Characteristics and restrictiveness of rules of origin in the Korea-Australia FTA : an empirical analysis

다국어 초록 (Multilingual Abstract)

Rules of origin (RoO) are necessary and important in free trade agreements
(FTAs), given the fact that their function is to prevent trade deflection. However,
with the proliferation of FTAs over the last two decades, diverse RoO among the
different FTAs have resulted in increases in the cost of complying with the
complex requirement of RoO. In other words, RoO can play a role as trade
barriers. Thus, it is critical to find out how demanding RoO are, in order not to
limit exporters’ opportunities for more markets.
On this ground, this paper analyzed the restrictiveness of RoO, which can be
hidden protection, with the example of the bilateral FTA between Korea and
Australia, using a method proposed by Estevadeordal (2000). It revealed that the
restrictiveness index of the Korea-Australia FTA is 4.26, lower than those of the
Korea-China FTA (4.43), the Korea-EFTA FTA (4.53), the Korea-ASEAN FTA
(4.59), and the Korea-Chile FTA (4.82). This low restrictiveness index of the
Korea-Australia FTA can be explained mainly by the complementary industrial
and trade structure and significant amount of trade volume between the two
countries. Then, examining restrictiveness of RoO for nineteen sectors, it is found
that the agricultural and animal sector is the most restrictive among all the sectors,
whereas the chemical and electrical equipment sectors are less restrictive. In
addition, the analysis has shown that the restrictiveness of RoO in major five
sectors in the Korea-Australia FTA lies between those of the China-Australia FTA
and the Japan-Australia FTA.
Given the results of this research, even though RoO in the Korea-Australia
FTA are less restrictive than those of Korea’s other FTAs, Korea should adopt a
more strategic approach to trade policy, considering the restrictiveness of RoO
and Korea’s position in the Australian market vis-à-vis China and Japan.
Furthermore, the Korean government needs to review these factors for
renegotiation of the Korea-Australia FTA in the future.

목차 (Table of Contents)

• I. Introduction ...........................................................................................1
• II. Theoretical Background & Literature Review......................................5
• 2.1 Literature Review .....................................................................5
• 2.2 Rules of Origin ..........................................................................9
• 2.3 Origin Determination Criteria ..................................................10
• 2.4 Restrictiveness Index ..............................................................14
• III. Characteristics of Rules of Origin in the Korea-Australia FTA .........19
• 3.1 Wholly-Obtained Criterion and Regional Value Content based on Build-down and Build-up Methods .....................................19
• 3.2 De Minimis ..............................................................................21
• 3.3 Cumulation and Outward Processing Zone..............................22
• IV. Analysis of Restrictiveness of Rules of Origin in the Korea-Australia
• FTA .....................................................................................................24
• 4.1 Trade Structure between Korea and Australia............................24
• 4.2 Restrictiveness Index of Rules of Origin in the Korea-Australia FTA.............................................................................................29
• 4.3 Sectoral Restrictiveness Index of Rules of Origin in the Korea-Australia FTA .............................................................................32
• 4.4 Different Categories of Rules of Origin in the Korea-Australia FTA.............................................................................................37
• 4.5 Comparative Analysis of Rules of Origin in the FTA by Korea, China, and Japan with Australia ................................................. 39
• V. Conclusion...........................................................................................44
• Appendices.............................................................................................................47
• References..............................................................................................................50