Assessing the effects of ROO and tariff margin on China-ASEAN free trade agreement utilization

Abstract

This study investigates the effects of rule of origin (ROOs) and tariff margin on China-ASEAN Free Trade Agreement (CAFTA) utilization. Using a sample of 40,474 product-level observations with China’s imports from ASEAN countries during the period 2015 to 2021 and adopting the Logit model estimation methods, we found that larger tariff margin positively affects the use of CAFTA, whereas, the rules of origin show a negative effect on the CAFTA utilization. In order to assess the specific impact of two effects, we also calculate the relative contribution of these two effects to the CAFTA utilization by ASEAN countries, and the results show that the rules of origin play a more important role on the CAFTA utilization by each ASEAN country. Moreover, based on heterogeneity analysis, we also find that ROOs play an important role in the use of FTA by lower middle-income countries and the tariff margin play an important role in the use of FTA by upper middle-income and high-income countries. Based on the above findings, the study proposes some policy recommendations on how to increase the CAFTA utilization by reducing the ROO costs and accelerating tariff reductions.