Preferential Trade Agreements and Trade Liberalization Efforts in the OIC Member States
With Special Emphasis on the TPS-OIC
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serve to make FTA more viable. For example, it is unlikely that the NAFTA agreement would
have been signed without the support of the automobiles and the textile industries, and each of
these were influential in the shaping of the NAFTA rules of origin and not surprisingly the rules
for each of these sectors are extremely strict.
In principle there are three types of cumulation: bilateral, diagonal and full. These are
described below:
1. Bilateral cumulation: Applies to trade between two trading partners. Bilateral
cumulation means that materials originating in one country shall be considered as materials
originating in the other partner country (and vice versa). All PTAs allow for bilateral
cumulation;
2. Diagonal cumulation: Applies to trade between three or more trading partners
normally linked by FTAs with identical rules of origin. Under diagonal cumulation the
participating countries bilaterally agree, in all the FTAs concluded among each other, that
materials originating in one country shall be considered as materials originating in all the
other countries. Hence, suppose that an intermediate good imported by B was deemed to be
originating in country C. Country B could cumulate its own value added with the intermediate
input from C in determining originating status on the export of the final product e.g. to the EU
3. Full or total cumulation. Again applies between three or more countries, but involving
more flexibility than with diagonal cumulation. This is because it allows intermediate
processing to be split in any way between all the parties to the preferential agreement
provided that when added together all the materials/processing used throughout the area are
sufficient to meet the origin rule.
2.4. IMPACT OF REGIONAL TRADING AGREEMENTS ON
EXCLUDED COUNTRIES
Historically little attention has been given to the effects on 3rd parties excluded from an RTA
who may lose market shares or have to cut prices to stay in the market and thus suffer terms of
trade losses. Similar to "preference erosion" - countries with preferences or FTA membership
will therefore lose relative benefits under FTAs they are not in, and from multi- lateral
liberalisation by their partners. There is, however, a small but growing literature on the impact
of regional trading arrangements on excluded countries - those who are not part of the
agreement.
Excluded countries may have been efficient suppliers who therefore suffer from "trade di-
version" or inefficient suppliers who suffer from trade re-orientation (preference erosion).
This can be a minor inconvenience if the excluded partner can switch exports at the same price
to the world market; however it will cause terms of trade losses from price cuts if the excluded