Rules of Origin in ASEAN: A Way Forward by Stefano Inama, Edmund W. Sim (review)

Although the world economy has seen an improvement in trade and investment relations, the various Regional Trading Arrangements (RTAs) which propel them — such as Free Trade Agreements (FTAs) — tend to discriminate against non-members. This is because FTA members enjoy preferential benefits (zero-tariffs or fewer non-tariff measures) over non-members. This imbalance in trade privileges has led to serious complications when countries engage in international trade. Rules of Origin (ROOs) are often the source of such problems; while they may be easy to implement to goods which are completely produced in one country, they become much harder to enforce on goods with component parts made in more than one country.

Rules of Origin in ASEAN: A Way Forward discusses this issue in the context of the ASEAN Free Trade Agreement (AFTA) by providing a complete analysis of how ASEAN member states established their ROOs. The book begins with the development of ROOs in ASEAN countries from the early stages of ASEAN’s Preferential Trading Arrangements (PTAs) to the current situation under the ASEAN Trade in Goods Agreement (ATIGA). It also examines ASEAN’s various attempts to extend its internal ROOs to its non-ASEAN FTA partners. By doing so, Inama and Sim thoroughly explore the complexity of ASEAN’s current ROOs and explain their relative low utilization. The authors conclude the book by presenting an innovative solution: the use of self-certification to simplify the ROOs’ procedures.

Through this book, Inama and Sim make a good contribution to the current debates about the ROOs within ASEAN’s RTAs. Its appendices are equipped with a collection of the ROOs within both AFTA and in ASEAN’s FTAs with its partner countries. However, the book lacks adequate empirical research into country-specific issues which led some ASEAN members to promote self-certification and made other members reluctant to do so.

The proliferation of FTAs around the world increased global attention to the issues that ROOs were created to deal with. Initially imposed to prevent trade deflection from non-member countries of FTAs, ROOs can, if properly implemented, eliminate free riding. In certain cases, they can also be used as an anti-circumvention policy against the distortive domestic policies of other countries, such as dumping. In essence, ROOs can be used to achieve the country’s economic objectives by extending trade protection to both the producers of the factors of production and those who manufacture the final products in member countries (Estevadeordal and Suominen 2005, p. 340; Lombaerde and Garay 2007, p. 4).

Inama and Sim clearly and logically pointed out the reasons why ROOs are under-utilized. ROOs provide a host of difficulties by complicating administrative procedures and creating an overlapping setup of often ambiguous and unpredictable rules and regulations. These are discussed in Chapter 2. The absence of transparent and straightforward ROOs is the result of a lack of substantial contribution by each country’s customs authorities during trade negotiations (p. 10). The ROOs’ consequent shortfall in quality has made ASEAN’s member states reluctant to use them when trading with each other or their external partners.

However, the recent creation of the ASEAN Economic Community (AEC) presents a perfect opportunity for ASEAN’s governments to review and revise their ROOs in order to make them simpler and more effective. As mentioned earlier, Inama and Sim promote self-certification, something which is already carried out by exporters (as discussed in Chapter 5). The current process — which emphasizes paper documentation over a scrutiny of the facts of a transaction — makes clear that ASEAN’s current ROOs need to be reformulated. The authors argue that even with self-certification, transactions are not immune to government audits that might lead to the imposition of penalties on those who break the rules. As a system that enables certified exporters to show their own invoice declarations for their goods, self-certification should be far less complicated in terms of its procedures...