Preferential Trade Agreements and Trade Liberalization Efforts in the OIC Member States
With Special Emphasis on the TPS-OIC
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zero. When the good is exported to the EU, the EU needs to assure themselves that the good
really does originate from Ethiopia and is not being rerouted via Ethiopia by some third
country which does not have the same degree of preferences. That re-routing of goods is
known as trade deflection. In order to prevent trade deflection rules which confirm the true
originating status of the good are required.
The principal for determining originating status is that substantial transformation needs to
have occurred. Typically one or more of three criteria are used in determining whether there
has been substantial transformation:
(a) The change in tariff classification rule: whether the transformation of the good results
in a different tariff classification line between the inputs and the manufactured product;
(b) The value content rule: whether or not the value of the imported intermediate(s)
exceed(s) a certain percentage of domestic value;
(c) The specific production process rule: whether a particular specified production
process has been employed or not. These criteria are often given singly for a given product
category, but can also be employed together.
These criteria are often given singly for a given product category, but can also be employed
together. In the latter case the rules will sometimes specify an either / or choice (e.g.. to be
granted originating status the producer must fulfil either criteria (a) or criteria (b)), and
sometimes the rules may specify that both criteria need to be met. Rules of origin are
perceived as being very technical. This appears to arise largely from high level of
disaggregation at which they are defined and from the criteria combinations employed. Hence
rules of origin are typically defined at the HS 4 or 6 digit level, and can mean that the protocol
on rules of origin in a given agreement is over 100 pages long and typically considerably
longer than the main body of the agreement itself.
Given that typically rules of origin are determined product by product at a very detailed level
of disaggregation and given also their technical opacity they are thus potentially amenable to
protectionist pressure (see for example, Dasgupta & Paanagariya (2002), Grossman & Help-
man (1995)). Hence certain sectors may end up being afforded protection via the underlying
rules of origin. Take textiles for example. In the context of the EU agreements it is typically the
case for textile imports that the change in tariff classification rule is employed. However, as
opposed to allowing a single change in the tariff classification line, the transformed good must
have moved at least two tariff classification lines in order to be considered originating. A
similar rule applies with NAFTA but where instead of a double transformation rule, there is a
triple transformation rule. Clearly a double or triple transformation rule is likely to offer more
protection than a single transformation rule. However, it is also worth pointing out that, in
turn, the possibility for industries to isolate themselves from the process of liberalisation can