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RTAs Formation and Trade Policy

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  • Davide Sala

Abstract

From the mid-60s to the mid-80s there has been a gradual but fundamental change in the nature of trade protection. International trade has become increasingly restricted by quotas and other nontariff barriers, as the level of tariffs have fallen and governments have devised other forms of protection for sectors facing increased foreign competition. The paper shows such non-tariff barriers have very different effects and implications from tariff for the welfare outcome of a regional integration agreement. Indeed, binding quotas, differently from tariffs, succeed to preserve the trade volumes with the rest of the world, and lead to welfare improving customs unions and free trade areas since trade between the partners is not expanded at the expense of trade with the outside world. By relating the existence of welfare enhancing regional integration to the systematic change in the type of trade policy conducted by most countries, this paper emphasizes that the desirability of piecemeal reforms has increased through time and justifies a renewed and grown policy interest in preferential trade in the 90s, when NTBs had a greater weight in trade policies. This can contribute to explain the spurt of regionalism observed in the data.

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Bibliographic Info

Paper provided by European University Institute in its series Economics Working Papers with number ECO2007/59.

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Date of creation: 2007
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Handle: RePEc:eui:euiwps:eco2007/59

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Keywords: Regional Integration Agreements; Tariffs; Volume quotas;

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  1. Chang, Won & Winters, L. Alan, 1999. "How Regional Blocs Affect Excluded Countries: The Price Effects of MERCOSUR," CEPR Discussion Papers 2179, C.E.P.R. Discussion Papers.
  2. Fernández, Raquel, 1997. "Returns to Regionalism: An Evaluation of Non-traditional Gains from RTAs," CEPR Discussion Papers 1634, C.E.P.R. Discussion Papers.
  3. Robert C. Feenstra & Tracy R. Lewis, 1987. "Negotiated Trade Restrictions with Private Political Pressure," NBER Working Papers 2374, National Bureau of Economic Research, Inc.
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  5. Frankel, Jeffrey A & Stein, Ernesto & Wei, Shang-Jin, 1996. "Regional Trading Arrangements: Natural or Supernatural," American Economic Review, American Economic Association, vol. 86(2), pages 52-56, May.
  6. Bagwell,K. & Staiger,R.W., 1998. "An economic theory of GATT," Working papers 15, Wisconsin Madison - Social Systems.
  7. Daniel Trefler, 2006. "The Long and Short of the Canada-U.S. Free Trade Agreement," STICERD - Economics of Industry Papers 41, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  8. Jiandong Ju & Kala Krishna, 2000. "Evaluating trade reform with many consumers," Canadian Journal of Economics, Canadian Economics Association, vol. 33(3), pages 787-798, August.
  9. de Melo, Jaime & Panagariya, Arvind & Rodrik, Dani, 1993. "The new regionalism : a country perspective," Policy Research Working Paper Series 1094, The World Bank.
  10. Frankel, Jeffrey A. & Stein, Ernesto & Wei, Shang-Jin, 1996. "Regional Trading Arrangements," Center for International and Development Economics Research, Working Paper Series qt5hf1z4rv, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
  11. 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.
  12. Ju, Jiandong & Krishna, Kala, 2000. "Welfare and market access effects of piecemeal tariff reform," Journal of International Economics, Elsevier, vol. 51(2), pages 305-316, August.
  13. Markusen, James R. & Melvin, James R. & Maskus, Keith E. & Kaempfer, William, 1995. "International trade: theory and evidence," MPRA Paper 21989, University Library of Munich, Germany.
  14. Bagwell, Kyle & Staiger, Robert W., 2004. "Multilateral trade negotiations, bilateral opportunism and the rules of GATT/WTO," Journal of International Economics, Elsevier, vol. 63(1), pages 1-29, May.
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