The World Bank Economic Review Advance Access originally published online on December 29, 2005
The World Bank Economic Review 2005 19(3):379-405; doi:10.1093/wber/lhi019
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Market Access and Welfare under Free Trade Agreements: Textiles under NAFTA
Olivier Cadot is a professor of economics at Ecole des Hautes Etudes Commerciales, University of Lausanne, and he is associated with the Centre of Economic Policy Research (CEPR) and the Center for Studies and Research in International Development (CERDI); his email address is olivier.cadot{at}unil.ch.
Céline Carrère is an assistant professor of economics at Ecole des Hautes Etudes Commerciales, University of Lausanne, and she is associated with CERDI; her email address is celine.carrere{at}unil.ch.
Jaime de Melo is a professor of economics, Department of Political Economy, University of Geneva, and he is associated with CEPR and CERDI; his email address is demelo{at}ecopo.unige.ch.
Alberto Portugal-Pérez is a PhD candidate in economics at the University of Geneva; his email address is alberto.portugal{at}ecopo.unige.ch.
The effective market access granted to textiles and apparel under the North American Free Trade Agreement (NAFTA) is estimated, taking into account the presence of rules of origin. First, estimates are provided of the effect of tariff preferences combined with rules of origin on the border prices of Mexican final goods exported to the United States and of U.S. intermediate goods exported to Mexico, based on eight-digit Harmonized System tariff-line data. A third of the estimated rise in the border price of Mexican apparel products is found to compensate for the cost of complying with NAFTA’s rules of origin, and NAFTA is found to have raised the price of U.S. intermediate goods exported to Mexico by around 12 percent, with downstream rules of origin accounting for a third of that increase. Second, simulations are used to estimate welfare gains for Mexican exporters from preferential market access under NAFTA. The presence of rules of origin is found to approximately halve these gains.
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