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Economía 5.2 (2005) 93-100



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Pablo Sanguinetti: This is a very interesting paper that deals with an important and often neglected aspect of preferential trading agreements (PTAs), namely, the determination of rules of origin. Rules of origin are the regulations that determine under what circumstances a good is considered to be produced in the region and thus able to enjoy the preferential tariff treatment. The definition of these regimes, which is mainly the concern of lawyers and policy practitioners, could have important economic impacts on trade and investment flows. Rules of origin have therefore become an alternative trade policy instrument targeted by governments and especially by the private sector in the integrating countries.

The paper does four things. First, it offers a very complete and detailed survey of the various rules-of-origin regimes that have been put in place in the context of the huge increase in PTA initiatives for the world economy and the Americas in particular over the last fifteen years. Second, the paper draws on the political economy literature to examine why the use of rules of origin has become such an important policy for government and private sector lobbies and why the level of restriction implied by rules of origin has increased over time. Third, given what the (positive) theory predicts regarding why rules of origin are established, the paper summarizes the evidence about the effects of these regulations on trade and investment flows. Finally, the paper ends with policy recommendations. I concentrate my comments on the first two of these issues: the features of the various rules-of-origin regimes in the Americas and the political economy aspects of these rules.

On the Extension of the Restrictive NAFTA Model in the Americas

The paper concludes that the NAFTA model of rules of origin, which has been widely applied in the Americas since the second half of the 1990s, is much more restrictive and selective than the rules included in previous [End Page 93] agreements like the old LAIA system and also those applied in Mercosur and in the free trade agreements between Mercosur and Chile and Bolivia. Is this bad news for free trade in the region? To a certain extent, it is not surprising that the NAFTA model has been extended to various free trade agreements in the Americas. Many of these new free trade agreements were signed by NAFTA member countries (including all the bilateral free trade agreement signed by the United States), which presumably would establish similar rules in their new agreements in the interest of internal consistency and for the same political reasons that originated the NAFTA rules-of-origin system. It is also not surprising that the NAFTA-type rules-of-origin regime is more restrictive than those established in previous preferential trade initiatives. As the authors mention, initiatives such as LAIA were much less ambitious than NAFTA, and many sectors and goods were exempted from free trade. Import-competing producers did not have to ask for an alternative mechanism to receive some sort of import relief because they were already excluded from the agreements. The free trade agreements signed since the beginning of the 1990s, however, are more in accordance with Article 24 of GATT in that they cover a significant part of trade and go much deeper in terms of eliminating trade barriers (even compared to unilateral or multilateral liberalization schemes). Governments and import-competing sectors naturally try to target additional measures like rules of origin to ease the cost of adjustment for sensitive sectors. This reasoning implies that this development is not necessarily bad news for free trade in the Americas, since the extension of rules of origin is precisely a reaction to further trade integration. On the other hand, the impact of these added restrictions may partially undo the gains from liberalization resulting from decreasing tariffs.

Mercosur differs from NAFTA in that it is an incomplete customs union, which has certain advantages. Since the main normative argument for adopting rules of origin is to avoid trade deflection (that is, imports entering the member country with...

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