Rules of origin and uncertain cost of compliance
To consider the role of uncertain production cost resulting from complying with rules of origin (ROO), we formulate a Cournot oligopoly model of a free trade area (FTA). If exporters do not comply with ROO, they must pay an external tariff, and if they comply, they enjoy zero tariff but suffer an uncertain production cost. Because compliers must source a certain ratio of the inputs from within the area, they face input-price fluctuations in that area; this yields an uncertain production cost for compliers. This uncertain cost provides a benefit to compliers owing to its variance. Therefore, for an intermediate external tariff, strategic substitution emerges in exporters' choice. We show that the coexistence of compliers and non-compliers is seen among symmetric exporters. We also discuss the endogenous rate of ROO-compliers in the coexisting equilibrium of compliers and non-compliers. We show that if the variance of the uncertain production cost is small, the rate of ROO-compliers in the coexisting equilibrium increases with the number of total exporters inside the FTA.
|Date of creation:||17 Feb 2013|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Anthony Creane & Kaz Miyagiwa, 2007.
"Information and Disclosure in Strategic Trade Policy,"
ISER Discussion Paper
0705, Institute of Social and Economic Research, Osaka University.
- Creane, Anthony & Miyagiwa, Kaz, 2008. "Information and disclosure in strategic trade policy," Journal of International Economics, Elsevier, vol. 75(1), pages 229-244, May.
- Anthony Creane & Kaz Miyagiwa, 2005. "Information and Disclosure in Strategic Trade Policy," Emory Economics 0530, Department of Economics, Emory University (Atlanta).
- Yang-Ming Chang & Renfeng Xiao, 2013. "Free trade areas, the limit of Rules of Origin, and optimal tariff reductions under international oligopoly: A welfare analysis," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 22(5), pages 694-728, August.
- Svetlana Demidova & Kala Krishna, 2007.
"Firm Heterogeneity and Firm Behavior with Conditional Policies,"
NBER Working Papers
12950, National Bureau of Economic Research, Inc.
- Demidova, Svetlana & Krishna, Kala, 2008. "Firm heterogeneity and firm behavior with conditional policies," Economics Letters, Elsevier, vol. 98(2), pages 122-128, February.
- Arvind Panagariya & Rupa Duttagupta, 2003.
"Free Trade Areas and Rules of Origin; Economics and Politics,"
IMF Working Papers
03/229, International Monetary Fund.
- Rupa Duttagupta & Arvind Panagariya, 2007. "Free Trade Areas And Rules Of Origin: Economics And Politics," Economics and Politics, Wiley Blackwell, vol. 19(2), pages 169-190, 07.
- Arvind Panagariya & Rupa Dutta Gupta, 2003. "Free Trade Areas and Rules of Origin: Economics and Politics," International Trade 0308006, EconWPA.
- Rod Falvey & Geoff Reed,, .
"Economic Effects of Rules of Origin,"
97/21, University of Nottingham, CREDIT.
- Rod Falvey & Geoff Reed, 1998. "Economic effects of rules of origin," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 134(2), pages 209-229, June.
- Jota Ishikawa & Hiroshi Mukunoki & Yoshihiro Mizoguchi, 2007. "Economic Integration And Rules Of Origin Under International Oligopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(1), pages 185-210, 02.
- Jose Anson & Olivier Cadot & Antoni Estevadeordal & Jaime de Melo & Akiko Suwa-Eisenmann & Bolorma Tumurchudur, 2004.
"Rules of origin in north-south preferential trading arrangements with an application to NAFTA,"
Research Unit Working Papers
0406, Laboratoire d'Economie Appliquee, INRA.
- José Anson & Olivier Cadot & Antoni Estevadeordal & Jaime de Melo & Akiko Suwa-Eisenmann & Bolormaa Tumurchudur, 2005. "Rules of Origin in North-South Preferential Trading Arrangements with an Application to NAFTA," Review of International Economics, Wiley Blackwell, vol. 13(3), pages 501-517, 08.
- Anson, José & Cadot, Olivier & de Melo, Jaime & Estevadeordal, Antoni & Suwa Eisenmann, Akiko & Tumurchudur, Bolormaa, 2003. "Rules of Origin in North-South Preferential Trading Arrangements with an Application to NAFTA," CEPR Discussion Papers 4166, C.E.P.R. Discussion Papers.
- JosÃ© Anson & Olivier Cadot & Antoni Estevadeordal & Jaime De Melo & Akiko Suwa-Eisenmann & Bolormaa Tumurchudur, 2005. "Rules of origin in North-South preferential trading arrangements with an application to NAFTA," Working Papers 156782, Institut National de la Recherche Agronomique, France.
- Rod Falvey & Geoff Reed, .
"Rules of Origin as Commercial Policy Instruments,"
EPRU Working Paper Series
97-20, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
- Juan RosellOn, 2001. "The economics of rules of origin," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 9(4), pages 397-425.
- Higashida, Keisaku & Jinji, Naoto, 2006.
"Strategic use of recycled content standards under international duopoly,"
Journal of Environmental Economics and Management,
Elsevier, vol. 51(2), pages 242-257, March.
- Higashida, Keisaku & Jinji, Naoto, 2005. "Strategic Use of Recycled Content Standards under International Duopoly," Discussion Papers 2004-12, Graduate School of Economics, Hitotsubashi University.
- Creane, Anthony & Miyagiwa, Kaz, 2009. "Forgoing invention to deter entry," International Journal of Industrial Organization, Elsevier, vol. 27(5), pages 632-638, September.
- Hayakawa, Kazunobu & Hiratsuka, Daisuke & Shiino, Kohei & Sukegawa, Seiya, 2009. "Who Uses FTAs?," IDE Discussion Papers 207, Institute of Developing Economies, Japan External Trade Organization(JETRO).
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:44431. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht)
If references are entirely missing, you can add them using this form.