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Complying with Rules of Origin and Transfer Pricing

Author

Listed:
  • Abe,Kenzo
  • Hayakawa,Kazunobu
  • Yang,Chih-hai

Abstract

Manipulation of trade prices, or profit shifting, by multinational enterprises (MNEs) is an important topic in international trade policy. In this paper, we examine such price manipulation in relation to compliance with rules of origin (RoOs) in regional trade agreements (RTAs). We first theoretically demonstrate that regional value content (RVC) requirements incentivize MNEs to reduce import prices from RTA non-member countries, as well as to use RTA tariff rates in their exports to RTA partners. Next, using firm-level trade data from China, we empirically investigate this hypothesis for the ASEAN-China Free Trade Agreement (ACFTA). As a result, we found that the MNE exporters of ACFTA-eligible products significantly decrease their import prices from ACFTA non-member countries. Our findings contribute to uncovering a novel source of price manipulation by MNEs, namely, compliance of RoOs.

Suggested Citation

  • Abe,Kenzo & Hayakawa,Kazunobu & Yang,Chih-hai, 2026. "Complying with Rules of Origin and Transfer Pricing," IDE Discussion Papers 989, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    • Handle: RePEc:jet:dpaper:dpaper989
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    File URL: https://ir.ide.go.jp/record/2001726/files/IDP000989_001.pdf
    File Function: First version, 2026
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    Keywords

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    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations

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