Global Value Chains and Rules of Origin
The international fragmentation of production has contributed to the growth in global value chains (GVCs), and this is opening up opportunities for developing countries to participate in activities that were not available in the past.
However, international production networks are mainly confined to East Asia, Europe, and North America. The regional bias of GVCs is problematic for many developing countries. Apart from distance, and differences in languages and cultures, which are some of the hindrances that periphery countries face in joining GVCs in other regions, the regional bias is also driven by the existence of regional trade agreements (RTAs).
Such agreements create major limitations for countries outside a trading block due to their rules of origin (RoO). There is, therefore, a compelling argument in favor of the simplification and harmonisation of customs procedures and expansion of cumulation of RoO to reduce the implicit costs faced by active and potential participants in international production networks.
While the multilateral system catches up with the modern trends in production fragmentation, alternative policies can be derived to minimise the shortcomings of the regional approach, particularly of those induced by the existence of RoO.