Rules of origin and consumer‐hurting free trade agreements*

This study examines how the rules of origin (RoO) a free trade agreement (FTA) affect firms' pricing strategies. The value-added criterion (VAC) RoO requires firms to add more than certain level value within an FTA when use inputs originating from outside FTA. VAC may work as price floor, and resulting increases in prices can benefit all if it induces offshoring firm manipulate its output price. Meanwhile, consumer-hurting formation is possible, even make tariff-free exports. Furthermore, such worsen total welfare.