Are Preferential Trade Agreements with Non-trade Objectives a Stumbling Block for Multilateral Liberalization?
AbstractIn many preferential trade agreements (PTAs), countries exchange not only reductions in trade barriers but also cooperation in non-trade issues such as labour and environmental standards, intellectual property, etc. We provide a model of PTAs motivated by cooperation in non-trade issues and analyse its implications for global free trade and welfare. We find that such PTAs increase the cost of multilateral tariff reductions and thus cause a stumbling block to global free trade. This occurs because multilateral tariff reductions decrease the threat that can be used in PTAs and thus the surplus that can be extracted from them. By explicitly modelling the interaction between preferential and multilateral negotiations, we derive a testable prediction and provide novel econometric evidence that supports the model's key prediction. The welfare analysis shows that the current World Trade Organization rules allowing this type of PTAs may be optimal for economically large countries, thus the model can predict the rules we observe. We also analyse alternative rules that constitute a Pareto improvement. Copyright 2007 The Review of Economic Studies Limited.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Review of Economic Studies.
Volume (Year): 74 (2007)
Issue (Month): 3 (07)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0034-6527
Other versions of this item:
- Nuno Limão, 2002. "Are Preferential Trade Agreements with Non-trade Objectives a Stumbling Bloc for Multilateral Liberalization?," International Trade 0206001, EconWPA.
- Lim“o, Nuno, 2002. "Are Preferential trade Agreements with Non-trade Objectives a Stumbling Block for Multilateral Liberalization?," Royal Economic Society Annual Conference 2002 129, Royal Economic Society.
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
- F15 - International Economics - - Trade - - - Economic Integration
- F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
- H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
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