Abstract: Rules of origin (ROO) are used in preferential trade agreements to determine which goods are eligible for a reduced tariff rate. These rules are often identified as restrictive and cumbersome for businesses that export goods. As a result, NAFTA member countries are considering proposals to liberalize NAFTA ROO. The purpose of this paper is to review the theoretical and empirical literature on ROO to give a clearer understanding of the issues involved. This paper delivers two main conclusions.
      First, while the theoretical research on ROO has made progress, sound empirical work remains rare because ROO have proven difficult to measure and model explicitly. This obstacle is unfortunate because theoretical work suggests, depending on the restrictiveness of ROO, the welfare effects of ROO are ambiguous. Empirical analysis, therefore, is the only tool capable of addressing policy experiments.
      Second, among the various empirical methodologies identified in the literature, Computable General Equilibrium (CGE) modeling seems to be the most fruitful approach. Existing CGE applications, however, fail to adequately incorporate ROO. As a result, I conclude that a research project that models both the essence of ROO in the benchmark, and their removal in the counterfactual, would add some fresh insight to the policy debate over the liberalization of NAFTA ROO.

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