Overcoming Low Preference Utilization in PTAs: Presumption of Origin for Small Shipments

BKP Development Research & Consulting Trade & Development Discussion Paper No. 02/2014

28 Pages Posted: 1 Jul 2014  

Dan Ciuriak

Ciuriak Consulting Inc.; C.D. Howe Institute; Centre for International Governance Innovation (CIGI); BKP Development Research & Consulting GmbH

Derk Bienen

BKP Development Research & Consulting GmbH; Addis Ababa University

Date Written: June 30, 2014

Abstract

While rules of origin (ROOs) constitute an essential element of preferential trade agreements (PTAs), recent analysis of the utilization of preferences shows that even with liberal ROOs, utilization of preferences is often low, especially by smaller exporters. This reflects the high fixed cost component of demonstrating compliance with ROOs. In order to develop options for increasing the rate of preference utilization – especially by smaller exporters that might benefit most in terms of knowledge spillovers from entering into trade – we first examine different ROOs-related explanations of low preference utilization, in particular those based on exporters’ cost-benefit calculations in relation to compliance with ROOs. Second, we analyze the implications of low preference utilization rates for competition and welfare, which we argue are negative. To overcome the negative implications of ROOs, we propose a way to increase the welfare benefits from PTAs while also providing a stronger impetus to the integration of SMEs into regional trade than would be possible under even the most favourable ROOs regime currently in use. We label this approach the presumption of origin. It involves a presumption of compliance with ROOs for smaller commercial-scale shipments accompanied by a simple good faith attestation of origin, with use of anti-circumvention measures modelled on similar provisions in anti-dumping and countervailing duty law to address complaints and/or to investigate suspicious import surges. While some PTAs already have special regimes for small traders in place, these are so restrictive that their practical relevance is extremely limited.

Keywords: rules of origin, preferential trade agreements, trade costs, heterogeneous firms

JEL Classification: F13, F14, F15, F53

Suggested Citation

Ciuriak, Dan and Bienen, Derk, Overcoming Low Preference Utilization in PTAs: Presumption of Origin for Small Shipments (June 30, 2014). BKP Development Research & Consulting Trade & Development Discussion Paper No. 02/2014. Available at SSRN: https://ssrn.com/abstract=2460648

Dan Ciuriak (Contact Author)

Ciuriak Consulting Inc. ( email )

83 Stewart St.
Ottawa, Ontario K1N 6H9
Canada

C.D. Howe Institute ( email )

67 Yonge St., Suite 300
Toronto, Ontario M5E 1J8
Canada

Centre for International Governance Innovation (CIGI) ( email )

57 Erb Street West
Waterloo, Ontario N2L 6C2
Canada

BKP Development Research & Consulting GmbH ( email )

Romanstrasse 74
München, 80639
Germany

Derk Bienen

BKP Development Research & Consulting GmbH ( email )

Jutastr. 14
München, 80636
Germany

Addis Ababa University ( email )

King George VI St
Addis Ababa, 1000
Ethiopia

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