Preferential Trade Agreements and Trade Liberalization Efforts in the OIC Member States
With Special Emphasis on the TPS-OIC
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in terms of their impact to the extent to which they address barriers in those products where such
NTB measures are more prohibitive.
5.2. RULES OF ORIGIN
The TPS-OIC Rules of Origin agreement is a key component of the TPS-OIC. Without this agreement,
the PRETAS becomes impossible to put in practice. Rules of origin are an essential component of any
FTA or preferential agreement and its analysis is particularly important as ill-defined rules of origins
could negate any intended liberalisation of any given FTA. On the other hand, it is also possible that
rules of origin might enhance or empower an FTA or preferential trade agreement by making it more
flexible. In general, the Rules of Origin agreement establishes that non-originating materials will be
considered as sufficiently processed in the TPS-OIC Member State as long as the value of those
materials does not exceed 60% of the final product price. This means that at least, 40% of the value
added should be locally sourced. However, Art. 7 of the Rules of Origin agreement establishes that
operations such as packing, bottling, labelling, sorting, simple painting and assembly, among others
will be considered as insufficiently worked or processed to give the status of originating product.
This puts an additional constraint and may restrict the degree of possible increased trade between
members. Moreover, although the requirement of local content in exports is reduced to 30% for
Least Developed members, the exclusion of these activities suggests that it may be harder for the FTA
to have an impact in these countries. Nevertheless overall the core rules of origin are fairly standard
and commonly used in other FTA or PTA agreements.
An important element in any rules of origin is the provisions with respect to regional cumulation.
These provisions allow for the consideration (completely or partially) as local or national from the
Member State any material imported from any other Member State. Cumulation constitutes a way of
making rules of origin more flexible by reducing the local content of the product to be covered in the
agreement since part of the "foreign" value added is produced in another Member State. Although
regional cumulation is included in the TPS-OIC Rules of Origin agreement, the scope of the provisions
is limited as goods would only be considered as national of a Member State and beneficiary of the
flexibility, as long as they have more than 40% of the value added originating from that Member State
and that the good has not been the result of the activities outlined in Art. 7. Hence the rules currently
appear to allow for diagonal cumulation as opposed to full cumulation. The latter would be less
restrictive and may help to encourage more intra-regional trade. Although the current provisions are
put in place with the objective of avoiding the deflection of trade and the avoidance of tariff duties,
there is a real possibility that they may constrain the degree of de facto liberalisation and also the
ability to develop value chains between members of the agreement.
5.3. TRADE AMONG THE CURRENT PARTICIPANTS OF THE TPS-OIC
As we have seen from the discussion above, the effects of the TPS-OIC are likely to be somewhat
limited given the very nature of the agreement itself. Nevertheless, an evaluation of an FTA or
preferential agreement is incomplete without a discussion of the trade patterns of the countries