1 In this paper, the term RTA refers to a free-trade area or a customs union under Article XXIV of the General Agreement on Tariffs and Trade (GATT) and a preferential trade agreement between developing countries under the Enabling Clause. See the Enabling Clause, below note 10.

2 GVC participation in all G20 countries has increased between 1995 and 2009. ‘Between 30% and 60% of G20 countries’ exports consist of intermediate inputs traded within GVCs’. See OECD, WTO, UNCTAD, ‘Implication of Global value chains for trade, investment, development and jobs’, 6 August 2013, Prepared for G-20 Leaders Summit, Saint Petersburg (Russian Federation), September 2013, at 6, http://unctad.org/en/PublicationsLibrary/unctad_oecd_wto_2013d1_en.pdf (accessed 1 June 2015).

3 Ibid., at 3. See also Baldwin, Richard, ‘Global Supply Chains: Why They Emerged, Why They Matter, and Where They Are Going’, in Elms, Deborah K. and Low, Patrick (eds.), Global Value Chains in a Changing World (Geneva: Word Trade Organization, 2013), 13–59 Google Scholar at 17.

4 See ‘Mega-regional Trade Agreements Game-Changers or Costly Distraction for the World Trading System?’, Global Agenda Council on Trade & Foreign Direct Investment, World Economic Forum, July 2014, at 6.

5 The TPP negotiation was concluded between Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam on 5 October 2015. See Trans-Pacific Partnership Ministers’ Statement, Office of the United States Trade Representative, October 2015, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2015/october/trans-pacific-partnership-ministers (accessed 31 January 2017). The final text of the TPP subject to legal review and authentication is provided at https://ustr.gov/trade-agreements/free-trade-agreements/trans-pacific-partnership/tpp-full-text (accessed 22 July 2016).

6 The RCEP includes 10 ASEAN member states and those countries that have formed free-trade areas with the ASEAN – Australia, China, India, Japan, Republic of Korea, and New Zealand. See Regional Comprehensive Economic Partnership, http://dfat.gov.au/trade/agreements/rcep/Pages/regional-comprehensive-economic-partnership.aspx (accessed 18 May 2015).

7 The TTIP is the proposed free-trade area between the EU and the US. See ‘Fact Sheet: Transatlantic Trade and Investment Partnership’, http://www.ustr.gov/ttip (accessed 7 November 2015).

8 The US President Trump signed a memorandum to take steps to withdraw the US from the TPP on 23 January 2017. See ‘Trump memo directs USTR to carry out formal TPP withdrawal procedures’, 35(4), Inside US Trade, 27 January 2017, at 1.

9 Overlapping RTAs are also referred to as ‘double RTAs’. See Pauwelyn, Joost and Alschner, Wolfgang, ‘Forget About the WTO: The Network of Relations between PTAs and Double PTAs’, in Dűr, Andreas and Elsig, Manfred (eds.), Trade Cooperation: The Purpose, Design and Effects of Preferential Trade Agreements (Cambridge University Press, 2015), pp. 497–532 Google Scholar.

10 GATT Document, Differential and More Favourable Treatment Reciprocity and Fuller Participation of Developing Countries, L/4903, Decision of 28 November 1979 (Enabling Clause). Paragraph 2(c) of the Enabling Clause permits preferential trade agreements between less-developed countries ‘for the mutual reduction or elimination of’ tariffs and non-tariff measures on products imported from one another.

11 NAFTA is a free-trade area between Canada, Mexico, and the United States. NAFTA came into force on 1 January 1994. See Office of the United States Trade Representative, https://ustr.gov/trade-agreements/free-trade-agreements/north-american-free-trade-agreement-nafta (accessed 5 December 2015).

12 The Agreement on Trade in Goods of the Framework Agreement on Comprehensive Economic Cooperation between the ASEAN and the People's Republic of China (ASEAN–China FTA) came into force on 1 January 2005, http://asean.org/asean-economic-community/free-trade-agreements-with-dialogue-partners (accessed 2 August 2016). The ASEAN–China FTA is an RTA under the Enabling Clause.

