TY  - JOUR
AU  - Krishna,Kala
AU  - Krueger,Anne
TI  - Implementing Free Trade Areas: Rules of Origin and Hidden Protection
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4983
PY  - 1995
Y2  - January 1995
UR  - http://www.nber.org/papers/w4983
L1  - http://www.nber.org/papers/w4983.pdf
N1  - Author contact info:
Kala Krishna
Department of Economics
523 Kern Graduate Building
The Pennsylvania State University
University Park, PA 16802
Tel: 814/865-1106
Fax: 814/863-4775
E-Mail: kmk4@psu.edu

Anne O. Krueger
Department of International Economics
SAIS, Johns Hopkins University
1740 Massachusetts Avenue NW
Washington, DC 20036
Tel: 202/587-3238
E-Mail: annekrueger@jhu.edu
AB  - This paper focuses on the effects of rules of origin in Free Trade Areas.  We first point out that even rules of origin which are not restrictive, namely those which do not raise costs of production, have very pronounced effects on trade and investment flows.  We then look at some different ways of specifying rules of origin (ROOs) under perfect competition.  We compare price and cost based ROOs and show that even if they are equivalent in the 'long run', they are not equivalent in the short run where capacity constraints can exist.  We also show that some kinds of ROOs can be ranked in terms of their implications for producer profits.  We also show that welfare is likely to be non monotonic in the restrictiveness of the ROO, so that making a ROO more stringent could raise welfare.  Finally, we show that in the presence of imperfect competition, ROOs may raise output and reduce prices as they become more stringent.
ER  -