Preferential trading agreements: Adding spices and noodles to a spaghetti bowl (original) (raw)
Related papers
Preferential Trade Liberalization: The Traditional Theory and New Developments
Journal of Economic Literature, 2000
This paper begins by systematically developing the “static” theory of preferential trade areas (PTAs) and showing that neither a large volume of initial intra-union trade nor geographical proximity can serve as a guide to welfare enhancing PTAs. The paper then discusses the modern literature addressing welfare effects of simultaneous division of the world into many PTAs, the impact of the decision to form a PTA on external tariffs and the “dynamic” time-path question of whether PTAs are building blocks or stumbling blocks towards multilateral freeing of trade. A final section discusses key theoretical considerations in the empirical evaluation of PTAs.
MODERN MECHANISMS OF FOREIGN TRADE LIBERALIZATION
In a market economy, countries seek to maximize the benefits of international exchange within their capacities. Small countries, unable to change world trade conditions for their benefit, liberalize markets in anticipation of benefiting from increased economic efficiency. Meanwhile, different countries choose different ways of foreign trade liberalization. After studying the international experience, two main ways of foreign trade liberalization have been distinguished - mutual and unilateral trade liberalization, each of which has its own varieties. Mutual liberalization of trade is carried out on a bilateral, regional and multilateral basis, and unilateral liberalization is manifested in two ways: autonomous and unilateral preferential liberalization. Mutual multilateral and unilateral autonomous forms of foreign trade liberalization are favorable in terms of ensuring free competition in international trade, whereas differentiated approaches to bilateral, regional and privileged forms of liberalization have patronage elements.
The Three Faces of Trade Liberalization: Unilateral, Preferential, and Multilateral
There is a growing number of studies that investigate the effect of trade liberalization on productivity and nearly all assume that trade policy is independently determined of productivity, hence it is exogenous. I show that this assumption is generally invalid both theoretically and empirically. In Chapter 1, I demonstrate that under a standard political economy model of trade protection, productivity directly influences tariffs. Moreover, this productivity-tariff relationship partly determines the extent of liberalization across sectors even in the presence of a large exogenous unilateral liberalization shock that affects all sectors. In Chapter 2, I examine total factor productivity (TFP) estimates obtained at the firm level for Colombia between 1983 and 1998 and find that more productive sectors receive more protection within this period. In estimating the effect of productivity on tariffs, I control for the endogeneity of the inverse import penetration to import demand elasticity ratio and productivity. Finally, I use a system of equations to illustrate that the positive impact of liberalization on productivity grows somewhat stronger when corrected for the endogeneity bias.
The World Trade Organization and Preferential Trade Agreements
Global Governance Facing Structural Changes
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Preferential Trade Agreements and Rules of the Multilateral Trading System
2017
Preferential trade agreement (PTA) members have to eliminate internal tariffs with each other but are allowed to discriminate against non-members. This can be in potential conflict with the WTO's overall non-discrimination clause. Using a competing exporters model of endogenous trade agreement formation, we study the central rules that govern PTAs. We find that the free trade agreements' (FTAs) requirement to eliminate internal tariffs increases total welfare when circumstances are such that global free trade is infeasible. However, it also reduces the likelihood of reaching global free trade. We also find that the MFN constraint does not just contribute to the achievement of global free trade but also delivers a welfare-superior outcome when global free trade is not possible. Finally, we show that the MFN constraint complements the PTA rules in achieving global free trade for only FTAs but not customs unions (CUs). However, when global free trade is infeasible, the MFN cons...
American Economic Journal: Microeconomics, 2013
This paper analyzes a game of trade policy (called Bilateralism) between three countries in which each country chooses whether to liberalize trade preferentially in the form of a Customs Union (CU), multilaterally, or not at all. We also analyze a restricted version of this game (called Multilateralism) under which countries do not have the option to form CUs. The analysis sheds light on the relationship between multilateral and preferential trade liberalization as sanctioned by GATT Article XXIV. We …nd that when countries have symmetric endowments, global free trade can be achieved without permitting CUs. Allowing for asymmetry, we isolate circumstances where Article XXIV helps further the cause of multilateral liberalization as well as when it does not. Furthermore, we show that Article XXIV's stipulation -that countries forming a CU not raise tari¤s on outsiders -fails to make multilateral liberalization any more attractive to countries. However, such a tari¤ restriction does lower the adverse impact of a CU on the non-member. . Parts of this paper were written during my visit to the Stanford Center for International Development (SCID), Stanford University, Palo Alto, CA. I am grateful to SCID researchers and its administrative sta¤ for providing me with an excellent research environment.