Quotation Felbermayr, Gabriel, Teti, Feodora, Yalcin, Erdal. 2019. Rules of origin and the profitability of trade deflection. Journal of International Economics. 121


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Abstract

When a country grants preferential tariffs to another, either reciprocally in a free trade agreement (FTA) or uni-laterally, rules of origin (RoOs) are defined to determine whether a product is eligible for preferential treatment. RoOs exist to avoid that exports from third countries enter through the member with the lowest tariff (trade de-flection). However, RoOs distort exporters' sourcing decisions and burden themwith red tape. Using a global data set, we show that, for 86% of all bilateral product-level comparisons within FTAs, trade deflection is not profitable because external tariffs are rather similar and transportation costs are non-negligible; in the case of unilateral trade preferences extended by rich countries to poor ones that ratio is a striking 98%. The pervasive and uncon-ditional use of RoOs is, therefore, hard to rationalize.

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Publication's profile

Status of publication Published
Affiliation External
Type of publication Journal article
Journal Journal of International Economics
Citation Index SSCI
WU Journalrating 2009 A
WU-Journal-Rating new FIN-A, VW-A, WH-A
Language English
Title Rules of origin and the profitability of trade deflection
Volume 121
Year 2019
Reviewed? Y
URL https://api.elsevier.com/content/article/PII:S0022199619300662?httpAccept=text/xml
DOI http://dx.doi.org/10.1016/j.jinteco.2019.07.003
Open Access N
JEL JEL: F10, F13, F15

Associations

People
Felbermayr, Gabriel (Details)
External
Teti, Feodora (Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, Germany)
Yalcin, Erdal (Konstanz University of Applied Sciences, Germany)
Organization
Department of Economics (Felbermayr) (Details)
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