An Empirical Analysis Of Trade Effects Under The CAFTA Rules Of Origin

The preferential rules of origin are very important trade arrangements in free trade agreements. It's mainly used to prevent trade deflection and protect the interests of members within the region. The CAFTA preferential rules of origin are the first preferential rules of origin China implemented, which have a significant impact on the smooth realization of FTA's target.At present, most studies on the CAFTA preferential rules of origin were to summarize and assess its characteristics, problems and so on. Little literature which focuses on its impact on trade can assess more than academic argument level. The quantitative empirical study is very lack. Whether the CAFTA preferential rules of origin can affect the trade? If so, this impact positive or negative? How much it impacts? These issues have yet to be answered. Therefore, this article attempts to test the trade flows and its determinants between China and its major trading partners from 2005 to 2007 by the use of "single-country model" gravity model, and focus on the preferential rules of origin's impact on the trade flows.The analysis results of the export model show that:economic volume, distance, and CAFTA preferential rules of origin are the major factors affecting China's exports, while the impact of joining trade group on China's exports is not significant. This shows that the level of countries'economic development decides how much exports it can absorbs. Distance between countries remains an obstacle to China's exports. The CAFTA preferential rules of origin has a very significant effect on China's exports, which indicates CAFTA preferential rules of origin plays its role of trade protection rightfully. From 2005 to 2007, the preferential rules of origin has caused China's exports decreased by 61.65%,55.27%and 50.68%respectively, but also expanded the effects of CAFTA's trade promotion. The implementation of the preferential rules of origin made China's exports expanded 19.72%, 20.92%and 18.53%respectively. When compared to free trade, the application of CAFTA preferential rules of origin decreased China's export trade by 34.99%,28.4%and 27.12%.The import model's analysis results show that joining trade group has the most important effect on China's import. Joining the trade group can produce trade creation effect and increase bilateral trade flows. The implementation of CAFTA preferential rules of origin had significantly reduced China's import and export trade flows. From 2005 to 2007, the implementation of CAFTA preferential rules of origin has decreased China's imports by 131.62%,28.4%and 11.63%, but also expanded the effects of CAFTA's trade promotion. The implementation of the preferential rules of origin made China's imports expanded 36.34%,9.42%and 5.13%respectively. When compared to free trade, the application of CAFTA preferential rules of origin decreased China's import trade by 69.89%,17.35%and 6.18%.In short, CAFTA preferential rules of origin will reduce China's import and export trade, but will also promote the mutual trade between members of China-ASEAN Free Trade Area. Although from 2005 to 2007, the effect of the preferential rules of origin's application is negative, but its reduction decreased, which indicated that with the free trade area begin to start zero tariffs substantially, it will increase rather than decrease China's import and export trade, and this need to be further empirical tested.