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Free Trade Areas and Rules of Origin: Economics and Politics

Author

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  • Arvind Panagariya

    (University of Maryland)

  • Rupa Dutta Gupta

    (IMF)

Abstract

We incorporate intermediate inputs into a small-union general- equilibrium model and develop the welfare economics of preferential trading under the rules of origin. Combining this analysis with the Grossman-Helpman political-economy model, we demonstrate that the rules of origin can improve the political viability of FTAs. Two interesting outcomes are derived. First, an FTA that lowered joint welfare of the union and was voted down in the absence of the rules of origin may become feasible in the presence of these rules. Second, an FTA that increased joint welfare of the union but was voted down in the absence of the rules of origin may become acceptable in the presence of these rules but it may also turn welfare inferior to status quo.

Suggested Citation

  • Arvind Panagariya & Rupa Dutta Gupta, 2003. "Free Trade Areas and Rules of Origin: Economics and Politics," International Trade 0308006, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpit:0308006
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    References listed on IDEAS

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    Cited by:

    1. Innwon Park & Soonchan Park, 2011. "Best practices for regional trade agreements," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 147(2), pages 249-268, June.
    2. Mizuno, Tomomichi & Takauchi, Kazuhiro, 2013. "Rules of origin and uncertain cost of compliance," MPRA Paper 44431, University Library of Munich, Germany.
    3. Celik, Levent & Karabay, Bilgehan & McLaren, John, 2020. "Fast-track authority: A hold-up interpretation," Journal of International Economics, Elsevier, vol. 127(C).
    4. 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, July.
    5. Paola Conconi & Manuel García-Santana & Laura Puccio & Roberto Venturini, 2018. "From Final Goods to Inputs: The Protectionist Effect of Rules of Origin," American Economic Review, American Economic Association, vol. 108(8), pages 2335-2365, August.
    6. David Tsirekidze, 2021. "Global supply chains, trade agreements and rules of origin," The World Economy, Wiley Blackwell, vol. 44(11), pages 3111-3140, November.
    7. Doan, Thang N. & Xing, Yuqing, 2018. "Trade efficiency, free trade agreements and rules of origin," Journal of Asian Economics, Elsevier, vol. 55(C), pages 33-41.
    8. By Kishore Gawande & Pravin Krishna & Marcelo Olarreaga, 2012. "Lobbying Competition Over Trade Policy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(1), pages 115-132, February.
    9. Jaeyoun Roh & Jee-Hyeong Park, 2014. "A Political Economy Analysis of Rules of Origin Requirements of Korea-US FTA with a New Measure of the Requirements," Korean Economic Review, Korean Economic Association, vol. 30, pages 163-190.
    10. Chang, Yang-Ming & Xiao, Renfeng, 2015. "Preferential trade agreements between asymmetric countries: Free trade areas (with rules of origin) vs. customs unions," Japan and the World Economy, Elsevier, vol. 33(C), pages 28-43.
    11. Bernard Hoekman & Stefano Inama, 2017. "Rules of Origin as Non-Tariff Measures: Towards Greater Regulatory Convergence," RSCAS Working Papers 2017/45, European University Institute.
    12. Park, Innwon & Park, Soonchan, 2009. "Consolidation and Harmonization of Regional Trade Agreements (RTAs): A Path Toward Global Free Trade," MPRA Paper 14217, University Library of Munich, Germany, revised 23 Mar 2009.
    13. Nordås, Hildegunn Kyvik, 2007. "International production sharing: A case for a coherent policy framework," WTO Discussion Papers 11, World Trade Organization (WTO), Economic Research and Statistics Division.

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    • F1 - International Economics - - Trade
    • F2 - International Economics - - International Factor Movements and International Business

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