| Sumario: | We show that the U.S. in-bond system of imports may be used by firms to illegally avoid trade barriers, a practice known as in-bond diversion. The illicit scheme involves declaring Chinese exports bound for Mexico but diverting them to the U.S. market while in transit, thus creating a gap between Chinese and Mexican reports. Using the phaseout and removal of U.S. quotas at the end of the Multifiber Agreement as a policy experiment, as well as variation in quota bindingness across products, we show that quota-bound products were associated with larger trade gaps which shrunk following the quota removals. ( JEL F13, O17, O19)
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