Free Trade Areas and Rules of Origin : Economics and Politics

Author/Editor:

Arvind Panagariya ; Rupa Duttagupta

Publication Date:

November 1, 2003

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Incorporating intermediate inputs into a small-union general-equilibrium model, this paper first develops the welfare economics of preferential trading under the rules of origin (ROO) and then demonstrates that the ROO could improve the political viability of Free Trade Agreements (FTAs). Two interesting outcomes are derived. First, a welfare reducing FTA that was rejected in the absence of the ROO becomes feasible in the presence of these rules. Second, a welfare improving FTA that was rejected in the absence of the ROO is endorsed in their presence, but upon endorsement it becomes welfare inferior relative to the status quo.

Series:

Working Paper No. 03/229

Subject:

English

Publication Date:

November 1, 2003

ISBN/ISSN:

9781451875492/1018-5941

Stock No:

WPIEA2292003

Format:

Paper

Pages:

30

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