Preferential Trade Agreements and Trade Liberalization Efforts in the OIC Member States
With Special Emphasis on the TPS-OIC
56
convenient to talk about rules of origin on particular sectors. There are other elements to
negotiate apart from the type of rules of origin. If the value-added criterion is used, it is
necessary to determine the lower thresholds from which a product will be considered as
national of the other signatory partner and tolerance levels.
Another important element to consider is related to the provisions for cumulation. By this
provision, one partner may consider as originating from the other partner a product coming
originally from a third country to whom it has also an FTA or the inputs used in the product
imported from the FTA partner. This constitutes an important flexibility of the rules of origin.
The EU, for example, in the negotiation of their EPAs allowed regional cumulation with all ACP
countries (called diagonal cumulation) or also through the Euro-Mediterranean partnership.
Mercosur, on the other hand, provides full cumulation between its members and diagonal
cumulation with the Andean Community. (Abreu, 2013) provides an extended revision of
different rules of origin and cumulation rules in RTAs.
Rules of origin are also closely associated with the treatment given to outward-processing. In
the context of production fragmentation, outward processing becomes more important and
rules have been designed to address this phenomenon. In a sample of 192 RTAs, 70 authorise
either general or to specific products outward processing (Abreu, 2013). The EU, Singapore
and Korea are the countries that act as Hubs in this relationship. By this rule, the EU, for
example, will consider as originated in the EU a product that has been outward processed in
the Euro-Med area or the Balkans countries; but this will not be the case in many of FTAs that
has signed, included the interim EPAs, Mexico and Chile.
Strict rules of origin, the lack of rules of cumulation or difficulty in obtaining certification of
compliance of rules of origin have been identified as a main impediment for the full use of
preference in FTAs. (Abreu, 2013) shows that utilisation of preferences in the US ranges from
99% in Jordan to 19% in the case of Singapore. However, this does not take into account those
tariff lines where the MFN tariff is already zero. In the case of the EU, a significant use of
preferences is seen in the FTAs with Cameroon, Turkey, Egypt and Morocco (around 98%) but
around 73% with Mexico. As (CARIS, 2009) has shown, whilst rules of origin may mitigate
against the full benefits of preferences, particularly in least developed countries; it is also true
that these countries tend to specialise in products where the EU imposes zero MFN tariffs.
This suggests that the low use of preference may be associated with the trade and protection
structures of the countries involved, as much as by the nature of the rules of origin.
In recognition of the fact that rules of origin limit the degree of regional trade which the free
trade agreement they are a part of was meant to stimulate, there have been a number of
proposals as to how to mitigate again this. For example, it has been suggested that a common
and limited set of rules of origin should be employed in future trade agreements
(Estevadeordal, Harris, Suominen, 2009). Additionally, at the regional level, cumulation
between overlapping agreements should be encouraged to promote trade between spokes