Improving Market Access for Small Enterprise: Design Principles for the Mega Regionals

Abstract

Small enterprises are underrepresented in international trade, and have not traditionally been the focus of trade negotiations. However, Internet technology is changing the conditions for international trade, decreasing the negative effect of distance and thereby enabling small enterprises to access multiple foreign markets. As small enterprises begin engaging in export, certain standard rules of preferential trade agreements (PTAs) needs to be revisited. Rules of origin (ROOs) constitute an essential element of PTAs; however, the fixed cost component of demonstrating compliance with ROOs impacts disproportionately on small enterprise making small shipments. This leads to low utilization of preferences for small shipments facing lower tariffs. In turn, this detracts from the welfare effects of PTAs in a number of ways. The mega regionals aim to improve utilization by small enterprise of the preferences they will create. However, for many trading firms, these measures will go for nought unless the mega regionals also address the discrimination against small enterprise in the rules of origin regime. In this note, we outline a “presumption of origin” proposition that addresses this issue and suggest how it could be administered.

Keywords: rules of origin, preferential trade agreements, mega regionals, small enterprises

JEL Classification: F13, F14, F15, F53