in the originating country (or a MAX % of value originating in non-member countries) Technical Requirement Prescribes that the product must undergo specific manufacturing processing operations in the originating country

  12. MARKET ACCESS ISSUES IN RTAsRULES OF ORIGINTypes of Regime-Wide RoO • Provisions adding leniency to RoO: • De minimis • Roll-up or absorption principle • Cumulation • Self-certification • Provisions that may make RoO more restrictive: • Lists of operations insufficient to confer origin • No-drawback rule • Complex certification methods • Inefficient or non-transparent verification by customs • Details matter a lot! • RVC Rule: Definition of “cost” • CTC Rule: Exceptions to CTC

  13. MARKET ACCESS ISSUES IN RTAsRULES OF ORIGINRoO and TRADE DEFLECTION Rules of Origin as instruments against trade deflection NAFTA: The greater the difference between MFN tariffs, the higher the incentives for trade deflection and, therefore, the higher the degree of stringency imposed by Rules of Origin.

  14. MARKET ACCESS ISSUES IN RTAsRULES OF ORIGIN RoO AND ADMINISTRATIVE COSTS EC-EFTA FTA: Administrative costs of certifying origin range from 1.4 – 5.7 percent value export transactions. EFTA: Administrative costs of certifying origin range from 3 – 5 percent value export transactions.

  15. MARKET ACCESS ISSUES IN RTAsRULES OF ORIGINRoO AND UTILIZATION RATES Restrictiveness vs. Administrative Costs CUFTA and NAFTA: Key Market Access Change from CUFTA to NAFTA was RoO Regime (Preferential Tariff Liberalization from CUFTA was built-in NAFTA agreement): NAFTA UTILIZATION RATES (Canada exports to US) declined in those sectors with more stringent RoO [PROTECTION EFFECT vs. ADMINISTRATIVE COSTS EFFECT] GSP / AGOA : Similar evidence on low utilization rates due to RoO

  16. Figure 1 – Rules of Origin and Utilization Rates: CUSFTA vs. NAFTA Percent of total U.S. imports from Canada

  17. MARKET ACCESS ISSUES IN RTAsRULES OF ORIGINRules of Origin in around the World • Comparative Analysis of the Structure of RoO Regimes: • Europe • Americas • Asia • Africa • The Middle East • Non-Preferential RoO • Comparisons of the Restrictiveness of Product-Specific RoO across RoO Regimes • Comparisons of the Regime-Wide “Trade-Facilitating” RoO Provisions

  18. Restrict-iveness of RoO,Selected RTAs Source:Estevadeordal andSuominen (2003)

  19. Regime-Wide RoO in Selected RTAs Source: Estevadeordal and Suominen (2003)

  20. PTA Certification method PANEURO Two-step private and public; limited self-certification PE Two-step private and public; limited self-certification EU-South Africa Two-step private and public; limited self-certification EU-Mexico Two-step private and public; limited self-certification EU-Chile Two-step private and public; limited self-certification NAFTA Self-certification G3 Two-step private and public US-Chile Self-certification Mexico-CR Self-certification Mexico-Bolivia Self-certification (two-step private and public during first 4 years) Canada-Chile Self-certification CACM-Chile Self-certification CACM Self-certification Mercosur Public (or delegated to a private entity) Mercosur-Chile Public (or delegated to a private entity) Mercosur-Bolivia Public (or delegated to a private entity) CAN Public (or delegated to a private entity) CARICOM Public (or delegated to a private entity) CARICOM-DR Public (or delegated to a private entity) LAIA Two-step private and public ANZCERTA Public (or delegated to a private entity) SAFTA Public (or delegated to a private entity) SPARTECA Not mentioned AFTA Public (or delegated to a private entity) BANGKOK Public (or delegated to a private entity) Japan-Singapore Public (or delegated to a private entity) Chile-Korea Self-certification COMESA Two-step private and public ECOWAS Public (or delegated to a private entity) SADC Two-step private and public US-Jordan Self-certification Certification Method in Selected RTAs Source:Estevadeordal andSuominen (2003)

  21. Facilitation Index for Selected RTAsSource: Estevadeordal and Suominen (2003) 5 4 3 Facil Index 2 1 0 PE G3 EEA GCC AFTA SADC CACM ALADI NAFTA EU-MEX MEX-CR CAN-CHI ECOWAS COMESA MEX-NIC MEX-BOL PANEURO CARICOM BANGKOK MERC-CHI SPARTECA US-ISRAEL MERC-BOL ANZCERTA MERCOSUR CAN-ISRAEL MEX-ISRAEL EFTA-ISRAEL CARICOM-DR EFTA-CROATIA ANDEAN COMM. EU-SOUTH AFRICA Agreement

  22. MARKET ACCESS ISSUES IN RTAsRULES OF ORIGINDo RoO matter for trade? • A modified gravity model to assess the trade effects of: • Product-specific RoO of different degrees of(1) restrictiveness and (2) selectivity • Flexibility provided by regime-wide “facilitation provisions” • Trade “operationalized” in two ways: • Aggregate imports (2001) • Imports in intermediate goods in vehicles (2001) • Sample: • 156 countries • About a hundred PTAs

  23. MARKET ACCESS ISSUES IN RTAsRULES OF ORIGINDo RoO matter for trade? Gravity Model Estimates ln (Bilateral Total Tradeijt) =0 + Dln (Distanceijt)+ Yln (YitYjt) + yln (yityjt) +L Landlockedijt + A Adjacentijt + I Islandijt + G Rules of Originijt + Other + ijt

  24. MARKET ACCESS ISSUES IN RTAs RULES OF ORIGINDo RoO matter for trade? ln (Bilateral “INTERMEDIATE” Tradeijt) =0 + Dln (Distanceijt)+ Yln (YitYjt) + yln (yityjt) +L Landlockedijt + A Adjacentijt + I Islandijt + G Rules of Origin on “FINAL GOODS”ijt + Other + ijt

  25. Regional Policy DialogueV Meeting of the Trade and Integration NetworkImpact of Free Trade Agreements on TradeAntoni EstevadeordalIntegration,Trade and Hemispheric Issues DivisionInter-American Development Bank Washington, D.C. 14-15 Agosto 2003

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