Market Access and Welfare Under Free Trade Agreements : Textiles Under Nafta

This paper estimates the effective market-access granted under NAFTA in textiles and apparel taking into account the presence of rules of origin (RoO) by combining two approaches. First, we estimate the effect of tariff preferences and (RoO) on the border prices of Mexican final goods exported to the US and of US intermediates exported to Mexico. We find that one third of the estimated rise in the border price of Mexican apparel products compensates for the cost of complying with NAFTA's RoO. We also find that NAFTA raised the price of US intermediates exported to Mexico by around 12% , RoOs downstream accounting for a third of that rise. Second, we use simulations to draw the likely welfare implications of RoO for Mexican exporters to the US