Edited by William A. Kerr and James D. Gaisford
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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