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Tariff evasion and rules of origin violations under the Canada-U.S. Free Trade Agreement

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  • Andrey Stoyanov

Abstract

Using product-level data on trade between Canada and the U.S., this paper presents evidence of tariff evasion and violation of the rules of origin occurring under the Canada-U.S. Free Trade Agreement (CUSFTA). It shows that more imports go unreported at the destination country when tariffs are higher. Consistent with the tariff evasion hypothesis, this result implies that the trade creation effect of a free trade agreement may in fact be due to less underreporting. Further, this paper shows that the larger Canadian tariff preference margin for the U.S. is associated with more goods originating in third countries being transshipped through the U.S. territory for re-export. The preference margin is also positively correlated with the value of excess imports from the U.S., which qualify for preferential treatment. Both results suggest the presence of persistent violations of CUSFTA's rules of origin.

Suggested Citation

  • Andrey Stoyanov, 2012. "Tariff evasion and rules of origin violations under the Canada-U.S. Free Trade Agreement," Canadian Journal of Economics, Canadian Economics Association, vol. 45(3), pages 879-902, August.
  • Handle: RePEc:cje:issued:v:45:y:2012:i:3:p:879-902
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    Citations

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    Cited by:

    1. Derek Kellenberg & Arik Levinson, 2016. "Misreporting Trade: Tariff Evasion, Corruption, and Auditing Standards," NBER Working Papers 22593, National Bureau of Economic Research, Inc.
    2. Cyril Chalendard, 2015. "Use of internal information, external information acquisition and customs underreporting," Working Papers halshs-01179445, HAL.
    3. Gnutzmann, Hinnerk; Gnutzmann-Mkrtchyan, Arevik, 2016. "The Silent Success of Customs Unions," Economics Working Papers ECO2016/02, European University Institute.
    4. Hinnerk Gnutzmann & Arevik Gnutzmann-Mkrtchyan, 2016. "The Silent Success of Customs Unions," CESifo Working Paper Series 5944, CESifo Group Munich.
    5. Mirco Tonin, 2014. "Reporting import tariffs (and other taxes)," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(1), pages 153-173, February.
    6. Chalendard,Cyril Romain & Raballand,Gael J. R. F. & Rakotoarisoa,Antsa, 2016. "The use of detailed statistical data in customs reform : the case of Madagascar," Policy Research Working Paper Series 7625, The World Bank.
    7. Temesgen Worku & Juan P. Mendoza & Jacco L. Wielhouwer, 2016. "Tariff evasion in sub-Saharan Africa: the influence of corruption in importing and exporting countries," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(4), pages 741-761, August.

    More about this item

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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