TY  - JOUR
TI  - Rules of origin and the profitability of trade deflection
AB  - 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.
DO  - http://dx.doi.org/10.1016/j.jinteco.2019.07.003
UR  - https://api.elsevier.com/content/article/PII:S0022199619300662?httpAccept=text/xml
PY  - 2019-01-01
JO  - Journal of International Economics
AU  - Felbermayr, Gabriel 
AU  - Teti, Feodora 
AU  - Yalcin, Erdal 
ER -