(e.g. relating to certification methods).<sup>5</sup> The differences in utilization patterns also probably reflect partly differences in the composition of exports.

Second, utilization rates are systematically higher for ACP countries than for GSP countries (this is why the number of tariff lines is always greater for ACP countries than for GSP countries at any tariff line, even though there are fewer ACP (78) than GSP (92) countries).<sup>6</sup> Again, it could be that better knowledge of procedures (same language for former colonies) are a factor, but the combination of higher preference margins and better market access due to less stringent rules of origin must also be a determining factor. Regarding RoO, the regime-wide rule for ACP countries are less restrictive that for GSP qualifiers since they benefit from full cumulation rather than diagonal cumulation and they have a more favorable tolerance rule (15% tolerance for all tariff lines instead of 10% and an exclusion of access to the tolerance rule for chapters 50 to 63 which cover textiles and apparel (T&A) for the group of 92 GSPeligible countries).

Third, as can be seen from Table 2 and Figure 1, utilization rates do not rise monotonically with preference margins, as one would expect. Indeed, utilization rates fall as preference margins increase for NAFTA and also for the GSP-eligible countries over a certain range. This is due to a composition effect. In the T&A sector where preference margins are around or above 10%, utilization rates are low. However. GSP-eligible countries get much less preferential access than ACP countries in the T&A sector (see Table 3b). Since these sectors are characterized by specific manufacturing requirements, lobbying activities by the domestic industries in the high-income partner influence the specification of the rules, and the utilization rates are low even though preferential margins are high.<sup>7</sup> Based on an analysis of utilization rate in that sector for NAFTA, Anson et al. (2005) and Cadot et al. (2005 and 2006a), conclude that the PSRO requirements in that sector were designed to leave Mexican exporters on their ‘participation constraint’, i.e. leaving only marginal rents for Mexican exporters.

Are these utilization rates low? Certainly not by AFTA standards which show utilization rates in the 5%-10% range for the late 1990s for the Philippines, the country with the highest preference utilization rate (see Baldwin (2006), Figure 5). Baldwin argues that this is because the bulk of intra-ASEAN trade is in the computer/machinery (HS-84) and electrical equipment (HS-85) sectors where preferential access market is negligible. However, the use of a VC criterion could also contribute to this low rate of utilization of preferences even if at first sight meeting this requirement would not appear to be too difficult since most parts are indeed

> `5` For example, under NAFTA certification is carried out by the private sector and does not have to be carried out for each transaction, whereas under PANEURO regime there is a double certification method (private and public) for each transaction.  See Estevadeordal and Suominen (2006) for further discussion and comparison of certification methods across PTAs.

> `6` Of the 78 ACP countries, 41 qualify for Everything But Arms (EBA) status which gave these countries virtually duty-free access to the EU market. However, in 2004, most ACP countries qualifying for EBA status continued to request ACP status. Hence when we speak of ACP countries, we refer to the 78 ACP countries.

7 Brenton and Imagawa (2005, Box 9.2, p. 20) mention a particularly egregious case in which NAFTA’s RoOs for apparel specify that imported fabric must be “of subheading 511111 or 511119, if hand-woven, with a loom width of less than 76cm, woven in the United Kingdom in accordance with the rules and regulations of the Harris Tweed Association, Ltd, and so certified by the Association”. Such specific rules, which clearly smack of firm-specific lobbying are, however, relatively uncommon.

``` 5 ```