Global protectionist trade effect of rules of origin: assessment of input-output restrictions at HS6 level in 400 FTAs

FTA policymakers designate input-output relationships when formulating rules of origin (RoO). These relationships define restricted inputs that can only be sourced from FTA area. Conconi et al. (2018) found a strong trade diversion effect in such inputs in the case of NAFTA. We construct a global dataset by extracting HS6 input-output restrictions from 400 FTAs a la Conconi et al. using Rules of Origin Facilitator/MacMap global database at HS6 level. We document that: (1) Input-output tables diverge across FTAs, driven by political economy of protected inputs; (2) FTAs show heterogeneity in precision of revealed HS6 input-output relationships. Precision is higher in “sensitive” products and in NAFTA-style FTAs (US FTAs, LatAm FTAs and CPTPP); (3) RoO globally divert trade by XX% in restricted inputs, thus the effect is less than in NAFTA (45%); (4) RoO that designate `allowed' inputs result in `trade creation' in such inputs by X%, somewhat compensating trade diversion in restricted inputs. For example, if fabrics are placed on restricted list, it can trigger imports of yarn instead. Finally, we augment the NAFTA-based HS6 input-output matrix with 460 FTAs and publish a more complete, more granular research dataset which enables disaggregated value-chain impact modeling of trade policy changes.