Cumulation, which is a special provision of the FTA, has the effect of enhancing the flexibility in fulfilling the rule of origin and promoting intra-regional processing by expanding the area of place of origin. Though most of the agreements Korea concluded were of Bilateral Cumulation, Korea introduced, for the first time, Cross-Cumulation, of which the utilization level is higher than Bilateral Cumulation into the Korea-Canada FTA, which came to effect in 2015. The Cross-Cumulation defined in the Korea-Canada FTA is partially applied to automobiles. Automobiles are a main industry of Korea and Canada is a major importer, and as about 20,000 kinds of components are used for automobile production, the Cumulation provision is expected to be utilized.
For this reason, in the present study, we intended to analyze whether the introduction of Cross-Cumulation has any practical effect. In the study, we utilized the Gravity Model to examine whether the components used for the export of Korean automobiles to Canada demonstrate any trade creation effect or trade diverting effect in component imports as a result of applying Cross-Cumulation.
The analysis results have shown that the items in Chapter 85 (HS Code) and Chapter 87 have the positive effect of an increase in the trade scale among the countries in the region resulting from Cross-Cumulation. In the case of the items in Chapter 84, as the trade creation effect was shown to be of a significant level, the trade among the countries in the region increased, and in the case of the items in Chapter 94, the trade among the countries in the region decreased and the trade with the countries outside the region increased after application of Cross- Cumulation.
As for the study method, the panel analysis method and the Two-Stage Least Squares regression analysis that utilizes instrumental variables were used.