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The economics of rules of origin

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Author Info
Juan Rosellón

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Abstract

Rules of origin of free trade arrangements limit the use of inputs from outside the preferential trade zone. A government negotiating a future FTAcan manipulate these rules in order to achieve national welfare objectives. The correct definition of rules of origin may help to enhance demand for domestically produced goods, promote national technological development, and maximize labour income. This paper proves that a more stringent rule of origin implies an increase of demand for the domestic factor if the substitution effect prevails over the effects caused by the decrease of the scale of operation in the domestic plant, and the reallocation of output between domestic and foreign plants. We further show that policy decisions regarding rules of origin that intertemporally maximize welfare and foster domestic technological evolution should be made at the greatest level of disaggregation that is feasible.

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Publisher Info
Article provided by Taylor and Francis Journals in its journal Journal of International Trade & Economic Development.

Volume (Year): 9 (2000)
Issue (Month): 4 (December)
Pages: 397-425
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Handle: RePEc:taf:jitecd:v:9:y:2000:i:4:p:397-425

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Related research
Keywords: Rules Of Origin Content Protection Commercial Policy Free Trade Agreement Learning;

References listed on IDEAS
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  1. Richardson, Martin, 1993. "Content Protection with Foreign Capital," Oxford Economic Papers, Oxford University Press, vol. 45(1), pages 103-17, January. [Downloadable!] (restricted)
  2. Avinash K. Dixit & Gene M. Grossman, 1982. "Trade and Protection with Multistage Production," NBER Working Papers 0794, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Grossman, Gene M, 1981. "The Theory of Domestic Content Protection and Content Preference," The Quarterly Journal of Economics, MIT Press, vol. 96(4), pages 583-603, November. [Downloadable!] (restricted)
  4. Vousden, Neil, 1987. "Content protection and tariffs under monopoly and competition," Journal of International Economics, Elsevier, vol. 23(3-4), pages 263-282, November. [Downloadable!] (restricted)
  5. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Blackwell Publishing, vol. 38(114), pages 175-208, April. [Downloadable!] (restricted)
  6. Kala Krishna & Motoshige Itoh, 1988. "Content Protection and Oligopolistic Interactions," NBER Working Papers 1843, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Florencio Lopez-de-Silane & James R. Markusen & Thomas F. Rutherford, 1993. "Anti-Competitive and Rent-Shifting Aspects of Domestic-Content Provisions in Regional Trade Blocks," NBER Working Papers 4512, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Carl Davidson & Steven J. Matusz & Mordechai E. Kreinin, 1985. "Analysis of Performance Standards for Direct Foreign Investments," Canadian Journal of Economics, Canadian Economics Association, vol. 18(4), pages 876-90, November. [Downloadable!] (restricted)
  9. Munk, Bernard, 1969. "The Welfare Costs of Content Protection: The Automotive Industry in Latin America," Journal of Political Economy, University of Chicago Press, vol. 77(1), pages 85-98, Jan./Feb.. [Downloadable!] (restricted)
  10. Horst, Thomas, 1971. "The Theory of the Multinational Firm: Optimal Behavior under Different Tariff and Tax Rates," Journal of Political Economy, University of Chicago Press, vol. 79(5), pages 1059-72, Sept.-Oct. [Downloadable!] (restricted)
  11. Rivera-Batiz, Luis A & Romer, Paul M, 1991. "Economic Integration and Endogenous Growth," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 531-55, May. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Kala Krishna, 2005. "Understanding Rules of Origin," NBER Working Papers 11150, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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