Complying with Rules of Origin and Transfer Pricing

Kenzo Abe, Kazunobu Hayakawa and Chih-hai Yang

No 989, IDE Discussion Papers from Institute of Developing Economies, Japan External Trade Organization(JETRO)

Abstract: Manipulation of trade prices, or profit shifting, by multinational enterprises (MNEs) is an important topic in international trade policy. In this paper, we examine such price manipulation in relation to compliance with rules of origin (RoOs) in regional trade agreements (RTAs). We first theoretically demonstrate that regional value content (RVC) requirements incentivize MNEs to reduce import prices from RTA non-member countries, as well as to use RTA tariff rates in their exports to RTA partners. Next, using firm-level trade data from China, we empirically investigate this hypothesis for the ASEAN-China Free Trade Agreement (ACFTA). As a result, we found that the MNE exporters of ACFTA-eligible products significantly decrease their import prices from ACFTA non-member countries. Our findings contribute to uncovering a novel source of price manipulation by MNEs, namely, compliance of RoOs.

Keywords: Transfer; pricing|regional; trade; agreement|rules; of; origin (search for similar items in EconPapers)
JEL-codes: F15 F53 (search for similar items in EconPapers)
Date: 2026-01
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Published in IDE Discussion Paper = IDE Discussion Paper, No.989. 2026-01

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