Free Trade Areas and Rules of Origin: Economics and Politics

Arvind Panagariya and Rupa Duttagupta

No 2003/229, IMF Working Papers from International Monetary Fund

Abstract: Incorporating intermediate inputs into a small-union general-equilibrium model, this paper first develops the welfare economics of preferential trading under the rules of origin (ROO) and then demonstrates that the ROO could improve the political viability of Free Trade Agreements (FTAs). Two interesting outcomes are derived. First, a welfare reducing FTA that was rejected in the absence of the ROO becomes feasible in the presence of these rules. Second, a welfare improving FTA that was rejected in the absence of the ROO is endorsed in their presence, but upon endorsement it becomes welfare inferior relative to the status quo.

Keywords: WP; trade diversion; Rules of Origin; FTA; Welfare; Political economy; FTA equilibrium; binding ROO; FTA price; supply curve; A. ROOs; FTA endorsement; ROO inclusion; trade creating FTA; FTA viability; welfare-reducing FTA; FTA in the absence; Tariffs; Imports; Exports; Trade in goods; North America (search for similar items in EconPapers)
Pages: 30
Date: 2003-11-01
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Citations: View citations in EconPapers (12)

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Related works:
Journal Article: FREE TRADE AREAS AND RULES OF ORIGIN: ECONOMICS AND POLITICS (2007)
Working Paper: Free Trade Areas and Rules of Origin: Economics and Politics (2003)
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