Rules of origin: Largely unnecessary, simply protectionist

a column by Gabriel Felbermayr, Feodora Teti and Erdal Yalcin for VOX: CEPR’s Policy Portal

Rules of origin exist to avoid trade deflection, but they distort global value chains and are costly to abide by.

This column shows empirically that in preferential trade agreements, trade deflection is unlikely to be profitable because tariffs are generally low, that countries in a common free trade agreement tend to have similar external tariff levels, and that when tariff levels differ, deflection is profitable at most for one country in the pair. Moreover, transportation costs create a natural counterforce.

It appears that rules of origin are primarily used to limit trade, and hence represent an instrument for trade protection.

Continue reading

---