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In-bond Diversion


  • Pierre-Louis Vezina
  • Lorenzo Rotunno


We show that the US in-bond system of imports may be used by firms to illegally avoid trade barriers, a practice known as in-bond diversion. Digging into official Chinese and Mexican trade statistics, we uncover traces of US quota-hopping in-bond diversion by Chinese exports of textiles and apparel. This is because the illicit scheme involves declaring Chinese exports bound for Mexico but diverting them to the US market while in transit, thus creating a gap between Chinese and Mexican reports. Using the phaseout and removal of US quotas at the end of the Multifibre Agreement as a policy experiment, as well as variation in quota bindingness across products, we show that quota-bound products were associated with larger trade gaps which shrunk following the quota removals. We also find that quotas were associated with larger shares of US imports aimed for transit warehouses, confirming the use of the in-bond system for illegal quota hopping.

Suggested Citation

  • Pierre-Louis Vezina & Lorenzo Rotunno, 2013. "In-bond Diversion," Economics Series Working Papers 664, University of Oxford, Department of Economics.
  • Handle: RePEc:oxf:wpaper:664

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    References listed on IDEAS

    1. Javorcik, Beata S. & Narciso, Gaia, 2008. "Differentiated products and evasion of import tariffs," Journal of International Economics, Elsevier, vol. 76(2), pages 208-222, December.
    2. Pushan Dutt & Daniel Traca, 2010. "Corruption and Bilateral Trade Flows: Extortion or Evasion?," The Review of Economics and Statistics, MIT Press, vol. 92(4), pages 843-860, November.
    3. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, January.
    4. Alan Sule & Honoré Bo E. & Hu Luojia & Leth-Petersen Søren, 2014. "Estimation of Panel Data Regression Models with Two-Sided Censoring or Truncation," Journal of Econometric Methods, De Gruyter, vol. 3(1), pages 1-20, January.
    5. James Harrigan & Geoffrey Barrows, 2009. "Testing the Theory of Trade Policy: Evidence from the Abrupt End of the Multifiber Arrangement," The Review of Economics and Statistics, MIT Press, vol. 91(2), pages 282-294, May.
    6. J. M. C. Santos Silva & Silvana Tenreyro, 2006. "The Log of Gravity," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 641-658, November.
    7. Irene Brambilla & Amit K. Khandelwal & Peter K. Schott, 2010. "China's Experience under the Multi-Fiber Arrangement (MFA) and the Agreement on Textiles and Clothing (ATC)," NBER Chapters,in: China's Growing Role in World Trade, pages 345-387 National Bureau of Economic Research, Inc.
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    More about this item


    Textile and apparel; illegal trade; trade barriers;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

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