Seminar: Andrey Stoyanov, York University

Title: Tariff Evasion under free Trade Agreement: Empirical Evidence From NAFTA.

This paper investigates the nature of tariff evasion occurring under free trade agreements by ex-amining product level trade data between Canada and the U.S. under the successive trade agreements since 1989. I first show that in industries with high import tariffs there are more recorded exports at the source country than recorded imports at its destination indicating the presence of tariff evasion schemes between two developed countries with comparatively low corruption. Secondly, I verify that there are persistent violations against the Rule of Origin in both countries when differences in external tariffs create profitable opportunities through the trafficking of goods using a NAFTA partner. Finally, I demonstrate the existence of a strong positive relationship between the intensity of tariff evasion prior to NAFTA and the subsequent growth of trade during the agreement. This result indicates that trade growth under the agreement may, to some extent, reflect better compliance with trade regulations since trade agreements remove incentives for evading tariffs.