Are the WTO’S Rules of Origin Turning Archaic as a Result of Trade in Value-Added?
The Estey Centre Journal of International Law and Trade Policy, Volume 15, Number 2, 2014/p.162-178
17 Pages Posted: 25 Sep 2014 Last revised: 19 Oct 2014
Date Written: September 12, 2014
Abstract
The birth of international trade policy has brought about with it manifold ramifications. The nuances of international trade are based on the economic policy of Adam Smith’s comparative advantage; modified several times by Ricardo, Heckscher and Ohlin and Krugman to better suit the needs of time. Hence, nations almost always prefer to manufacture what they excel at and import what may be produced at cheaper rates in other nations. However, this uncomplicated concept of comparative advantage does not seem to be so uncomplicated anymore! Manufacturing of a certain product no longer involves merely one importing and one exporting nation. Hence various nations add value to trade by means of providing intermediates or inputs requisite for the final production, by means of value chains spread across the globe. These inputs may in turn be used for directly manufacturing other goods, or may on the other hand require to be processed before they may be used. At the same time, inputs used in the manufacturing of goods are not limited to goods but also extend to services that are provided in manufacturing the final product; for instance, warehousing, housekeeping, transport, etc. Nations have therefore come to be so interdependent that the mercantilist view of beggar-thy-neighbour has been considered to be completely redundant, especially when a nation’s imports consist of value-added from its own nation. More-over, nations have even begun to question the effectiveness of anti-dumping duties, since the same would be imposed on imports on which the importing nation has itself added value to. Thus albeit the fact that value chains build upon the simple concept of comparative advantage, they have in turn compelled certain pressing questions on the manner in which trade policy is regulated; bringing about some imperative structural changes. When goods are manufactured with the aid of inputs provided by several nations, it no longer remains fair that the last country where the good has been assembled is considered the country of origin. Against this backdrop, the then Director-General Pascal Lamy mooted the concept that goods are now "made in the world." This paper therefore delves to gain a deeper insight in to the concept of "Made in the World" and how the working of Global Value Chains have permitted nations across the globe to add value to trade and may in turn pose some significant implications on international trade policy. For most, it would require bringing in to line various other policies to acquire a congruent approach to trade in value-added. Hence, international trade regulation must provide a sound answer to the dynamics of the concept of “Made in the World” inter alia by a more thorough regulation and liberalization of the services, investment, customs and competition sectors to name a few.
Keywords: comparative advantage, World Trade Organization (WTO), made-in-the-world, intermediates, inputs, Global Value Chains (GVC’s), trade in value-added
JEL Classification: A10, D60, F10, F11, G18
Suggested Citation: Suggested Citation