Jinwoo Rhee, 2022, The Effect of Preferential Rules of Origin on Export of Least Developed Countries: Evidence of Korea, USA, and Canada, Kyung Hee University Graduate School Student Council 2nd Joint Academic Seminar of 2022
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Contributing to facilitating international trade market access of least developed c ountries, UN SDGs 17.12 states that preferential rules of origin applicable to imports fr om least developed countries should be transparent and simple. Since the application of the preferential rules of importing countries varies to its practical and subordinate standa rds, this study analyzes the effects of differences of such standards on products importe d from least developed countries. Based on the result of empirical analysis, this study s uggests improvement policies to significantly facilitate market access of least developed countries.
There is plenty of international development assistance for least developed count ries. In the view of international trade, the Generalized System of Preference (hereinafte r, GSP) is one of the most widely applied development assistance, which provides a pre ferential tariff system for least developed countries. Developed countries including Korea aid least developed countries with ‘zero-tariff’ or ‘duty-free’ as GSP for such countries t o facilitate international trade market access.
On the other hand, there is no international legal consensus regarding how to s et out GSP in international agreements or regulations such as UN treaties or WTO cove red agreements. In 2005, WTO Ministerial Conference stated that WTO members should offer specific trade assistance policies for least developed countries and emphasized that preferential rules of origin should be simple and transparent in order to apply GSP. Eve n though an importing country stipulates GSP, a least developed country cannot benefit from GSP due to a difficulty in an import declaration or getting zero-tariff if the rules of origin of the importing country are sophisticated. Especially, when a least developed country finishes products after importing raw materials from third countries, each importi ng country has different rules of origin to determine whether the products are origin fro m the least developed country. Generally, the proportion of the raw materials from the t hird countries is the main standard of preferential rules of origin.
This study estimates trade effects of minimum requirements of manufacture or p roduction portion in a least developed country. In order to empirically analyse, this stud y collects panel data of imports of Korea, the USA, and Canada from 50 least develope d countries in the period 2005 to 2019. This study uses the gravity model which explai ns trade determinants and adds independent variables such as whether an importing coun try designates an exporting country as a least developed country, whether both importing country and exporting country are WTO members, and the Trade Freedom Index of an importing country. This study estimates the gravity model with PPML (Poisson pseudo maximum likelihood) to reduce bias from the omission of zero-trade.
This study examines that GSP and a wide range of minimum requirements of p referential rules of origin promote import from a least developed country. Based on the result of statistical analysis, it is argued that the scope of recognition of preferential ori gin should be broadened in order for substantial and active support for least developed countries, and the standards for the decision of origin were discussed as a way to aid p referential trade to least developed countries.