13 Negotiations on the PACER PLUS were launched in August 2009 and are expected to be concluded by the end of 2016. Members of Pacific Islands Forum include Australia, Cook Islands, Federated States of Micronesia, Fiji, Kiribati, Nauru, New Zealand, Niue, Palau, Papua New Guinea, Republic of Marshall Islands, Samoa, Solomon Islands, Tonga, Tuvalu, and Vanuatu. See ‘About the PACER Plus Negotiations’, Australian Government, http://dfat.gov.au/trade/agreements/pacer/Pages/pacific-agreement-on-closer-economic-relations-pacer-plus.aspx (accessed 13 December 2016).

14 Paragraph 2 of Common Declaration with regard to Preferential Rules of Origin, ANNEX II of the Agreement on Rules of Origin, Annex 1A of the WTO Agreement.

15 Article I of the Agreement on Rules of Origin, Annex 1A of the WTO Agreement.

16 The substantial transformation criterion is defined as ‘the criterion according to which origin is determined by regarding as the country of origin the country in which the last substantial manufacturing or processing, deemed sufficient to give the commodity its essential character, has been carried out’. See Definitions, Rules of Origin, Chapter 1, Specific Annex K, Revised Kyoto Convention, http://www.wcoomd.org/en/topics/facilitation/instrument-and-tools/conventions/pf_revised_kyoto_conv.aspx (accessed 6 March 2016).

17 Paragraph 3 of Common Declaration with regard to Preferential Rules of Origin, above n. 14.

18 The Harmonized Commodity Description and Coding System (Harmonized System) is a system of nomenclature to classify traded goods developed by the World Customs Organization. See WCO, ‘What is Harmonized System (HS)?’, http://www.wcoomd.org/en/topics/nomenclature/overview/what-is-the-harmonized-system.aspx (accessed 22 July 2016).

19 See Rules of Origin – Handbook, World Customs Organization, at 9, http://www.wcoomd.org/en/topics/origin/overview (accessed 18 February 2016).

20 A more restrictive rule than a CTH rule is a chapter change (CC) rule, which requires that the classification of the imported materials should be any chapter other than the chapter in which the final product is classified.

21 The value-added criterion could be stated in terms of the percentage of the value of the non-originating materials in the final product's value. See Rules of Origin – Handbook, above n. 19, at 10.

22 Ibid., Rules of Origin – Handbook, at 10.

23 Restrictive rules of origin in RTAs are found to be ‘surrogate’ trade barriers according to an empirical study that measured the restrictiveness of rules of origin based on a quantitative index. See Cadot, Olivier, Carrere, Celine, De Melo, Jaime, and Tumurchudur, Bolormaa, ‘Product-Specific Rules of Origin in EU and US Preferential Trading Arrangements: An Assessment’, 5(2) World Trade Review 199 (2006)Google Scholar, at 218. Other past studies similarly support the thesis that restrictive rules of origin adopted in RTAs serve the protectionist interests of the RTA parties. See LaNasa, Joseph A. III, ‘Rules of Origin and the Uruguay Round's Effectiveness in Harmonizing and Regulating Them’, 90 American Journal of International Law (1996) 625 Google Scholar, at 627; Jackson, John, ‘Regional Trade Blocs and the GATT’, 16(2) World Economy 121 (1993)Google Scholar, at 126; Vermulst, Edwin A., ‘Rules of Origin as Commercial Policy Instruments – Revisited’, 26(6) Journal of World Trade 61 (1992)Google Scholar, at 98.

24 The Common Declaration with regard to Preferential Rules of Origin of the WTO Agreement on Rules of Origin (Common Declaration) states that ‘in cases where the criterion of change of tariff classification is applied, such a preferential rule of origin, and any exceptions to the rule, must clearly specify the subheadings or headings with the tariff nomenclature that are addressed by the rule’ (emphasis added). The Common Declaration applies to lawful exceptions to CTC rules and should not be interpreted as to permit any exception to CTC rules. See paragraph 3(a)(i) of the Common Declaration with regard to Preferential Rules of Origin, Annex II of the Agreement on Rules of Origin, Annex 1A of the WTO Agreement.

