Negotiating Preferential Market Access: The Case of NAFTA

Jun 1999
There is a growing interest related to the theoretical analysis of Free Trade Agreements (FTAs). Nevertheless, there has been as yet very little empirical research on the topic, in particular, on the negotiating dynamics of these types of agreements. This paper attempts to make a contribution in this direction examining the relationship between the two most important market access instruments in the case of NAFTA negotiations: the preferential tariff phase-outs and the accompanying rules of origin (RoO). The traditional literature has viewed market access negotiations solely in terms of tariff (and non-tariff) negotiations. From an analytical point of view, the role of RoO, that is the rules that are designed to determine the origin of products in international trade, has usually been restricted to a "secondary" or "supportive" function. As such, RoO were seen to assist in the application or implementation of other "primary" instruments. In the case of preferential RoO, they help to determine when a particular good will be granted preferential tariff treatment. Using a newly constructed data set this paper estimates a simultaneous equation model where the endogenous variables are the preferential tariff phase-outs between Mexico and the United States and the RoO under the NAFTA agreement. The empirical findings of this paper support the view that in accordance with recent literature, the NAFTA RoO were used as an independent commercial policy instrument with a "primary" market access function as it is the case with the traditional preferential tariffs.