IDEAS home Printed from https://ideas.repec.org/a/cje/issued/v45y2012i3p879-902.html
   My bibliography  Save this article

Tariff evasion and rules of origin violations under the Canada-U.S. Free Trade Agreement

Author

Listed:
  • Andrey Stoyanov

Abstract

Using product-level data on trade between Canada and the U.S., this paper presents evidence of tariff evasion and violation of the rules of origin occurring under the Canada-U.S. Free Trade Agreement (CUSFTA). It shows that more imports go unreported at the destination country when tariffs are higher. Consistent with the tariff evasion hypothesis, this result implies that the trade creation effect of a free trade agreement may in fact be due to less underreporting. Further, this paper shows that the larger Canadian tariff preference margin for the U.S. is associated with more goods originating in third countries being transshipped through the U.S. territory for re-export. The preference margin is also positively correlated with the value of excess imports from the U.S., which qualify for preferential treatment. Both results suggest the presence of persistent violations of CUSFTA's rules of origin.

Suggested Citation

  • Andrey Stoyanov, 2012. "Tariff evasion and rules of origin violations under the Canada-U.S. Free Trade Agreement," Canadian Journal of Economics, Canadian Economics Association, vol. 45(3), pages 879-902, August.
    • Handle: RePEc:cje:issued:v:45:y:2012:i:3:p:879-902
    DOI: 10.1111/j.1540-5982.2012.01719.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1540-5982.2012.01719.x
    Download Restriction: access restricted to subscribers
    File URL: https://libkey.io/10.1111/j.1540-5982.2012.01719.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Raymond Fisman & Peter Moustakerski & Shang-Jin Wei, 2008. "Outsourcing Tariff Evasion: A New Explanation for Entrepôt Trade," The Review of Economics and Statistics, MIT Press, vol. 90(3), pages 587-592, August.
    2. Javorcik, Beata S. & Narciso, Gaia, 2008. "Differentiated products and evasion of import tariffs," Journal of International Economics, Elsevier, vol. 76(2), pages 208-222, December.
    3. Kimberly A. Clausing, 2001. "Trade creation and trade diversion in the Canada - United States Free Trade Agreement," Canadian Journal of Economics, Canadian Economics Association, vol. 34(3), pages 677-696, August.
    4. Lorenzo Rotunno & Pierre-Louis Vézina, 2012. "Chinese Networks and Tariff Evasion," The World Economy, Wiley Blackwell, vol. 35(12), pages 1772-1794, December.
    5. Raymond Fisman & Shang-Jin Wei, 2004. "Tax Rates and Tax Evasion: Evidence from "Missing Imports" in China," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 471-500, April.
    6. Mishra, Prachi & Subramanian, Arvind & Topalova, Petia, 2008. "Tariffs, enforcement, and customs evasion: Evidence from India," Journal of Public Economics, Elsevier, vol. 92(10-11), pages 1907-1925, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Derek Kellenberg & Arik Levinson, 2019. "Misreporting trade: Tariff evasion, corruption, and auditing standards," Review of International Economics, Wiley Blackwell, vol. 27(1), pages 106-129, February.
    2. Cyril Chalendard, 2015. "Use of internal information, external information acquisition and customs underreporting," Working Papers halshs-01179445, HAL.
    3. Mianshan Lai & Jia Hou, 2023. "Let us misinvoice more? The effect of de jure capital controls on trade misinvoicing," The World Economy, Wiley Blackwell, vol. 46(7), pages 2157-2186, July.
    4. Cyril Chalendard & Gaël Raballand & Antsa Rakotoarisoa, 2019. "The use of detailed statistical data in customs reforms: The case of Madagascar," Development Policy Review, Overseas Development Institute, vol. 37(4), pages 546-563, July.
    5. Hiroshi Mukunoki & Hirofumi Okoshi, 2021. "Tariff elimination versus tax avoidance: free trade agreements and transfer pricing," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 28(5), pages 1188-1210, October.
    6. Xinzheng Shi & Zhufeng Xu, 2023. "Export tax refund and the misreporting by Chinese exporters," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 56(4), pages 1469-1489, November.
    7. Hinnerk Gnutzmann & Arevik Gnutzmann-Mkrtchyan, 2019. "The silent success of customs unions," Canadian Journal of Economics, Canadian Economics Association, vol. 52(1), pages 178-224, February.
    8. Xuepeng Liu & Huimin Shi, 2019. "Anti‐dumping duty circumvention through trade rerouting: Evidence from Chinese exporters," The World Economy, Wiley Blackwell, vol. 42(5), pages 1427-1466, May.
    9. C.J. Krizan & James Tybout & Zi Wang & Yingyan Zhao, 2020. "Are Customs Records Consistent Across Countries? Evidence from the U.S. and Colombia," Working Papers 20-11, Center for Economic Studies, U.S. Census Bureau.
    10. Bussy, Adrien, 2023. "Corporate tax evasion: Evidence from international trade," European Economic Review, Elsevier, vol. 159(C).
    11. Stiller, Wojciech & Heinemann, Marwin, 2024. "Do more harm than good? The optional reverse charge mechanism against cross-border tax fraud," The Quarterly Review of Economics and Finance, Elsevier, vol. 95(C), pages 61-84.
    12. Cyril Chalendard, 2015. "Use of internal information, external information acquisition and customs underreporting," CERDI Working papers halshs-01179445, HAL.