25 Restrictive preferential rules of origin are found to fail the internal trade liberalization obligation under GATT Article XXIV:8. See Kim, Jong Bum and Kim, Joongi, ‘The Role of Rules of Origin to Provide Discipline to the GATT Article XXIV’, 14(3) Journal of International Economic Law (2011) 613 Google Scholar, at 614.

26 The ASEAN Trade in Goods Agreement of the ASEAN Free Trade Area entered into force on 17 May 2010. See Overview of the ASEAN, http://asean.org/asean-economic-community/asean-free-trade-area-afta-council (accessed 10 December 2016). The agreement updates the trade in goods section of the earlier agreement that entered into force 1 January 1993.

27 The ASEAN was not a signatory to the RTAs between the ASEAN and third countries; each individual members of the ASEAN signed the RTAs. In other agreements, examples are found where ‘the ASEAN is a signatory to the agreement, but as a representative of ASEAN member states’. See Kuijper, Pieter Jan, Mathis, James H., and Morris-Sharma, Natalie Y., From Treaty-Making to Treaty-Breaking: Models for ASEAN External Trade Agreements (Integration through Law: The Role of Law and the Rule of Law in ASEAN Integration) (Cambridge University Press, 2015) 121Google Scholar.

28 See the ASEAN–China FTA, above n. 12.

29 See The Agreement on Comprehensive Economic Cooperative Economic Partnership among Japan and Member States of the Association of Southeast Asian Nations (ASEAN–Japan FTA), entered into force 1 December 2008, http://www.mofa.go.jp/policy/economy/fta/asean/agreement.pdf (accessed 1 June 2015).

30 The Agreement on Trade in Goods under the Framework Agreement on Comprehensive Economic Cooperation among the Government of the Member Countries of the ASEAN and the Republic of Korea (ASEAN–Korea FTA) entered into force 1 January 2010, http://ASEAN-Korea FTA.asean.org/index.php?page=asean-korea-trade-in-goods-agreement (accessed 20 January 2015).

31 The Agreement Establishing the ASEAN–Australia–New Zealand Free Trade Area (AANZ FTA) entered into force for all ASEAN countries as of 10 January 2012. See WTO Document, Notification of Regional Trade Agreement, WT/REG284/N/1, 9 April 2010.

32 See paragraph 1 of Article 16 of the ASEAN–Japan FTA, above n. 29.

33 Ibid., paragraph (h) of Article 1 of the ASEAN–Japan FTA.

34 The Agreement between Japan and Singapore for a New-age Economic Partnership (Japan–Singapore FTA) entered into force 30 November 2002. The Agreement between Japan and the Kingdom of Thailand for an Economic Partnership (Japan–Thailand FTA) entered into force 1 November 1 2007. The Agreement between Japan and Indonesia for an Economic Partnership (Japan–Indonesia FTA) entered into force 1 July 2008. The Agreement between Japan and the Republic of Philippines for an Economic Partnership (Japan–Philippines FTA) entered into force 11 December 2008. The Agreement between Japan and the Socialist Republic of Vietnam for an Economic Partnership (Japan–Vietnam FTA) entered into force 1 October 2009. The list of all RTAs reported to the WTO can be found in the WTO's RTA database, http://rtais.wto.org/UI/PublicAllRTAList.aspx (accessed 1 June 2015).

35 The Customs Union between Turkey and the European Community entered into force on 1 January 1996 following the Decision No. 1/95 of the EC–Turkey Association Council of 22 December 1995 on implementing the final phase of the Customs Union (EU–Turkey CU), 39(L35) Official Journal of the European Communities, 13 February 1996, pp. 1–47.

36 Ibid., paragraphs 1 and 2 of Article 3 and Article 4 of the EU–Turkey CU.

37 A CU is defined as the substitution of ‘a single customs territory for two or more customs territories’. See GATT Article XXIV:8(a).

38 Articles 30 to 35 of the Treaty on the Functioning of the European Union provide elimination of tariffs and prohibit quantitative restriction on all goods traded between the parties to the EU.  The treaty entered into force 1 December 2009, Official Journal of the European Union, 30 March 2010, C 83/60 to C 83/61.

39 The single-agreement parties are the ASEAN–China FTA parties that are non-parties to the TPP as of as of January 2016.

