Defragmenting fragmented rules of origin of RTAs: A building block to global free trade

Abstract

Regional trade agreements (RTAs) provide countries with many benefits. The multilateral trading system also receives these benefits, as successive and overlapping RTAs are the building blocks for the most viable and realistic path to global free trade. Nonetheless, the spread of criss-crossing RTAs in the world has generated serious problems, including rising transaction costs. While pursuing the long-term goal of harmonizing preferential rules of origin (ROOs), countries need to actively implement the diagonal or full accumulation system on a sectoral basis, starting from the sectors in which identical product-specific rules among participating countries have been introduced. The adoption of coequality in the change in tariff classification and regional value content (VC) rules also give trading firms more flexibility. If WTO members are able to set up model ROOs, the degree of each RTA's deviation from this benchmark may be calculated and certain modalities for its reduction could be negotiated multilaterally. In the longer term, other systemic rules on top of ROOs need to be converged or harmonized across RTAs on a regional or global basis. The effort to defragment fragmented RTAs should continue even beyond the time when most favoured nation (MFN) tariff rates go down to zero worldwide. Even if all preferential origin regimes shall have become irrelevant by then, various other rules and procedures will still have to be converged and harmonized across RTAs. © Oxford University Press 2010, all rights reserved.