Discussion Paper Details

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Title: Divergent Integration

Author(s): Jan I. Haaland and Ian Wooton

Publication Date: April 2021

Keyword(s): Non-Tariff Measures, Preferential trading and Rules of origin

Programme Area(s): International Trade and Regional Economics

Abstract: Trade liberalisation is often characterised as either preferential or non-discriminatory but not all preferential trade agreements are the same. We focus on non-tariff measures that can constitute barriers to trade and that differ between free-trade agreements (FTAs) and customs unions (CUs). In particular, we investigate the role of rules of origin (RoO) in restricting market access for nations excluded from a CU. We develop a simple general equilibrium model characterised by trade in intermediate and final products and use this to examine the implications of binding RoO in an FTA on market outcomes and the welfare of agents in the economy. We highlight the phenomenon of "induced trade diversion" where RoO can result in countries losing from preferential market access.

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Bibliographic Reference

Haaland, J and Wooton, I. 2021. 'Divergent Integration'. London, Centre for Economic Policy Research.