one of the differences between Customs Union (CU) and free trade agreement (FTA) is the authority of charging tariffs on the imports from non-member countries. CU member countries introduce common tariff rates against non-member countries, and they cannot change tariff rates voluntarily without consultation with other member countries. However, FTA member countries can set tariff rates (not higher than WTO bound rates) independently. Because tariff rates of the member countries of an FTA are different, trade deflection can happen. Trade deflection means that a good imported via a low tariff FTA member country is re-exported into a country with high tariff without paying tariffs. In order to prevent trade deflection, FTA member countries introduce specific rules, regulating that goods satisfying the rules be imported into FTA member countries with preferential treatments in terms of tariffs. These rules are called as rules of origin (ROO).

Two most important elements in determining market access in a FTA are the coverage of tariff elimination and rules of origin. Generally, it can be said that general people’s concern over ROO is lower than tariff elimination. In many FTAs such as NAFTA, restrictive ROO was introduced, and the ROO of NAFTA was benchmarked by other FTAs. Restrictive ROOs are widely used as a mean for pursuading sensitive sector to accept tariff elimination, since it is difficult to satisfy restrictive ROO, which is required for preferential tariff treatments. Because of this characteristics of ROO, ROO tends to be restrictive and complex.

There are 3 criteria (methods) for defining ROO in FTAs. one of criteria is Change in Tariff Classification (CTC) or “tariff shift.” CTC is widely used in regional trading agreements (RTAs). CTC is based on the Harmonized System (HS), classifying goods at a two-digit chapter level, a four-digit heading level, a six-digit subheading level or an eight (ten)-digit level. The second rule is the requirement of Regional (local) Value Contents (RVC), implying the requirement that the product should acquire a minimum regional value in exporting country or a region of a RTA. The third rule is the requirement of Technical Process, requiring specific production process for an item.

Each criterion of defining ROO has advantages and disadvantages, and it is not easy to conclude which rule is most desirable. However, even though a specific rule is used, the stringency of the criterion can be changed depending on member country’s position towards trade liberalization. For example, chapter change will be more stringent than changes in heading or subheading, when CTC method is employed. In case the RVC criterion is used, 60% regional value contents rate will be more stringent than 40%.

Some elements of ROOs are designed to promote intra-regional trade, although ROOs in general constitute protectionist practices. For example, Cumulation and De Minimis are commonly introduced in RTAs in order to facilitate producers under certain conditions to use intermediate inputs from the region of another RTA or the 3rd country.

ROOs act like trade barriers, since they cause extra costs in production and management. Producers/exporters need to pay costs for calculating production costs and bookkeeping account-related documents. Also, extra costs will incur in complying with technical and specific process and regional value contents as specified in the ROO protocol, and these costs will be added to prices of exporting goods.

Korea effectuated its first FTA with Chile April 2004, and officially signed the FTA with Singapore August 2005. Also the country concluded the FTA with European Free Trade Association July 2005, and is under negotiation with Japan, ASEAN, and Canada. Korean business is showing increasing concerns over the FTA ROOs.

For the analysis of ROOs, several FTAs are chosen in this paper. Examples of FTAs are the NAFTA and EU-Mexico FTA, which represent the first generation FTAs by US, and EU. The authors compare the stringency of ROOs of Korea’s FTAs with other countries’ FTAs. The ROO of Korea-Chile FTA and Korea-Singapore FTA are a variation of the NAFTA, with stringent and complex specifications for sensitive items.

This book provides an overview of ROOs in major FTAs with a view to assessing the stringency of ROOs in Korea’s FTAs. It shows that Korea’s FTA ROO in its first two FTAs are more restrictive than AFTA and China-ASEAN FTA, but less restrictive than NAFTA. Based the assessment of the stringency of ROOs, authors suggest policy recommen- dations in order to minimize economic losses from restrictive ROOs, while maximize economic gains of FTAs.