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Rules of Origin and Strategic Choice of Compliance

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  • Kazuhiro Takauchi

    ()
    (Graduate School of Economics, Kobe University)

Abstract

We consider exporters' strategic choice of whether to comply with rules of origin (ROO) in a free trade area (FTA). While the existing literature of ROO considers models of perfect or monopolistic competition, we consider an oligopolistic trade model. Our model consists of three final-good producers - one in an importing country and two in an exporting country - and one intermediategood producer, which is in the importing country and has monopoly power. We show that, within the range of parameter values for which some exporters comply with ROO, the content rate affects the output of the final-good producer in the importing country and the country's social welfare in an U-shaped fashion. The content rate levels that allow the coexistence of compliers and non-compliers minimize social welfare.

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Bibliographic Info

Paper provided by Graduate School of Economics, Kobe University in its series Discussion Papers with number 1013.

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Length: 32pages
Date of creation: Sep 2010
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Handle: RePEc:koe:wpaper:1013

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Web page: http://www.econ.kobe-u.ac.jp
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Keywords: Rules of origin (ROO); Compliance; Free trade area (FTA);

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