Do US exporters take advantage of free trade agreements? Evidence from the US-Colombia free trade agreement

Using novel transaction-level data, the author has studied the determinants of the utilization among US exporters of preferential treatment under the US-Colombia free trade agreement (FTA). This study finds FTA's use is incomplete and increases based on the magnitude of duty savings, which suggests the existence of a fixed cost to taking advantage of these preferences. To shed light on the nature of this fixed cost, the author shows that after controlling for duty savings FTA use increases over time, is higher among larger exporters, and is positively associated to an exporter's past experience in using the FTA. This suggests the fixed cost of using the FTA falls over time and with exporter size and experience. Finally, the author constructs a measure of the restrictiveness of rules of origin specific to this FTA and find that more restrictive rules of origin lead to a lower use of the FTA, especially among producers of differentiated goods.