Toward a North American customs union: Rules of origin liberalization matters more than a common external tariff for Canada

This paper shows that the general equilibrium impacts on Canadian GDP and welfare, of liberalizing NAFTA Rules of Origin (ROO), largely dominate the small effects of adopting a Common North American External Tariff (CET). Therefore, proposals for a North American CU should not be dismissed solely on the basis that a CET would marginally affect Canada while the negotiation process with the U.S. would be long and difficult—ROO liberalization matters more than a CET for Canada.