We develop a model to study the behavior of firms in a Free Trade Area with Rules of Origin and the consequences of this behavior on the market equilibrium and outcome. We show that firms will choose to specialize, and that an FTA with strict ROOs on the intermediate good raises imports and...

The market access and welfare effects of Free Trade Areas (FTAs) without Rules of Origin (ROOs) are studied. We consider both the final and intermediate goods markets and their interlinkage. The FTA weakly reduces all tariffs and prices within the FTA. This raises quantity demanded and reduces...