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Handbook on International Trade Policy

Handbook on International Trade Policy

Elgar original reference

Edited by William A. Kerr and James D. Gaisford

The Handbook on International Trade Policy is an insightful and comprehensive reference tool focusing on trade policy issues in the era of globalization. Each specially commissioned chapter deals with important international trade issues, discusses the current literature on the subject, and explores major controversies. The Handbook also directs the interested reader to further sources of information.

Chapter 12: Rules of Origin and Tariff Circumvention

Sarah Lang and James Gaisford

Subjects: economics and finance, international economics


12 Rules of origin and tariff circumvention Sarah Lang and James Gaisford Introduction Tariff circumvention occurs when an outside country attempts to ship goods to a country inside a free trade area via a second member country, which has a lower tariff, so as to avoid a higher tariff at the final destination. Consider an example loosely based in history where Poland had a high tariff on tomato paste and the Czech Republic had a lower tariff. The two countries participated in a free trade area – the Central European Free Trade Agreement (CEFTA) – where goods could be shipped tariff-free between the countries, but each country maintained its own external trade barriers. Outside countries such as China, then, would appear to have had an incentive to ship through the Czech Republic when they exported tomato paste to Poland provided that the tomato paste qualified for tariff-free access from the Czech Republic to Poland and the additional transport and transaction costs were negligible. Such shipments through the Czech Republic would circumvent the higher Polish Tariff. One of the primary roles of ‘Rules of Origin’, which identify the country where a good is deemed to have originated, is to prevent such tariff circumvention. When appropriate rules of origin were incorporated into CEFTA to identify the tomato paste as a good from China rather than the Czech republic, then the tomato paste was no longer exempt from the Polish tariff. Consequently, the incentives for shipment through the Czech Republic disappeared. This...

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