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A (more) systematic exploration of the trade effect of product-specific rules of origin
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1028-3625
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EUI; RSC; Working Paper; 2023/26; Global Governance Programme-500; [Global Economics]
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GOURDON, Julien, GOURDON, Karin, DE MELO, Jaime, A (more) systematic exploration of the trade effect of product-specific rules of origin, EUI, RSC, Working Paper, 2023/26, Global Governance Programme-500, [Global Economics] - https://hdl.handle.net/1814/75494
Abstract
Rules of Origin (RoO) are critical components of Preferential Trade Agreements (PTAs). They are
designed to stop products coming into a PTA through the partner that applies the lowest tariff – a
phenomenon known as trade deflection. While RoO are necessary, complex RoO may undo the
benefits of trade agreements. Using a novel database of RoO, this paper evaluates the incidence
and restrictiveness of different types of Product-Specific Rules of Origin (PSRs) across 128
reciprocal PTAs for the period 1990 - 2015. Results, based on a structural gravity model controlling
for confounding factors, display wide heterogeneity across different categories of PSRs attached to
preferential margins, with more flexible PSRs associated with a significantly stronger trade effect
compared to more restrictive ones where exporters do not have a choice among PSRs or have to
satisfy multiple PSRs. A simulation exercise reveals that a radical simplification reform leading to the
adoption of flexible PSRs providing alternative choices to prove origin would have increased global
trade under PTAs on average by between 2.7 and 4 percent during the sample period.
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Julien Gourdon and Jaime de Melo acknowledge financial support from the Agence Nationale de la Recherche of the French government through the program “Investissements d’avenir” (ANR-10-LABX-14-01).