Rules of origin and negotiations of preferential trade agreements: The domestic preparations
Rosellon Diaz, Juan de Dios Enrique
Brito, Dagobert L.
Doctor of Philosophy thesis
The first part of the thesis addresses the effect of rules of origin regulations on the use of domestic factors of production in the country of origin. In the case of a firm that is a perfect competitor in the final product market these regulations have two effects: first there is a direct substitution effect due to the regulation that will increase the use of the domestic factor and second, there is an indirect output effect due to the increased cost that will reduce the demand for the domestic factor. In the case of a firm that has a monopoly power in the final product market, the declining marginal revenue curve faced by the firm causes the reallocation of output between domestic and foreign plants. This reallocation may further decrease the demand for the domestic factor of production. The second part of the thesis addresses the problem of a government trying to maximize welfare through use of rules of origin regulations when there is conflict among various domestic interests. Numerical computations using this model showed that the optimal rule of origin was very sensitive to the technical parameters of the model which suggests that policy decisions with respect to rules of origin should be made at the greatest level of disaggregation that is feasible.