EconPapers    
Economics at your fingertips  
 

Rules of origin and the profitability of trade deflection

Gabriel Felbermayr, Feodora Teti and Erdal Yalcin

Journal of International Economics, 2019, vol. 121, issue C

Abstract: When a country grants preferential tariffs to another, either reciprocally in a free trade agreement (FTA) or unilaterally, rules of origin (RoOs) are defined to determine whether a product is eligible for preferential treatment. RoOs exist to avoid that exports from third countries enter through the member with the lowest tariff (trade deflection). However, RoOs distort exporters' sourcing decisions and burden them with red tape. Using a global data set, we show that, for 86% of all bilateral product-level comparisons within FTAs, trade deflection is not profitable because external tariffs are rather similar and transportation costs are non-negligible; in the case of unilateral trade preferences extended by rich countries to poor ones that ratio is a striking 98%. The pervasive and unconditional use of RoOs is, therefore, hard to rationalize.

Keywords: Trade deflection; Rules of origin; External tariffs; Free trade agreements (search for similar items in EconPapers)
JEL-codes: F10 F13 F15 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (22)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0022199619300662
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Rules of origin and the profitability of trade deflection (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:121:y:2019:i:c:s0022199619300662

DOI: 10.1016/j.jinteco.2019.07.003

Access Statistics for this article

Journal of International Economics is currently edited by Gourinchas, Pierre-Olivier and Rodríguez-Clare, Andrés

More articles in Journal of International Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2025-03-23
Handle: RePEc:eee:inecon:v:121:y:2019:i:c:s0022199619300662