    13. Mirco Tonin, 2014. "Reporting import tariffs (and other taxes)," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(1), pages 153-173, February.
    14. Marwin Heinemann & Wojciech Stiller, 2023. "Digitalization and Cross-Border Tax Fraud: Evidence from E-Invoicing in Italy," CESifo Working Paper Series 10227, CESifo.
    15. Temesgen Worku & Juan P. Mendoza & Jacco L. Wielhouwer, 2016. "Tariff evasion in sub-Saharan Africa: the influence of corruption in importing and exporting countries," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(4), pages 741-761, August.
    16. Hinnerk Gnutzmann & Arevik Gnutzmann‐Mkrtchyan, 2019. "The silent success of customs unions," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 52(1), pages 178-224, February.
    17. Yanyun Li & Faqin Lin, 2022. "Beyond tariff evasion: bypass effect of FTAs to circumvent technical barriers," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 158(4), pages 1085-1105, November.
    18. MUKUNOKI Hiroshi & OKOSHI Hirofumi, 2021. "Wake Not a Sleeping Lion: Free Trade Agreements and Decision Rights in Multinationals," Discussion papers 21036, Research Institute of Economy, Trade and Industry (RIETI).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Cyril Chalendard, 2015. "Use of internal information, external information acquisition and customs underreporting," Working Papers halshs-01179445, HAL.
    2. Ferrantino, Michael J. & Liu, Xuepeng & Wang, Zhi, 2012. "Evasion behaviors of exporters and importers: Evidence from the U.S.–China trade data discrepancy," Journal of International Economics, Elsevier, vol. 86(1), pages 141-157.
    3. Lin, Chin-Ho, 2018. "Tariff evasion in machinery production networks: Evidence from East Asia," Economic Modelling, Elsevier, vol. 70(C), pages 115-126.
    4. Javorcik, Beata S. & Narciso, Gaia, 2017. "WTO accession and tariff evasion," Journal of Development Economics, Elsevier, vol. 125(C), pages 59-71.
    5. Temesgen Worku & Juan P. Mendoza & Jacco L. Wielhouwer, 2016. "Tariff evasion in sub-Saharan Africa: the influence of corruption in importing and exporting countries," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(4), pages 741-761, August.
    6. Bob Rijkers & Leila Baghdadi & Gael Raballand, 2017. "Political Connections and Tariff Evasion Evidence from Tunisia," The World Bank Economic Review, World Bank, vol. 31(2), pages 459-482.
    7. Andualem T Mengistu & Kiflu G Molla & Giulia Mascagni, 2022. "Trade Tax Evasion and the Tax Rate: Evidence from Transaction-level Trade Data," Journal of African Economies, Centre for the Study of African Economies, vol. 31(1), pages 94-122.
    8. Beverelli, Cosimo & Ticku, Rohit, 2022. "Reducing tariff evasion: The role of trade facilitation," Journal of Comparative Economics, Elsevier, vol. 50(2), pages 534-554.
    9. Peyton Michael Ferrier, 2021. "Detecting origin fraud with trade data: the case of U.S. honey imports," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 65(1), pages 222-245, January.
    10. Cyril Chalendard, 2015. "Use of internal information, external information acquisition and customs underreporting," CERDI Working papers halshs-01179445, HAL.
    11. Demir, Banu & Javorcik, Beata, 2020. "Trade policy changes, tax evasion and Benford's law," Journal of Development Economics, Elsevier, vol. 144(C).
    12. Javorcik, Beata & Narciso, Gaia, 2013. "Accession to the World Trade Organization and Tariff Evasion," CEPR Discussion Papers 9592, C.E.P.R. Discussion Papers.
    13. Liu, Xuepeng & Shi, Huimin & Ferrantino, Michael, 2016. "Tax evasion through trade intermediation: Evidence from Chinese exporters," International Review of Economics & Finance, Elsevier, vol. 42(C), pages 518-535.
    14. repec:idq:ictduk:16548 is not listed on IDEAS
    15. Cristina Mitaritonna & Sami Bensassi & Joachim Jarreau, 2017. "Regional Integration and Informal Trade in Africa: Evidence from Benin's Borders," Working Papers 2017-21, CEPII research center.
    16. Kowsar Yousefi & Mohammad Vesal, 2023. "The Double Dividend of a Joint Tariff and VAT Reform: Evidence from Iran," The World Bank Economic Review, World Bank, vol. 37(2), pages 331-349.
    17. Mirco Tonin, 2014. "Reporting import tariffs (and other taxes)," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(1), pages 153-173, February.
    18. Antoine Bouët & Devesh Roy, 2012. "Trade protection and tax evasion: Evidence from Kenya, Mauritius, and Nigeria," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 21(2), pages 287-320, April.
    19. Jon Bakija & Ivan Badinski, 2014. "Evidence on the Responsiveness of Export-Related VAT Evasion to VAT Rates in the EU," Department of Economics Working Papers 2014-06, Department of Economics, Williams College.
    20. Banu Demir Pakel & Beata Smarzynska Javorcik & Beata Smarzynska Javorcik, 2018. "Forensics, Elasticities and Benford's Law," CESifo Working Paper Series 7266, CESifo.
    21. Olalere Isaac Opeyemi, 2022. "Predicting Trade Mispricing: A Gaussian Multivariate Anomaly Detection Model ," GATR Journals jber221, Global Academy of Training and Research (GATR) Enterprise.

    More about this item

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cje:issued:v:45:y:2012:i:3:p:879-902. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Prof. Werner Antweiler (email available below). General contact details of provider: https://edirc.repec.org/data/ceaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.