40 A mega-RTA is most likely to include at least one developed country such that a mega-RTA cannot be based on the Enabling Clause, which permits RTAs only between developing countries. See above n. 10.

41 WTO Appellate Body Report, Turkey – Restrictions on Imports of Textile and Clothing Products (Turkey–Textiles), WT/DS34/AB/R, adopted 19 November 1999, para. 58. For a detailed explanation of Turkey–Textiles case, see Marceau, Gabrielle and Reiman, Cornelis, ‘When and How Is a Regional Trade Agreement Compatible with the WTO’, 28 (3) Legal Issues of Economic Integration 297 (2001)Google Scholar, at 312. Also, see Mathis, James H., Regional Trade Agreements in the GATT/WTO (The Hague, T.M.C Asser Press, 2002) 1–328 Google Scholar.

42 Appellate Body Report, Turkey–Textiles, para. 58.

43 Ibid.

44 See GATT Article XXIV:8(b).

45 See WTO Document, Framework Agreement on Comprehensive Economic Cooperation between the Association of South East Asian Nations and the People's Republic of China, Notification from the Parties to the Agreement, WT/COMTD/N/20/Add.1, 26 September 2005.

46 See paragraph 3(a) of the Enabling Clause, above n. 10.

47 Even if imports are physically identical, they constitute different trades if they are certified as originating goods under different RTAs.

48 Appellate Body Report, Turkey–Textiles, above n. 41, para. 55.

49 Figure 1 is based on the status of negotiating parties to the TPP as of 1 January 2016.

50 See GATT Article XXIV:5(b).  The panel in Turkey–Textiles states that ‘the terms “other regulations of commerce” could be understood to include any regulation having an impact on trade … Given the dynamic nature of regional trade agreements, we consider that this is an evolving concept’. See Panel Report, Turkey – Restrictions on Imports of Textile and Clothing Products (Turkey–Textiles), WT/DS34/R, as modified by Appellate Body Report, WT/DS34/AB/R, adopted 19 November 1999, para. 9.120.

51 See Rule 5 of Annex 3 of the ASEAN–China FTA, above n. 12.

52 In general, exclusionary rules of origin favor the interests of the producers of the excluded intermediate materials in the RTA parties at the expense of the producers of the same materials in the non-parties. See Palmeter, David, ‘Some Inherent Problems with Free Trade Agreements’, 27 Law and Policy in International Business 991 (1996)Google Scholar, at 995.

53 For more analysis on the trade diversion effect in intermediate goods caused by preferential rules of origin, see Krueger, ‘Free Trade Agreements as Protectionist Devices: Rules of Origin’, NBER Working Paper No. 4352, April 1993, at 9.

54 See GATT Article XXIV:5(b).

55 See Hudec, Robert E. and Southwick, James D., ‘Regionalism and WTO Rules: Problems in the Fine Art of Discriminating Fairly’, in Mendoza, Miguel Rodriguez, Low, Patrick, and Kotschwar, Barbara (eds.), Trade Rules in the Making, Challenges in Regional and Multilateral Negotiations (Brooking Institution Press, 1999), 47–80 Google Scholar, at 57. Also, see Kim and Kim, above n. 25, at 637.

56 The PSR for ketchup under the TPP also provides as follows: ‘A change to ketchup of subheading 2103.20 from any other chapter, except from subheading 2002.90’. See Annex 3-D Product Specific Rules of Origin, the TPP, https://ustr.gov/trade-agreements/free-trade-agreements/trans-pacific-partnership/tpp-full-text (accessed 22 July 2016).

57 See Table 1.

58 Under the TPP, the PSRs for some clothing products in HS headings from 62.01 through 62.08, which includes men's or boys’ cotton shirts (HS 6205.20), are as follows: ‘A change to a good of heading 62.01 through 62.08 from any other chapter, except from (emphasis added) heading 51.06 through 51.13, 52.04 through 52.12, or 54.01 through 54.02, subheading 5403.33 through 5403.39 or 5403.42 through 5407.94, or heading 54.08, 55.08 through 55.16, 58.01 through 58.02, or 60.01 through 60.06, provided the good is cut or knit to shape, or both, and sewn or otherwise assembled in the territory of one or more of the Parties’. See Annex 3-D Product Specific Rules of Origin, the TPP, https://ustr.gov/trade-agreements/free-trade-agreements/trans-pacific-partnership/tpp-full-text (accessed 2 August 2016). The HS headings following ‘except from’ are cotton, wool, or synthetic yarns.

