Regional content requirements and market power: Lessons from CUSFTA

Wanyu Chung; Carlo Perroni

doi:10.1016/j.jinteco.2025.104097

Regional content requirements and market power: Lessons from CUSFTA

Wanyu Chung^*
, Carlo Perroni

^*Corresponding author for this work

Economics

Research output: Contribution to journal › Article › peer-review

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Abstract

Focusing on the 1989 Canada-United States Free Trade Agreement (CUSFTA), we examine how regional content requirements in Free Trade Areas (FTAs) affect competition and prices in intermediate goods markets. Content requirements in FTAs shelter firms from competition more than an equivalent trade-protection tariff would. We document patterns in US industry-level census data and Canadian product-level export data that align with theoretical predictions: stricter and binding content requirements are linked to higher prices and more firm entry. These results underscore the role of content requirements in shaping market structure and market power, with implications for the choice of preferential trade arrangements.

Original language	English
Article number	104097
Number of pages	26
Journal	Journal of International Economics
Volume	157
Early online date	15 May 2025
DOIs	https://doi.org/10.1016/j.jinteco.2025.104097
Publication status	E-pub ahead of print - 15 May 2025

Keywords

Free trade areas
Content requirements
Rules of origin
Market power

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abstract = "Focusing on the 1989 Canada-United States Free Trade Agreement (CUSFTA), we examine how regional content requirements in Free Trade Areas (FTAs) affect competition and prices in intermediate goods markets. Content requirements in FTAs shelter firms from competition more than an equivalent trade-protection tariff would. We document patterns in US industry-level census data and Canadian product-level export data that align with theoretical predictions: stricter and binding content requirements are linked to higher prices and more firm entry. These results underscore the role of content requirements in shaping market structure and market power, with implications for the choice of preferential trade arrangements.",

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AB - Focusing on the 1989 Canada-United States Free Trade Agreement (CUSFTA), we examine how regional content requirements in Free Trade Areas (FTAs) affect competition and prices in intermediate goods markets. Content requirements in FTAs shelter firms from competition more than an equivalent trade-protection tariff would. We document patterns in US industry-level census data and Canadian product-level export data that align with theoretical predictions: stricter and binding content requirements are linked to higher prices and more firm entry. These results underscore the role of content requirements in shaping market structure and market power, with implications for the choice of preferential trade arrangements.

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Regional content requirements and market power: Lessons from CUSFTA

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Keywords

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