Quantifying the costs of utilising regional trade agreements

Abstract

This study proposes an approach for quantifying two kinds of costs related to the utilisation of regional trade agreements (RTAs). The first, called the “procurement adjustment cost,” represents the cost involved in meeting the rules of origin by adjusting procurement sources. The second is the additional fixed cost required to utilise RTAs, including document preparation costs for the certificates of origin. Applying our approach to Thailand's imports from China, our estimates suggest that procurement adjustment costs at the median are equivalent to 4% of the per-unit production cost. RTA utilisation also requires an additional 27% in fixed costs. In addition, we simulate how much a reduction in these costs would enhance RTA utilisation.