Effects of Product-Specific Rules of Origin on Trade in Free Trade Agreements: Evidence from the cases of Japan

This paper investigated the impact of product-specific rules of origin (ROOs) in free trade agreements (FTAs) on both exports and imports for 17 Japan’s FTAs. Specifically, the effects of FTAs on trade were first estimated by trading partners and products at the finely disaggregated level, using data from 170 countries in 1996–2019, and then the impact of ROOs was analyzed as a determinant of the effects of FTAs. Our econometric analysis demonstrates that change in chapters is most restrictive, followed by change in tariff headings, compared with change in tariff sub-headings. It also shows that on the selective type (change in tariff classification (CTC) or regional value content (RVC)) is less restrictive than the single type of corresponding CTC, while the CTC types significantly matter in determining the effects of FTAs on trade. In addition, such mitigating effect of the selective type tends to be larger for final products than intermediate goods and for products with larger preferential margins. Our findings suggest that more restrictive types of ROOs substantially reduce the positive effects of FTAs on trade.