Rules of Origin in FTAs in Europe and in the Americas: Issues and Implications for the EU-Mercosur Inter-Regional Association Agreement

Jan 2004
Rules of origin (RoO) are a central topic both in the Inter-Regional Association Agreement negotiations between the European Union (EU) and the Southern Common Market (Mercosur), and in the 34-country negotiations of the Free Trade Area of the Americas (FTAA). The purpose of this paper is to provide a detailed mapping of the different rules of origin regimes in FTAs in Europe and the Americas, and to draw lessons from these regimes to the EU-Mercosur RoO negotiations, in particular. The paper offers four recommendations. First, the EU¿s standardized RoO regime will play a central role in the EU-Mercosur RoO negotiations. However, there is plenty of room for mutual tariff concessions. At the minimum, the EU¿s tariff preferences for Mercosur should approximate those provided to Chile in order to foster Mercosur¿s chances to augment its industrial exports to the European market. Second, the EU-Mercosur FTA RoO regime should incorporate general and sector-specific adjustment mechanisms in order to enable Mercosur to better utilize the preferential treatment provided by the EU. Third, Mercosur will need to further consolidate its common market in order to take full advantage of the RoO regime¿s likely provision of diagonal cumulation. Fourth, Mercosur should make the most of its strategy of simultaneous trade negotiations in the Americas and with the EU by ensuring a high degree of compatibility between its two major future agreements.