Assessing the Impact of Political Economy Factors on Rules of Origin under NAFTA

Rules of origin are legitimate policy instruments to prevent trade deflection in a preferential trade agreement short of a customs union. Trade deflection takes place when a product imported into the preferential trade agreement through the member with the lowest external tariff is transhipped to a higher-tariff member, while yielding a benefit for the re-exporter. Yet, when captured by special interest groups, rules of origin can restrict trade beyond what is needed to prevent trade deflection. By how much do political economy factors account for the stringency of rules of origin? This study quantifies the impact of both determinants - those considered "justifiable" because they prevent trade deflection and those deemed to arise from "political economy" forces - on the restrictiveness of rules of origin under the North American Free Trade Agreement, approximated by a restrictiveness index. The main finding is that political economy forces, especially from the United States, raised significantly the restrictiveness of the rules of origin. Indeed, in industries where political-economy forces were strong prior to the North American Free Trade Agreement, as when the U.S. Most Favored Nation tariff was high or the revealed comparative advantage of Mexico (the United States) was strong (weak), more stringent rules of origin were introduced. Thus, stricter rules of origin are associated with higher production costs reducing the potential benefits of enhanced market access that is initially pursued by this type of agreement.

Bibliographic Details

Main Author:	Portugal-Perez, Alberto
Language:	English
Published:	2009-02-01
Subjects:	ACCOUNTING, APPAREL, APPAREL EXPORTS, BENCHMARK, BILATERAL CUMULATION, BLOC TARIFFS, CAPTIVE MARKETS, CHECKS, COMMODITY DESCRIPTION, COMPARATIVE ADVANTAGE, COMPETITIVE ADVANTAGE, COMPETITIVENESS, CONTRACTING PARTIES, CUSTOMS, CUSTOMS UNION, DEVELOPING COUNTRIES, DEVELOPMENT ECONOMICS, DOMESTIC PRODUCERS, DUMMY VARIABLES, DUTY DRAWBACK, DUTY DRAWBACKS, ECONOMETRIC ESTIMATES, ECONOMETRICS, ECONOMIC IMPLICATIONS, ECONOMIC JUSTIFICATION, ECONOMICS RESEARCH, EXPECTED VALUE, EXPORT COSTS, EXPORT DIVERSIFICATION, EXPORT SECTOR, EXPORT SUBSIDIES, EXPORT-ORIENTED INDUSTRIES, EXPORTER, EXPORTERS, EXPORTS, EXTERNAL TARIFF, FINANCIAL SUPPORT, FREE TRADE, FREE TRADE AGREEMENT, FREE TRADE AGREEMENTS, FREE TRADE AREA, GENERALIZED SYSTEM OF PREFERENCES, GLOBAL ECONOMY, HOMOGENEOUS GOODS, IMPORT PENETRATION, IMPORT TARIFFS, IMPORTING COUNTRY, IMPORTS, INDUSTRIALIZATION, INTERMEDIATE GOODS, INTERMEDIATE INPUTS, INTERMEDIATE MARKETS, INTERNATIONAL BANK, INTERNATIONAL ECONOMICS, INTERNATIONAL LAW, INTERNATIONAL TRADE, LOBBYING, MARKET ACCESS, MOST FAVORED NATION, NON-TARIFF BARRIERS, PARTICIPATION CONSTRAINT, POLICY RESEARCH, POLITICAL ECONOMY, POTENTIAL BENEFITS, PREFERENTIAL ACCESS, PREFERENTIAL MARKET ACCESS, PREFERENTIAL RATES, PREFERENTIAL TARIFF, PREFERENTIAL TRADE, PREFERENTIAL TRADE AGREEMENT, PREFERENTIAL TRADE AGREEMENTS, PREFERENTIAL TRADING ARRANGEMENTS, PRODUCT DIFFERENTIATION, PRODUCTION COSTS, PRODUCTION PROCESS, PROTECTIONISM, PROTECTIONIST, PROTECTIONIST DEVICES, QUANTITATIVE RESTRICTIONS, REGIONAL INTEGRATION, REGIONAL TRADE, REGIONAL TRADE AGREEMENTS, REGIONAL VALUE CONTENT, RENEGOTIATION, RULES OF ORIGIN, STATISTICAL DATA, TARIFF BARRIERS, TARIFF CLASSIFICATION, TARIFF DATA, TARIFF ESCALATION, TARIFF LINE, TARIFF LINES, TARIFF PREFERENCES, TARIFF REVENUE, TRADE COSTS, TRADE DEFLECTION, TRADE FACILITATION, TRADE POLICY, TRADE PREFERENCES, TRADE PROTECTION, TRADE REGIMES, TRADE VOLUMES, TRADING, TRANSPARENCY, TRUST FUND, UNEMPLOYMENT, VALUE ADDED, WORLD TRADE,
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20090227085315 https://hdl.handle.net/10986/4044
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