Regional content requirements and market power: Lessons from CUSFTA

Wanyu Chung and Carlo Perroni

Journal of International Economics, 2025, vol. 157, issue C

Abstract: Focusing on the 1989 Canada-United States Free Trade Agreement (CUSFTA), we examine how regional content requirements in Free Trade Areas (FTAs) affect competition and prices in intermediate goods markets. Content requirements in FTAs shelter firms from competition more than an equivalent trade-protection tariff would. We document patterns in US industry-level census data and Canadian product-level export data that align with theoretical predictions: stricter and binding content requirements are linked to higher prices and more firm entry. These results underscore the role of content requirements in shaping market structure and market power, with implications for the choice of preferential trade arrangements.

Keywords: Free trade areas; Content requirements; Rules of origin; Market power (search for similar items in EconPapers)
JEL-codes: D43 F12 F13 F14 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:157:y:2025:i:c:s0022199625000534

DOI: 10.1016/j.jinteco.2025.104097

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