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Free Trade Agreements as Protectionist Devices: Rules of Origin

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  • Anne O. Krueger
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    Abstract

    In this paper it is argued that there is an important protectionist bias inherent in free trade agreements which is not present in custom unions. In any customs union or free trade agreement, one of the critical issues concerns "rules of origin." In a free trade agreement rules of origin have an important function because, without one, each imported commodity would enter through the country with the lowest tariff on each commodity. The criterion for duty-free treatment is important in determining the economic effects of the rule of origin. It is shown that rules of origin in fact extend the protection accorded by each country to producers in other free trade agreement member countries. As such, rules of origin can constitute a source of bias toward economic inefficiency in free trade agreements in a way they cannot do with customs unions.

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    File URL: http://www.nber.org/papers/w4352.pdf
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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4352.

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    Date of creation: Apr 1993
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    Publication status: Published as "Free Trade Agreements Versus Customs Unions", Journal of Development Economics, Vol. 54, no. 1 (October 1997): 169-187.
    Handle: RePEc:nbr:nberwo:4352

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    1. Lawrence H. Summers, 1991. "Regionalism and the world trading system," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 295-301.
    2. 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.
    3. Kemp, Murray C. & Wan, Henry Jr., 1976. "An elementary proposition concerning the formation of customs unions," Journal of International Economics, Elsevier, vol. 6(1), pages 95-97, February.
    4. Hoekman, Bernard M. & Leidy, Michael P., 1992. "Cascading contingent protection," European Economic Review, Elsevier, vol. 36(4), pages 883-892, May.
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