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4. Summary and Conclusion
In summary, in the first part of this paper we have shown the impact of diagonal
cumulation at the sectoral level. This analysis clearly indicates that such cumulation
appears to have had a substantial impact on a number of industries, with the impact
being largest on industries such as clothing, leather, machinery, and electrical
machinery. We also show, that there is little evidence of external trade diversion
arising from this process.
In the second part of the paper we turn to considering what might be some of the
determinants of the degree of restrictiveness of rules of origin, as proxied by our
diagonal cumulation variables. What this analysis appears to suggest is that there is
weak evidence that EU tariffs are important in determining the restrictiveness of rules
of origin. This is perhaps surprising given that the tariff represents the penalty where
rules of origin have not been satisfied. A possible explanation for this is that EU
tariffs are generally very low, and with a low dispersion. Secondly, the analysis
indicates that rules of origin do tend to be more restrictive the higher the share of
exports in that industry being directed to the EU. This provides secondary evidence
that the setting of rules of origin may be strongly determined by political economy
considerations, where the ROOs are most restrictive in those areas were partner
countries may be most competitive. This is also supported by the results with regard
to the share of intermediate imports of each industry. Thirdly, the evidence suggests
that greater use of the VA criterion tends to be associated with rules of origin being
less restrictive, and that the value added criterion becomes more restrictive only
where the intermediate share of output is quite high (approximately between 70%-
80%). This is an interesting result which needs further research, as it has important
policy implications.