The Korean Economic Review
A Political Economy Analysis of Rules of Origin Requirements of Korea-US FTA with a New Measure of t
Jaeyoun Roh (Seoul National University) and Jee-Hyeong Park (Seoul National University)Year 2014Vol. 30No. 1
Our paper contributes to the literature on the rules of origin (ROO) requirements ofregional trade agreements by developing a new measure of ROO requirements and bymodifying and testing an existing political economy model of ROO requirements with thedata of the Korea-United States Free Trade Agreement (KORUS FTA). In explaining theutilization rates of KORUS FTA, Bindingness Index, the new measure of ROOrequirements taking the status quo local content of a product into consideration, performsbetter than the existing measure proposed by Estevadeordal (2000). To reflect that the UShas agreed to immediate and complete liberalization on most products in KORUS FTA, wemodify the political economy model of ROO requirements of Cadot et al. (2006) byassuming that the preferential tariff rates are zero. This modification leads to testablepredictions, some of which differs from the prediction of Cadot et al. (2006), and ourempirical analysis supports the predictions of our modified political economy model.