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The effects of free trade areas on non-members: Modelling Kemp-Vanek admissibility

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  • Waschik, Robert

Abstract

A multi-sector multi-country Numerical General Equilibrium model is used to endogenously determine the trade taxes that FTA members need to charge on non-member trade so that after the FTA is formed, FTA-member trade volumes with non-members remain at their pre-FTA level. We apply the notion of Kemp-Vanek admissibility in McMillan [McMillan, J. (1993), Does regional integration foster open trade? Economic theory and GATT's Article XXIV" In Anderson, K. & R. Blackhurst (Eds.), Regional Integration and the Global Trading System. London: Harvester-Wheatsheaf] to construct an FTA which does not make non-members of the FTA worse off, ensuring that the FTA is necessarily a building block and not a stumbling block to global free trade. We implement the path-independent welfare decomposition in Harrison et al. [Harrison, G., Rutherford, T. & Wooton, I. (1993). An alternative welfare decomposition for customs unions. Canadian Journal of Economics, 26(4), 961-68]. Results of such experiments are relevant to the current debate under the WTO's Doha Round of trade negotiations over GATT (1994) Article XXIV which evaluates the consistency of FTAs with the WTO.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Policy Modeling.

Volume (Year): 31 (2009)
Issue (Month): 5 (September)
Pages: 648-663

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Handle: RePEc:eee:jpolmo:v:31:y:2009:i:5:p:648-663

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Web page: http://www.elsevier.com/locate/inca/505735

Related research

Keywords: Endogenous trade taxes Kemp-Vanek admissibility Free trade areas Art.XXIV;

References

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  1. Davis, Donald R., 1997. "Comments on: "A common external tariff of a customs union: Alternative approaches" by T.N. Srinivasan (Japan and the World Economy 9 (1997) 447-465)," Japan and the World Economy, Elsevier, vol. 9(4), pages 467-470, December.
  2. Liu, Jing & Arndt, Channing, 2004. "Parameter Estimation and Measures of Fit in A Global, General Equilibrium Model," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 19, pages 626-649.
  3. Panagariya, Arvind & Krishna, Pravin, 2002. "On necessarily welfare-enhancing free trade areas," Journal of International Economics, Elsevier, vol. 57(2), pages 353-367, August.
  4. Bond, Eric W & Syropoulos, Costas & Winters, L. Alan, 2000. "Deepening of Regional Integration and Multilateral Trade Agreements," CEPR Discussion Papers 2480, C.E.P.R. Discussion Papers.
  5. Richardson, Martin, 1995. "Tariff revenue competition in a free trade area," European Economic Review, Elsevier, vol. 39(7), pages 1429-1437, August.
  6. Kemp, Murray C. & Wan, Henry Jr., 1976. "An elementary proposition concerning the formation of customs unions," Journal of International Economics, Elsevier, vol. 6(1), pages 95-97, February.
  7. Arvind Panagariya, 1999. "The Regionalism Debate: An Overview," The World Economy, Wiley Blackwell, vol. 22(4), pages 477-512, 06.
  8. repec:fth:geneec:96.07 is not listed on IDEAS
  9. Ornelas, Emanuel, 2005. "Trade creating free trade areas and the undermining of multilateralism," European Economic Review, Elsevier, vol. 49(7), pages 1717-1735, October.
  10. Ghosh, Madanmohan & Rao, Someshwar, 2005. "A Canada-U.S. customs union: Potential economic impacts in NAFTA countries," Journal of Policy Modeling, Elsevier, vol. 27(7), pages 805-827, October.
  11. Arvind Panagariya, 2000. "Preferential Trade Liberalization: The Traditional Theory and New Developments," Journal of Economic Literature, American Economic Association, vol. 38(2), pages 287-331, June.
  12. John Kennan & Raymond Riezman, 1990. "Optimal Tariff Equilibria with Customs Unions," Canadian Journal of Economics, Canadian Economics Association, vol. 23(1), pages 70-83, February.
  13. Ghosh, Madanmohan, 2002. "The revival of regional trade arrangements: a GE evaluation of the impact on small countries," Journal of Policy Modeling, Elsevier, vol. 24(2), pages 83-101, May.
  14. Peter J. Lloyd & Donald Maclaren, 2004. "Gains and Losses from Regional Trading Agreements: A Survey," The Economic Record, The Economic Society of Australia, vol. 80(251), pages 445-467, December.
  15. Glenn W. Harrison & Thomas F. Rutherford & Tarr,David, 2003. "Rules of thumb for evaluating preferential trading arrangements : evidence from computable general equilibrium assessments," Policy Research Working Paper Series 3149, The World Bank.
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