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Regional content requirements and market power: Lessons from CUSFTA

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  • Chung, Wanyu
  • Perroni, Carlo

Abstract

Focusing on the 1989 Canada-United States Free Trade Agreement (CUSFTA), we examine how regional content requirements in Free Trade Areas (FTAs) affect competition and prices in intermediate goods markets. Content requirements in FTAs shelter firms from competition more than an equivalent trade-protection tariff would. We document patterns in US industry-level census data and Canadian product-level export data that align with theoretical predictions: stricter and binding content requirements are linked to higher prices and more firm entry. These results underscore the role of content requirements in shaping market structure and market power, with implications for the choice of preferential trade arrangements.

Suggested Citation

  • Chung, Wanyu & Perroni, Carlo, 2025. "Regional content requirements and market power: Lessons from CUSFTA," Journal of International Economics, Elsevier, vol. 157(C).
    • Handle: RePEc:eee:inecon:v:157:y:2025:i:c:s0022199625000534
    DOI: 10.1016/j.jinteco.2025.104097
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    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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