59 It should be noted that the TPP adopts minor exceptions to yarn-forward rules called ‘short supply list’, which expires five years from the entry into force of the TPP. See paragraph 9 of Article 4.2 of the TPP, above n. 5. The list provides ‘TPP partners with flexibilities in cases where the U.S. and other TPP members do not produce enough of a particular fabric or yarn to meet production needs’. See Chapter Summary, Textiles and Apparel, Chapter 4, the TPP, https://ustr.gov/trade-agreements/free-trade-agreements/trans-pacific-partnership/tpp-full-text (accessed 2 August 2016).

60 According to the panel in Turkey-Textiles, ‘[w]hat paragraph 5(a) provides, in short, is that the effects of the resulting trade measures and policies of the new regional agreement shall not be more trade restrictive, overall, than were the constituent countries’ previous trade policies’. See Panel Report, Turkey–Textiles, above n. 50, para. 9.121.

61 Under the TPP, Malaysia committed to eliminate tariffs for men's or boys’ cotton shirts (HS 6205.20). See Tariff Schedule of Malaysia, Appendix 2-D of the TPP. See the TPP, above n. 5. In contrast, under the ASEAN–China FTA, Malaysia included men's or boys’ shirt (HS 6205.20) on the Sensitive List of Malaysia's tariff concessions. The tariff lines included in the list will be reduced to the range between 0% and 5% by 2018. See Modality for Tariff Reduction/Elimination for Tariff Lines Placed in the Sensitive Track, paragraph 3 of Annex 2, the ASEAN–China FTA, above n. 12.

62 See the PSR for men's or boys’ cotton shirts (HS 6205.20), above n. 59.

63 This switching in sourcing of yarns from the ASEAN–China FTA suppliers to the TPP suppliers occurs even if the TPP suppliers are charging higher prices on yarns as long as the benefits from the tariff preferences on final goods produced from originating yarns outweighs the additional costs due to the higher price of the yarns. See Inada, Stefano, Rules of Origin in International Trade (Cambridge University Press, 2009) 343Google Scholar.

64 Even the possibility of the TPP adopting yarn-forward rules for textile and clothing products caused manufacturers from China to move production to the US during the negotiation of the TPP. The yarn manufacturers from China are ‘hedging its bets, making sure it can continue to supply yarns to apparel manufacturers [in] countries like Vietnam that are within the TPP trade zone’. Hiroko Tabuchi, New York Times, 3 August 2015, A1.

65 See Viner, Jacob, ‘The Customs Union Issue’, in Bhagwati, Jagdish, Krishna, Pravin, and Pangariya, Arvind (eds.), Trading Blocs, Alternative Approaches to Analyzing Preferential Trade Agreements (MIT Press, 1999), 105–117 Google Scholar.

66 For an empirical study of an exclusionary effect due to an RTA, see Chan, Wong and Winters, L. Alan, ‘How Regional Blocs Affect Excluded Countries: The Price Effects of Mercosur’, 92(4) American Economic Review 889 (2002)CrossRefGoogle Scholar, at 901.

67 Appellate Body Report, Turkey–Textiles, above n. 41, para. 58.

68 Ibid., para. 62.

69 See paragraph 1.2(b), Preferential Rules of Origin for Least Developed Countries, Nairobi Ministerial Decision, WT/Min(15)/47, adopted on 19 December 2015. The mandate is weakened by the proviso that the preference-granting country can be exempted from the mandate if it ‘deems that such exclusions or restrictions are needed, including to ensure that a substantial transformation occurs’.

70 An example of a non-reciprocal preferential trading arrangement is the Generalized System of Preferences, which was originally a waiver from GATT Article I obligation. See Generalized System of Preferences, L/3545, adopted on 25 June 1971. The Enabling Clause later made the waiver permanent. See above n. 10.

