NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Free Trade Agreements as Protectionist Devices: Rules of Origin

Anne O. Krueger

NBER Working Paper No. 4352
Issued in April 1993
NBER Program(s):   ITI

In this paper it is argued that there is an important protectionist bias inherent in free trade agreements which is not present in custom unions. In any customs union or free trade agreement, one of the critical issues concerns "rules of origin." In a free trade agreement rules of origin have an important function because, without one, each imported commodity would enter through the country with the lowest tariff on each commodity. The criterion for duty-free treatment is important in determining the economic effects of the rule of origin. It is shown that rules of origin in fact extend the protection accorded by each country to producers in other free trade agreement member countries. As such, rules of origin can constitute a source of bias toward economic inefficiency in free trade agreements in a way they cannot do with customs unions.

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Document Object Identifier (DOI): 10.3386/w4352

Published: Published as "Free Trade Agreements Versus Customs Unions", Journal of Development Economics, Vol. 54, no. 1 (October 1997): 169-187.

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