IDEAS home Printed from https://ideas.repec.org/p/ags/pugtwp/331413.html
   My bibliography  Save this paper

Modeling the Removal of NAFTA Rules of Origin: A Computable General Equilibrium Analysis

Author

Listed:
  • Georges, Patrick

Abstract

NAFTA Rules of Origin (ROO) are used to determine which goods are attributable to NAFTA member countries and thus eligible for a preferential tariff. These rules create incentives for NAFTA producers to source inputs from potentially higher priced North American suppliers. As such, a ROO is an implicit tax on the intermediate goods produced by the rest of the world. Most computable general equilibrium (CGE) studies assessing the welfare impact of moving from NAFTA to a deeper form of integration, for example a North American Customs Union (CU), typically proxy the integration as the adoption of a common external tariff towards the rest of the world. Thus, these studies do not explicitly consider the impact of eliminating the distortion created by the NAFTA ROO. This paper shows that the failure to account for the removal of ROO in these studies would likely lead to biased estimates. I explicitly consider the impact of removing the NAFTA ROO in a multi-country multi-sector dynamic general equilibrium model. The objective is to provide better estimates of this shock on production and welfare. Although the removal of distortionary ROO is likely to lower the unit cost of production within NAFTA, it may also deteriorate NAFTA terms of trade with the rest of the world. The net effect on welfare is ambiguous and is thus an empirical issue, which is addressed in this paper. This is illustrated using three distinct scenarios for which I do not take sides, but that I propose as a springboard for a general discussion.

Suggested Citation

  • Georges, Patrick, 2005. "Modeling the Removal of NAFTA Rules of Origin: A Computable General Equilibrium Analysis," Conference papers 331413, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:331413
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/331413/files/2115.pdf
    Download Restriction: no
    ---><---

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:pugtwp:331413. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/gtpurus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.