 Trade circumvention in free trade areasJianpeng Deng, Jialin Li, Joseph Mai, Yanmin Shi and Linke Zhu Journal of International Money and Finance, 2025, vol. 150, issue C Abstract: Do Regional Trade Agreements (RTAs) incentivize non-member countries to engage in trade circumvention through member countries, and how much does this behavior contribute to increased trade among RTA members? This paper provides empirical evidence on the prevalence of illicit transshipment through RTAs and quantifies its contribution to trade growth in a case study of NAFTA. Using global trade data and guided by a discrete choice model of shipment methods, we estimate the causal impact of tariff differentials created by RTAs on illicit transshipment, inferred from trade discrepancies. Our results show that circumvention increases more for products with larger preferential margins after the establishment of an RTA, with re-exports serving as a key channel. We also find substantial heterogeneity in these effects. In the case of NAFTA, we find that trade circumvention contributed to 16.4% of the increase in U.S. imports from Mexico in 2018, when the U.S. returned to protectionist policies. Keywords: Trade circumvention; RTA; Rules of origins; Trade discrepancy (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:150:y:2025:i:c:s0261560624002195 DOI: 10.1016/j.jimonfin.2024.103232 Access Statistics for this article Journal of International Money and Finance is currently edited by J. R. Lothian More articles in Journal of International Money and Finance from Elsevier |
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