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The Clash of Liberalizations: Preferential versus Multilateral Trade Liberalization in the European Union

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  • Baybars Karacaovali

    (Fordham University, Department of Economics)

  • Nuno Limao

    (University of Maryland, Department of Economics; NBER; CEPR)

Abstract

Preferential trade agreements (PTAs) are characterized by liberalization with respect to only a few partners and thus they can potentially clash with, and retard multilateral trade liberalization (MTL). Yet there is almost no systematic evidence on whether the numerous existing PTAs actually affect MTL. We provide a model showing that PTAs hinder MTL unless they entail accession to a customs union with internal transfers. Using product-level tariffs negotiated by the European Union (EU) in the last two multilateral trade rounds we find that several of its PTAs have clashed with its MTL. However, this effect is absent for EU accessions. Moreover, we provide new evidence on the political economy determinants of trade policy in the EU.

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Bibliographic Info

Paper provided by Fordham University, Department of Economics in its series Fordham Economics Discussion Paper Series with number dp2008-02.

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Date of creation: 2008
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Handle: RePEc:frd:wpaper:dp2008-02

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Web page: http://www.fordham.edu/economics/
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Keywords: Preferential trade agreements; customs unions; multilateral trade negotiations; MNF tariff concessions; reciprocity;

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References

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Citations

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Cited by:
  1. Hector Calvo-Pardo & Caroline Freund & Emanuel Ornelas, 2009. "The ASEAN Free Trade Agreement: Impact on Trade Flows and External Trade Barriers," CEP Discussion Papers dp0930, Centre for Economic Performance, LSE.
  2. Baybars Karacaovali, 2013. "Trade-Diverting Free Trade Agreements, External Tariffs, and Feasibility," Working Papers 201321, University of Hawaii at Manoa, Department of Economics.
  3. Seidmann, Daniel J., 2009. "Preferential trading arrangements as strategic positioning," Journal of International Economics, Elsevier, vol. 79(1), pages 143-159, September.
  4. Tobias Ketterer & Daniel M. Bernhofen & Chris Milner, 2012. "Preferences, Rent Destruction and Multilateral Liberalisation: The Building Block Effect of CUSFTA," CESifo Working Paper Series 3985, CESifo Group Munich.
  5. Nuno Limao, 2006. "Preferential Trade Agreements as Stumbling Blocks for Multilateral Trade Liberalization: Evidence for the United States," American Economic Review, American Economic Association, vol. 96(3), pages 896-914, June.

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