PDF, GB, 56 p., 1,3 Mo - Femise

Sectoral level characteristics:
• The more restrictive the ROO is in terms of either of the three criteria – change in
tariff classification, value-added, specific production processes - identified earlier.
Hence the higher the domestic value-added requirement the more difficult it will
be for firms to achieve this. Similarly, the more constraining is the tariff
transformation rule (determined by either the number of tariff classification line
changes needed, or by the level of HS aggregation at which the rule is set), the
more constraining will the rule be.
• The level of the applied MFN tariff in the country to which the final good is
exported. Recall, that the tariff is effectively the penalty that must be paid if the
rule of origin is not satisfied. If the MFN tariff were zero, there would be no
incentive for firms to meet the ROO, as the effective penalty would thus also be
zero. It is worth noting, therefore, that the simplest way of avoiding the distortions
caused by rules of origin is by the reduction / elimination of MFN tariffs.
However, this of course mitigates against the desire to offer certain countries /
markets preferential access – or alternatively to maintain levels of protection
against competing third markets.
• The higher the intermediate share in production. This applies in the case of the
value content rules which stipulate the minimum amount of domestic value added
required. Industries which have a low intermediate share in production will find
this criterion easier to meet. Those with a high intermediate share may find it
more difficult, and this will depend on the share of imported intermediates.
• The higher intermediate imports relative to final goods imports are in a given
sector. This is closely linked to the preceding. Industries where the share of
imported intermediates is already high, or those where there is considerable scope
for switching to imported intermediates are likely to be significantly affected by
changes in rules of origin. Take the case of clothing exports from Egypt for
example. In order to be able to export duty free to the EU, Egyptian producers are
required to use Egyptian cotton. While Egyptian cotton is traditionally seen as
being of high quality, it is also more expensive. Allowing for the use of imported
cotton is likely to greatly increase the competitiveness of Egyptian clothing
exports. Indeed it is for this reason that the Egyptian (and Moroccan) clothing
industry were keen on signing a free trade agreement with Turkey, in order to be
able to diagonally cumulate Turkish fabrics.
• The lower the import tariffs between non-cumulating countries. Suppose the tariff
on intermediates from non-cumulating countries were high. This would
discourage the use of imported intermediates from these countries, and hence it is
less likely that changes in the rules of origin would have as much of an impact.
• The higher the export share of the final good. In sectors where the goods are
produced largely for the domestic market, access to partner country markets is less
important, and hence rules of origin are less likely to be an issue. Note, however,
that in industries which currently have a low export share this suggests that these
are industries which are not competitive in the export market. That could be
driven either by an inherent lack of comparative advantage / competitiveness in
that sector, or because of the restrictiveness of the rule of origin. Relaxing the rule
of original will not have much impact in the former case, but it will in the latter
case.