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The clash of liberalizations : preferential versus multilateral trade liberalization in the European Union

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  • Karacaovali, Baybars
  • Limao, Nuno

Abstract

There has been an explosion in the number of preferential trade agreements in the past decade. Preferential trade agreements are characterized by liberalization with respect to only a few partners and thus they can potentially clash with and retard multilateral trade liberalization. Despite this important concern with preferential trade agreements, there is almost no systematic evidence on whether they actually affect multilateral trade liberalization. The authors model the effect of preferential trade agreements on multilateral trade liberalization and show that preferential trade agreements slow down multilateral trade liberalization unless they havea common external tariff and allow for internal transfers. Next, they use detailed data on product-level tariffs negotiated by the European Union in the past two multilateral trade rounds to structurally estimate their model. The authors confirm the main prediction-the European Union's preferential trade agreements have clashed with its multilateral trade liberalization--and find that the effect is quantitatively significant. Moreover, they also confirm several auxiliary predictions of the model and provide new evidence on the political economy determinants of multilateral liberalization in the European Union.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3493.

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Date of creation: 01 Jan 2005
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Handle: RePEc:wbk:wbrwps:3493

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Keywords: Economic Theory&Research; Rules of Origin; Export Competitiveness; Environmental Economics&Policies; Trade Policy; Environmental Economics&Policies; Economic Theory&Research; Trade and Regional Integration; Trade Policy; TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT;

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Cited by:
  1. Baybars Karacaovali, 2013. "Trade-Diverting Free Trade Agreements, External Tariffs, and Feasibility," Working Papers 201321, University of Hawaii at Manoa, Department of Economics.
  2. Tobias Ketterer & Daniel Bernhofen & Chris Milner, . "Preferences, Rent Destruction and Multilateral Liberalisation: The Building Block Effect of CUSFTA," Discussion Papers 12/09, University of Nottingham, GEP.
  3. Calvo-Pardo, Hector & Freund, Caroline & Ornelas, Emanuel, 2009. "The ASEAN free trade agreement : impact on trade flows and external trade barriers," Policy Research Working Paper Series 4960, The World Bank.
  4. Seidmann, Daniel J., 2009. "Preferential trading arrangements as strategic positioning," Journal of International Economics, Elsevier, vol. 79(1), pages 143-159, September.
  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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