Best practices for regional trade agreements

Authors: Innwon Park Soonchan Park

Publish Date: 2010/11/13

Volume: 147, Issue: 2, Pages: 249-268

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Abstract

Complicated web of hubandspoke type of overlapping free trade agreements FTAs can result in high costs for verifying rules of origin RoO and trade diversion or suppression effects This paper attempts to provide best practices for regional trade agreements RTAs to enhance global free trade by mitigating these negative effects By adopting a gravity regression analysis we quantitatively estimate the trade creation and diversion effects of cumulated RoO bilateral diagonal and full cumulation for RTAs established under GATT Article XXIV and under the Enabling Clause We find that i RTAs in general create trade among members and divert trade from nonmembers whereby the net tradeenhancing effect is rather weak ii RTAs should be established under the comprehensive GATT Article XXIV rather than the piecemeal Enabling Clause and iii full cumulation is the most optimal provision in terms of creating the most intrabloc trade and diverting the least extrabloc trade Overall we strongly suggest that RTAs should employ full cumulation of RoO under GATT Article XXIVAn earlier version of this paper was presented at the International Conference on Globalisation Growth and Development in Asia organized by Leverhulme Centre for Research on Globalisation and Economic Policy GEP at the University of Nottingham the University of Nottingham Malaysia Campus Kuala Lumpur Malaysia January 14–15 2009 We would like to thank David Greenaway Chris Milner Jayant Menon conference participants and an anonymous referee for helpful comments and suggestionsANZCERTA CACM Canada–Chile Canada–Costa Rica Canada–Israel CARICOM CEFTA CIS Chile–El Salvador Chile–Mexico Chile–Costa Rica Costa Rica–Mexico EC EC–Algeria EC–Chile EC–Croatia EC–Egypt EC–FYROM EC–Iceland EC–Israel EC–Jordan EC–Lebanon EC–Morocco EC–Norway EC–South Africa EC–Switzerland EC–Syria EC–Tunisia EC–Turkey EFTA EFTA–Chile EFTA–Croatia EFTA–FYROM EFTA–Israel EFTA–Jordan EFTA–Morocco EFTA–Singapore EFTA–Tunisia EFTA–Turkey El Salvador–Mexico Guatemala–Mexico Honduras–Mexico India–Singapore Israel–Mexico Japan–Singapore Japan–Mexico Jordan–Singapore Korea–Chile Mexico–Nicaragua NAFTA New Zealand–Singapore Pan–Arab FTA Panama–El Salvador PATCRA Thailand–Australia Thailand–New Zealand Turkey–Croatia Turkey–Israel Turkey–FYROM Turkey–Bosnia and Herzogovina Turkey–Tunisia SACU Singapore–Australia USA–Australia USA–Chile USA–Israel USA–Jordan USA–Singapore

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