Preferential Trade Arrangements and the Pattern of Production and Trade when Inputs are Differentiated

This paper is concerned with rules of origin when intermediate goods aredifferentiated. An analytical model emphasizes trade patterns and the relativeimportance of trade in intermediates given trade preferences. Econometric evidencebased on intra-OECD trade in motor vehicles and motor vehicle parts points to asystematic impact of trade costs and FTA membership, following from rules oforigin and reduction in border measures, on the role of intermediates and theirrelative importance in production and trade. These results are consistent with aconceptual framework involving rules-base trade costs and two-way trade indifferentiated intermediate goods and final goods.