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The economics of rules of origin

The economics of rules of origin Rules of origin of free trade arrangements limit the use of inputs from outside the preferential trade zone. A government negotiating a future FTAcan manipulate these rules in order to achieve national welfare objectives. The correct definition of rules of origin may help to enhance demand for domestically produced goods, promote national technological development, and maximize labour income. This paper proves that a more stringent rule of origin implies an increase of demand for the domestic factor if the substitution effect prevails over the effects caused by the decrease of the scale of operation in the domestic plant, and the reallocation of output between domestic and foreign plants. We further show that policy decisions regarding rules of origin that intertemporally maximize welfare and foster domestic technological evolution should be made at the greatest level of disaggregation that is feasible. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of International Trade and Economic Development Taylor & Francis

The economics of rules of origin

29 pages

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References (24)

Publisher
Taylor & Francis
Copyright
Copyright Taylor & Francis Group, LLC
ISSN
1469-9559
eISSN
0963-8199
DOI
10.1080/096381900750056849
Publisher site
See Article on Publisher Site

Abstract

Rules of origin of free trade arrangements limit the use of inputs from outside the preferential trade zone. A government negotiating a future FTAcan manipulate these rules in order to achieve national welfare objectives. The correct definition of rules of origin may help to enhance demand for domestically produced goods, promote national technological development, and maximize labour income. This paper proves that a more stringent rule of origin implies an increase of demand for the domestic factor if the substitution effect prevails over the effects caused by the decrease of the scale of operation in the domestic plant, and the reallocation of output between domestic and foreign plants. We further show that policy decisions regarding rules of origin that intertemporally maximize welfare and foster domestic technological evolution should be made at the greatest level of disaggregation that is feasible.

Journal

The Journal of International Trade and Economic DevelopmentTaylor & Francis

Published: Jan 1, 2000

Keywords: Rules Of Origin; Content Protection; Commercial Policy; Free Trade Agreement; Learning

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