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Optimal Rules of Origin with Asymmetric Compliance Costs under International Duopoly

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  • Naoto Jinji
  • Yoshihiro Mizoguchi

Abstract

We examine the optimal rules of origin (ROO) in a free trade area/agreement (FTA). We incorporate compliance costs of the ROO into the model. In particular, compliance costs are higher for a firm located in a non-member country of the FTA than for a firm located in an FTA member country, whereas marginal production costs are lower for the former. An importing country within the FTA imposes tariffs on imports that do not comply with the ROO. We show that the optimal ROO may have a protectionist bias or cause low utilization of FTAs depending on parameter values.

Suggested Citation

  • Naoto Jinji & Yoshihiro Mizoguchi, 2015. "Optimal Rules of Origin with Asymmetric Compliance Costs under International Duopoly," Discussion papers e-14-016, Graduate School of Economics Project Center, Kyoto University.
    • Handle: RePEc:kue:dpaper:e-14-016
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    References listed on IDEAS

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    7. Tran-Nam, Binh & Evans, Chris & Walpole, Michael & Ritchie, Katherine, 2000. "Tax Compliance Costs: Research Methodology and Empirical Evidence from Australia," National Tax Journal, National Tax Association, vol. 53(n. 2), pages 229-52, June.
    8. Jiandong Ju & Kala Krishna, 2005. "Firm behaviour and market access in a Free Trade Area with rules of origin," Canadian Journal of Economics, Canadian Economics Association, vol. 38(1), pages 290-308, February.
    9. Kazuhiro Takauchi, 2014. "Rules of Origin and Strategic Choice of Compliance," Journal of Industry, Competition and Trade, Springer, vol. 14(2), pages 287-302, June.
    10. Jota Ishikawa & Hiroshi Mukunoki & Yoshihiro Mizoguchi, 2007. "Economic Integration And Rules Of Origin Under International Oligopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(1), pages 185-210, February.
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    Cited by:

    1. Jinji, Naoto & Mizoguchi, Yoshihiro, 2016. "Rules of origin and technology spillovers from foreign direct investment under international duopoly," Japan and the World Economy, Elsevier, vol. 40(C), pages 47-60.
    2. Hiroshi Mukunoki & Hirofumi Okoshi, 2021. "Rules of origin and consumer‐hurting free trade agreements," The World Economy, Wiley Blackwell, vol. 44(8), pages 2303-2318, August.

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    More about this item

    Keywords

    free trade area/agreement; rules of origin; compliance costs; oligopoly; double rent-shifting;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration

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