71 See Geraets, Dylan, Carroll, Colleen, and Willems, Arnoud R., ‘Reconciling Rules of Origin and Global Value Chains: The Case for Reform’, 18 Journal of International Economic Law 287 (2015)Google Scholar, at 302. This study proposes the idea of the value-added criterion entirely substituting for the CTC criterion for all tariff lines as part of a reconceptualization of rules of origin.

72 See WTO Document, Draft Consolidated Text of Non-Preferential Rules of Origin, G/RO/W/111/Rev.511, February 2010. Part IV of the WTO Agreement on Rules of Origin mandates WTO members to harmonize non-preferential rules of origin. The harmonization work has not made any progress since 2007 because of differences in core policy issues. See WTO Document, Report of the Committee on Rules of Origin to the Council for Trade in Goods, G/L/1127, 21 October 2015, at para. 3.

73 The rules of origin under the ASEAN–China FTA adopted 40% ‘regional value content’. See Annex 3, Rule 4 of Rules of Origin for the ASEAN–China Free Trade Area, Annex 3 of Agreement on Trade in Goods of the Framework Agreement on Comprehensive Economic Co-operation between ASEAN and the People's Republic of China, effective 21 November 2004, http://www.fta.gov.sg/fta_acfta.asp?hl=2 (accessed 1 March 2016).

74 See Rules of Origin – Handbook, above n. 19 at 10.

75 Ibid.

76 Some of the ASEAN RTAs – the AFTA, the ASEAN–Japan FTA, the ASEAN–Korea FTA, AANZ FTA – offer the choice of CTH or 40% value-added rules as part of the general rules applicable to all products. See Kim, Jong Bum, ‘The Evolution of Preferential Rules of Origin In ASEAN's RTAs: A Guide to Multilateral Harmonization’, 46(6) Journal of World Trade 1343 (2012)Google Scholar, at 1362.

77 Appellate Body Report, Turkey–Textiles, above n. 41, para. 62.

78 See Appendix 2 of Annex of Panel Report, Turkey–Textiles, above n. 50.

79 Appellate Body Report, Turkey–Textiles, above n. 41, para. 3.

80 Appellate Body Report, Turkey–Textiles, above n. 41, para. 64.

81 See paragraph 2 of Article 3.10 of the TPP, above n. 5. See also paragraph 1 of Article 6.5 of the Korea – US Free Trade Agreement (KORUS FTA). The KORUS FTA entered into force 15 March 2012, https://ustr.gov/trade-agreements/free-trade-agreements/korus-fta (accessed 22 July 2016).

82 The TPP parties that are non-parties to NAFTA are Australia, Brunei Darussalam, Chile, Japan, Malaysia, New Zealand, Peru, Singapore, and Vietnam.

83 The tariff elimination commitment under the enclosed RTA may cover more tariff lines than the enclosing RTA. During the examination of the Japan–Vietnam FTA held on 8 June 2011 in the Committee on Regional Trade Agreements (CRTA) of the WTO, a delegation from the EU asked what benefits the Japan–Vietnam FTA would provide over those provided by the ASEAN–Japan FTA. In response, the parties explained that in the Japan–Vietnam FTA, ‘there are some tariff lines whose duty is more liberalized’ than those in the ASEAN–Japan FTA. See WTO Document, Economic Partnership Agreement between Japan and Viet Nam (Goods and Services), Questions and Replies, WT/REG275/2, 10 June 2011.

84 As of December 2015, the ASEAN–China FTA includes three parties that are LDCs: Cambodia, Laos, and Myanmar. The WTO follows the United Nations (UN) classification of LDCs. See paragraph 2 of Article XI of the WTO Agreement. The latest UN list is http://www.un.org/en/development/desa/policy/cdp/ldc/ldc_list.pdf (accessed 5 January 2016).

85 In addition to the trade in goods chapter, the LDC members of the ASEAN–Chain FTA may find it difficult to accept WTO-plus obligations in other chapters of the TPP including intellectual property, competition, and environment.

86 The Understanding on the Interpretation of Article XXIV of the GATT 1994, Annex 1A of the WTO Agreement, Final Act, The Legal Texts, The Results of the Uruguay Round of Multilateral Trade Negotiations (Cambridge University Press, 2004), 26.

87 See paragraph 3(a) of the Enabling Clause, above n. 10.