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Rules of origin and consumer‐hurting free trade agreements*

Authors :
Hirofumi Okoshi
Hiroshi Mukunoki
Source :
The World Economy. 44:2303-2318
Publication Year :
2021
Publisher :
Wiley, 2021.

Abstract

This study examines how the rules of origin (RoO) of a free trade agreement (FTA) affect firms' pricing strategies. The value‐added criterion (VAC) of the RoO requires firms to add more than a certain level of value within an FTA when firms use inputs originating from outside the FTA. The VAC may work as a price floor, and the resulting increases in prices can benefit all firms if it induces an offshoring firm to manipulate its output price. Meanwhile, a consumer‐hurting FTA formation is possible, even if all firms make tariff‐free exports. Furthermore, such an FTA formation may worsen total welfare.

Details

ISSN :
14679701 and 03785920
Volume :
44
Database :
OpenAIRE
Journal :
The World Economy
Accession number :
edsair.doi...........8792da8f00f036c6eee8a8b6cd2ddbda
Full Text :
https://doi.org/10.1111/twec.13097