Working Paper: CEPR ID: DP16040
Authors: Jan I. Haaland; Ian Wooton
Abstract: Trade liberalisation is often characterised as either preferential or non-discriminatory but not all preferential trade agreements are the same. We focus on non-tariff measures that can constitute barriers to trade and that differ between free-trade agreements (FTAs) and customs unions (CUs). In particular, we investigate the role of rules of origin (RoO) in restricting market access for nations excluded from a CU. We develop a simple general equilibrium model characterised by trade in intermediate and final products and use this to examine the implications of binding RoO in an FTA on market outcomes and the welfare of agents in the economy. We highlight the phenomenon of “induced trade diversion” where RoO can result in countries losing from preferential market access.
Keywords: preferential trading; non-tariff measures; rules of origin
JEL Codes: F12; F13; F15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| binding ROO in FTAs (F13) | trade diversion (F14) |
| binding ROO in FTAs (F13) | welfare losses (D69) |
| ROO restrict market access (L10) | affect production choices (D24) |
| ROO restrict market access (L10) | affect welfare outcomes (I38) |
| transition from CU to FTA (F15) | significant economic implications (F69) |
| introduction of ROO (Y20) | alter market access (D40) |
| introduction of ROO (Y20) | affect production strategies (L23) |
| adopting more expensive production methods (D24) | reduction in overall welfare (D69) |