Rules of Origin as Commercial Policy Instruments.

Abstract

This paper examines the role of Rules of Origin as a commercial policy instrument which targets the input composition of imports. Using a three country, partial equilibrium structure, we demonstrate conditions under which the imposition of a binding Rule will be welfare improving for an importer facing either competitive export suppliers or an export monopolist. We also show that employing Rules of Origin in this way would be complementary to, rather than a substitute for, conventional optimal tariffs.