Multiple Preference Regimes and Rules of Origin

Discussion Papers

No.738

by Kazunobu Hayakawa

February 2019

ABSTRACT

This study examines Japan's preferential imports from three least developed countries (LDCs), i.e., Cambodia, Laos, and Myanmar, from 2013 to 2016. In these trade flows, two preference regimes are available in addition to a most favored nation regime: the Generalized System of Preferences (GSP) for LDCs (GSP-LDC) and a plurilateral trade agreement among Japan and ASEAN countries (AJCEP). We empirically examine how relaxing the rules of origin in GSP-LDC for knitted apparel in 2015 changed the utilization of the GSP-LDC and AJCEP regimes. Our identification strategy relies on comparisons not only between GSP-LDC and AJCEP but also between knitted and woven apparel. As a result, we found that such relaxation significantly increases the share of imports under the GSP-LDC regime out of total imports and reduces the share of imports under the AJCEP regime. We further investigate the main drivers of these changes in the shares.

Keywords: Rules of origin, Least developed countries, Generalized system of preferences, Regional trade agreements

JEL classification: F15, F53

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