Question

Why are the rules of origin needed for a free-trade area? How might there be protectionism?

250 words please

Answer 1

Basically rules of origin are used to determine the source of a product. In a free trade area countries exchange goods to one another but they have a specific set of prices for the goods based on the economy of the country. These rules prevent the countries exporting goods to a low barrier country and from their the goods are exported to a high barrier country to avoid the high barriers in this second country. These rules of origin are used to decide which imported goods are eligible for the Most Favoured Nation Treatment or a kind of preferential treatment. They also help to keep a eye on the trade statistics and for government procurement.

These rules of origin can be protectionist in different ways mainly they kind of violate the free-trade area where it would be difficult for a country to export the goods to a different country. They also impose rules on the firms to use the goods and materials produced only in the free trade area rather than importing these from other countries. It limits the exports and imports of the countries which will be a damage to the GDP of the country.