The Impact of Liberalizing Preferential Rules of Origin on Trade and Upgrading in the Clothing Industry : A Review of the Evidence

This paper seeks to explore the relationship between the rules of origin (ROO) governing preferential trade regimes and trade and investment flows. We focus on the regimes in the key markets of the EU and the US. Firstly we look at overall imports, where we do not find liberal ROO to be a key factor defining sourcing choices, although it seems to impact on growth rates. We explore trade and investment flows in key clothing sources subject to liberal ROO and find large variations in the extent to which they appear to be capturing value added. Bangladeshi industry is largely domestic and has low levels of imported inputs, while Nicaragua, Jordan and Cambodia are highly reliant on FDI and seem to import the vast majority of the inputs to their clothing industries. Our findings underline the complexity of structuring trade (and indeed investment) regimes in a manner which encourages sustainable economic development