Park, Innwon and Park, Soonchan (2009): Consolidation and Harmonization of Regional Trade Agreements (RTAs): A Path Toward Global Free Trade.
Download (254Kb) | Preview
Some economists worry about the ‘spaghetti bowl phenomenon’ expected from proliferating regional trade agreements (RTAs). In particular, the complicated web of hub-and-spoke 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 explains why almost half of the RTAs notified to the General Agreement on Tariffs and Trade (GATT)/World Trade Organization (WTO) are currently inactive. This research attempts to provide best practices for RTAs to enhance global free trade by mitigating these negative effects. More specifically, we quantitatively estimate the trade creation and diversion effects of harmonized and cumulated RoO (bilateral, diagonal, and full cumulation) for RTAs established under GATT Article XXIV and under the Enabling Clause by adopting a Gravity regression analysis. We find that (i) RTAs in general create trade among members and divert trade from nonmembers; (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 intra-bloc trade and diverting the least extra-bloc trade. Overall, we strongly recommend that RTAs should employ full cumulation of RoO under GATT Article XXIV. This strategy will enable regionalism to be compatible with multilateralism, to be sustainable in the long run, and finally to lead us to global free trade.
|Item Type:||MPRA Paper|
|Original Title:||Consolidation and Harmonization of Regional Trade Agreements (RTAs): A Path Toward Global Free Trade|
|Keywords:||regional trade agreements, rules of origin, cumulation, gravity, GATT Article XXIV, Enabling Clause|
|Subjects:||F - International Economics > F1 - Trade > F15 - Economic Integration
F - International Economics > F1 - Trade > F13 - Trade Policy; International Trade Organizations
C - Mathematical and Quantitative Methods > C2 - Single Equation Models; Single Variables > C23 - Models with Panel Data; Longitudinal Data; Spatial Time Series
|Depositing User:||Innwon Park|
|Date Deposited:||23. Mar 2009 07:16|
|Last Modified:||15. Feb 2013 04:12|
Augier, Patricia, Michael Gasiorek, and Charles Lai-Tong. 2003. “The EU-Med partnership and rules of origin.” Draft.
Augier, Patricia, David Evans, Michael Gasiorek, Peter Holmes, and Charles Lai-Tong. 2006. “Study on the economic impact of extending the pan-European system of cumulation of origin to the Mediterranean partners’ part of the Barcelona process.” Brighton, England: The Sussex European Institute.
Baldwin, Richard E. 2006. “Multilateralising Regionalism: Spaghetti Bowls as Building Blocs on the Path to Global Free Trade.” The World Economy 29: 1451-1518.
Brenton, Paul. 2003. “Notes on Rules of Origin with Implications for Regional Integration in South East Asia.” Washington, D.C.: The World Bank.
Brown, D. K., Alan V. Deardorff, and Robert M. Stern. 2001. “Impacts on NAFTA Members of Multilateral and Regional Trading Arrangements and Initiatives and Harmonization of NAFTA’s External Tariffs.” Discussion Paper No 471, Research Seminar in International Economics. Ann Arbor, Mich.: School of Public Policy, The University of Michigan.
Central Intelligence Agency, The World Factbook, Various Issues.
Cooper, C. A. and B. F. Massell. 1965. "A New Look at Customs Union Theory." Economic Journal 75: 742-747.
Duttagupta, Rupa and A. Panagariya. 2001. “Free Trade Areas and Rules of Origin: Economics and Politics.” Draft.
El Agraa, A. M. 2002. “The UTR versus CU Formation Analysis and Article XXIV.” Applied Economics Letters 9: 621-624.
El-Agraa, A. M. and Jones, A. J. 2000. “UTR vs. CU formation: the missing CET.” Journal of Economic Integration 15: 239-259.
Elek, Andrew. 2005. “APEC After Busan: New Direction,” APEC Study Series 05-01, Seoul: Korea Institute for International Economic Policy.
Estevadeordal, Antoni and Kati Suominen. 2008. Gatekeepers of global commerce : rules of origin and international economic integration, Washington, D.C.: Inter-American Development Bank.
Estevadeordal, Antoni, Jeremy Harris, and Kati Suominen. 2007. “Multilateralizing Rules of Origin around the World.” Paper presented at WTO/HEI/NCCR Trade/CEPR 17 Conference on Multilateralizing Regionalism, September 10–12, Geneva.
Estevadeordal, Antoni, and Kati Suominen. 2003. “Rules of Origin: A World Map and Trade Effects.” Paper prepared for the workshop on The Origin of Goods: A Conceptual and Empirical Assessment of Rules of Origin in PTAs, INRA-DELTA, May 23-24, Paris.
Gasiorek, Michael, Patricia Augier, and Charles Lai-Tong. 2007. “Multilateralising Regionalism: Relaxing Rules of Origin or Can those PECS Be Flexed?” London: Centre for Economic Policy Research.
Ghosh, Sucharita and Steven Yamarik. 2004. “Does Trade Creation Measure Up? A Reexamination of the Effects of Regional Trading Arrangements.” Economic Letters 82: 213-219.
Hausman, J. 1978. “Specification Tests in Econometrics.” Econometrica 46: 1251-1271.
International Monetary Fund. Direction of Trade Statistics, Various Issues.
Krueger, Anne O. 1995. “Free Trade Agreements versus Customs Unions.” NBER Working Paper Series No. 5084. Washington, D.C.: National Bureau of Economic Research.
Magee, Christopher S. 2008. “New Measures of Trade Creation and Trade Diversion.” Journal of International Economics 75: 340-362.
Martinez-Zarzoso, I. F. Nowak-Lehmannn and S. Vollmer. 2006. “The Log of Gravity Revisited.” Goettingen, Germany: Ibero-America Institute for Economic Research and Center for Statistics.
Medalla, Erlinda M. 2008. “Rules of Origin: Regimes in East Asia and Recommendations for Best Practice.” Discussion Paper Series No. 2008-19, Manila: Philippine Institute for Development Studies.
Mirus, Rolf and Nataliya Rylska. 2001. “Economic Integration: Free Trade Areas vs Customs Unions.” Edmonton, Canada: Western Centre for Economic Research.
Park, Innwon and Soonchan Park. 2008. “Free Trade Agreements versus Customs Unions: An Examination of East Asia.” Asian Economic Papers. Forthcoming.
Plummer, Michael G. 2007. “’Best Practices’ in Regional Trading Agreements: An Application to Asia.” The World Economy 30: 1771-1796.
Rajapatirana, Sarath. 1994. “The Evolution of Trade Treaties and Trade Creation: Lessons for Latin America.” Policy Research Working Paper 1371, Washington, D.C.: The World Bank.
Santos Silva, J.M.C. and Silvana Tenreyo. 2006. “The Log of Gravity.” Review of Economics 18 and Statistics 88: 641-658.
Soesastro, Hadi. 2003. “Challenges to APEC Trade Policy: The Doha Development Agenda and RTAs/FTAs.” CSIS Working Paper Series WPE 069, Jakarta: Centre for Strategic and International Studies.
Srewart-Brown, Ronald. 2001. “Free trade across the European Continent.” Global Britain Briefing Note No 11, 19 January.
Wonnacott, Paul and Ronald Wonnacott. 1981. “Is Unilateral Tariff Reduction Preferable to a Customs Union? The Curious Case of the Missing Foreign Tariffs.” American Economic Review 71: 704-714.
World Bank. World Development Indicators, Various Issues.
World Trade Organization. http://www.wto.org/english/ tratop_e/region_e/regfac_e.htm.