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GTAP Resources: Resource Display

GTAP Resource #4525

"Free Trade Agreements, Rules of Origin and Re-exports: The Case of the UAE"
by Mahate, Ashraf Ali and Badri Narayanan

FTAs allow a country to gain access into counterparty country markets for its products with preferential or even zero tariffs. In reality this may not be the case as FTAs are negotiated with conditions for the trade of goods to become eligible for the preferential treatment when exporting to a counterparty country. The primary tool used in FTAs to allow preferential access into a particular market is the rules of origin (ROO) which determine the country of origin of the product. Therefore, in a trading environment where similar goods need to be treated differently on the basis of their country of origin ROO play an important and necessary role in the implementation of trading arrangements with preferences. In such an environment one would assume that ROO would be uncontroversial and neutral mechanisms that prevent trade deflection from taking place where the benefit accrues to non-signatory countries through redirecting the goods to a counterpart country to the FTA so as to avoid customs duties. However, in reality ROO are far from neutral and have been argued to be more restrictive than is necessary to prevent deflection. ROOs involve various rules and administrative procedures to determine a product’s country of origin which. As a result ROOs impose additional restrictions as well as costs on exporters in order to comply with the ROO thus hampering the flow of trade.

Krueger (1999) argues that ROOs give an incentive to firms from the FTA countries to source their intermediate products from within the FTA even if the prices are higher than those of identical goods from outside the FTA. As such there is a greater incentive for trade diversion to take place so as to conform to the ROO and benefit from the preferential treatment that is available under the FTA. This has two impacts first it leads to allowing inefficient producers to benefit from the FTA. If these companies were truly efficient then they would be able to sell their products at the same price...

Resource Details (Export Citation) GTAP Keywords
Category: 2014 Conference Paper
Status: Published
By/In: Presented at the 17th Annual Conference on Global Economic Analysis, Dakar, Senegal
Date: 2014
Version: 1
Created: Mahate, A. (4/15/2014)
Updated: Batta, G. (4/15/2014)
Visits: 1,554
- Baseline development
- Multilateral trade negotiations
- The GTAP Data Base and extensions
- Middle East

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