Multilateral Disciplines on Preferential Rules of Origin: How Far are We from Squaring the Circle?

Abstract

A significant quantity of global merchandise trade takes place under one of two sets of preferential rules of origin (ROO), either those of the European Union, the so-called Pan-European Cumulation System (PECS), or those generally preferred by the United States, as manifested in free trade agreements (FTAs) such as NAFTA and the many subsequent FTAs the US has concluded with various trading partners since then.

Many years of work conducted by the World Customs Organization and the World Trade Organization have finally culminated in a draft text on non-preferential ROO, with the only thing standing in the way of its adoption being a relatively limited subset of narrowly defined political economy interests in some of the largest trading nations.

Some observers have argued that the so-called spaghetti bowl of preferential trade agreements can be 'multilateralized', and that one way to achieve this would be to harmonize preferential ROO at the multilateral level, that is, at the WTO.

A significant quantity of global merchandise trade takes place under one of two sets of preferential rules of origin (ROO), either those of the European Union, the so-called Pan-European Cumulation System (PECS), or those generally preferred by the United States, as manifested in free trade agreements (FTAs) such as NAFTA and the many subsequent FTAs the US has concluded with various trading partners since then. Many years of work conducted by the World Customs Organization and the World Trade Organization have finally culminated in a draft text on non-preferential ROO, with the only thing standing in the way of its adoption being a relatively limited subset of narrowly defined political economy interests in some of the largest trading nations. Some observers have argued that the so-called spaghetti bowl of preferential trade agreements can be 'multilateralized', and that one way to achieve this would be to harmonize preferential ROO at the multilateral level, that is, at the WTO. This paper looks at how easy or difficult it would be to achieve such harmonization, both in purely technical terms as well as a political economy matter. It concludes that the current system of ROO is quickly being overtaken by the realities of increasingly unbundled and globally dispersed production processes and that these rules are even more likely to need a complete rethink as global manufacturing in so many industries undergoes what is probably the most profound economic shakeup in over a hundred years.