Rules of origin and consumer-hurting free trade agreements*

Hiroshi Mukunoki; Hirofumi Okoshi

doi:10.1111/twec.13097

Rules of origin and consumer-hurting free trade agreements*

Hiroshi Mukunoki, Hirofumi Okoshi

Research output: Contribution to journal › Article › peer-review

2 Citations (Scopus)

Abstract

This study examines how the rules of origin (RoO) of a free trade agreement (FTA) affect firms' pricing strategies. The value-added criterion (VAC) of the RoO requires firms to add more than a certain level of value within an FTA when firms use inputs originating from outside the FTA. The VAC may work as a price floor, and the resulting increases in prices can benefit all firms if it induces an offshoring firm to manipulate its output price. Meanwhile, a consumer-hurting FTA formation is possible, even if all firms make tariff-free exports. Furthermore, such an FTA formation may worsen total welfare.

Original language	English
Pages (from-to)	2303-2318
Number of pages	16
Journal	World Economy
Volume	44
Issue number	8
DOIs	https://doi.org/10.1111/twec.13097
Publication status	Published - Aug 2021

Keywords

free trade agreements
pricing strategy
rules of origin

ASJC Scopus subject areas

Accounting
Finance
Economics and Econometrics
Political Science and International Relations

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10.1111/twec.13097

Cite this

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abstract = "This study examines how the rules of origin (RoO) of a free trade agreement (FTA) affect firms' pricing strategies. The value-added criterion (VAC) of the RoO requires firms to add more than a certain level of value within an FTA when firms use inputs originating from outside the FTA. The VAC may work as a price floor, and the resulting increases in prices can benefit all firms if it induces an offshoring firm to manipulate its output price. Meanwhile, a consumer-hurting FTA formation is possible, even if all firms make tariff-free exports. Furthermore, such an FTA formation may worsen total welfare.",

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Rules of origin and consumer-hurting free trade agreements*

Abstract

Keywords

ASJC Scopus subject areas

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