PUBLICATIONS & REPORTS

Contents Introduction

Rules of origin and their discriminating treatments are likely to become increasingly important issues with the proliferation of preferential trading arrangements (PTAs) in recent years. This paper investigates the effects of PTAs with rules of origin on industrial location and welfare of member and non-member countries. First, a static general equilibrium model based on economic geography is developed to explore possible outcomes. The role of tariff preferences and rules of origin governing the eligibility of producers to enjoy the preferences play an important role on producers’ location decisions in this model. This paper shows that the restrictive rules of origin produce the distortion cost to the manufactured good producers and always reduce economic welfare. Therefore, the rules are necessary but they must be achievable to the manufactured good producers.