Market Access in FTAs: Assessment Based on Rules of Origin and Agricultural Trade Liberalization

Author Name Inkyo CHEONG  (Inha University) /Jungran CHO  (Inha University)
Creation Date/NO. March 2007 07-E-016
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There are several factors behind the fast growth of FTAs in the world: economic incentives, economic reforms, and political alliances. Among these factors, economic incentives can play an important role in inducing countries to pursue FTAs with their trading partners. Economists, using simulation models, have shown that FTAs would bring significant economic gains to member countries. Examples are Cheong (2005), Schiff and Winters (2003), Scollay and Gilbert (2001), and Urata and Kiyota (2003). Cheong (2005) demonstrates using computable general equilibrium (CGE) models that East Asian countries can collect the highest gains with a region-wide FTA in East Asia rather than any subregional FTA. Schiff and Winters (2003) also show through simulation analyses that there are potential dynamic gains for member countries from FTAs. Scollay and Gilbert (2001) forecast positive impacts on world trade through FTAs, indicating that trade creation associated with FTAs is greater than trade diversion. Regarding FTAs in East Asia, Urata and Kiyota (2003) predict that emerging economies in Southeast Asia and China gain a great deal more in terms of increases in GDP from joining an East Asian FTA than other economies such as Korea and Taiwan in Northeast Asia.

However, economic gains that are forecasted by simulation models cannot be realized automatically from the inception of an FTA. It is important to introduce measures such as FDI liberalization and the lowering of trade barriers to market entry to increase the benefits of joining an FTA. All studies cited above are based on the assumption that tariff elimination and loose rules of origin (ROO) will exist at the foundation. Therefore, it can be said that the quality of FTAs is critical in determining the scale of economic gains.

Most countries that establish FTAs state that they are pursuing high quality FTAs. A country cannot become an FTA hub in a region automatically by expanding the number of FTAs that it is involved in. Rather, it is necessary for a country to show a strong willingness for trade liberalization and trade facilitation by maximizing market access and harmonizing trade rules. In reality, market access is a core element for FTA negotiations, and should be evaluated from several viewpoints such as tariff elimination, the easing of non-tariff barriers (NTBs) such as customs clearance, the simplifying of rules of origin, and the improvement of trade rules.

This paper tries to assess the quality of FTAs in terms of tariff elimination for agricultural products and rules of origin. While analyzing the improvement of NTBs and trade rules is also important in determining the quality of FTAs, this cannot be easily evaluated in quantitative terms. This paper analyzes market access in representative FTAs such as NAFTA, EU-Mexico FTA, Australia-New Zealand Closer Economic Relations (CER), Japan-Singapore Economic Partnership Agreement (JSEPA), Japan-Mexico Economic Partnership Agreement (JSEPA), ASEAN-China FTA, Korea-Mexico FTA and Chile-Korea FTA. Chapter 2 discusses theoretical aspects of ROO, and Chapter 3 provides the evaluation results on the stringency (restrictiveness) of rules of origin. In Chapter 4, FTAs are assessed in the context of agricultural tariff elimination. Since most FTA cases show that most manufacturing goods are liberalized within 10 years of the implementation of the FTAs, only the agriculture sector, which is the most sensitive sector in FTAs, is taken into account for the study. Finally, concluding remarks are provided in the Chapter 5.