Two policy lessons can be drawn from our paper. Firstly, changes in the nature of
the supply chain are largely driven by economic fundamentals and business
opportunities. There is limited room for policy-makers to influence such changes in
favor of their indigenous suppliers. Secondly, FTAs have the potential to promote trade
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for items which remain subject to high tariffs, such as CBU vehicles. Their tradepromoting
effects are subject to certain conditions, including specific characteristics of
the automotive industry which is highly concentrated and led by a handful of car
makers; the nature of the production process in which local content increases naturally;
and the long experience of car makers which are familiar with measures like ROO. It
seems risky to generalize the example of vehicles to other industries. By contrast, the
pattern of utilization rate between imports and exports suggests that the tariff margin
matters. When the tariff margin is low, the presence of ROO discourages firms to make
use of FTA preferential trade. To promote the use of FTAs for narrow tariff margins,
ROO-free items should be introduced