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Are Preferential Trade Agreements with Non-trade Objectives a Stumbling Bloc for Multilateral Liberalization?

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Author Info
Nuno Limão (University of Maryland)

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Abstract

Increasingly, in regional agreements, large economies, e.g. U.S. and E.U., offer lower trade barriers in exchange for cooperation by small economies in environmental, intellectual property and other issues. What is the effect of such agreements on multilateral trade liberalization? We show that, even in the absence of trade creation or diversion, such preferential agreements increase the cost of multilateral tariff reductions for the goods exported from small to large countries. This occurs because multilateral tariff reductions decrease the threat that large countries can use in preferential agreements causing a loss in their bargaining power. The result is due to current exceptions in the WTO to the most-favorite-nation rule which allow for lower than MFN tariffs, e.g. art. XXIV and GSP. By explicitly modeling the interaction between preferential and multilateral negotiations we analyze the effects on multilateral tariffs and welfare of strengthening the MFN rule and show that large and small countries may not prefer the same regime of rules.

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Publisher Info
Paper provided by EconWPA in its series International Trade with number 0206001.

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Length: 45 pages
Date of creation: 26 Jun 2002
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Handle: RePEc:wpa:wuwpit:0206001

Note: Type of Document - Acrobat PDF; prepared on PC; pages: 45; figures: included
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Web page: http://129.3.20.41

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Related research
Keywords: Multilateral trade negotiations; most-favorite-nation; regional integration; cross-border externalities; environment; labor standards; bargaining; repeated games.;

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Find related papers by JEL classification:
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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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Madanmohan Ghosh & Carlo Perroni & John Whalley, 1998. "The Value of MFN Treatment," NBER Working Papers 6461, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Horn, Henrik & Mavroidis, Petros C., 2001. "Economic and legal aspects of the Most-Favored-Nation clause," European Journal of Political Economy, Elsevier, vol. 17(2), pages 233-279, June. [Downloadable!] (restricted)
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  3. Wilfred J. Ethier, 1998. "Regionalism in a Multilateral World," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1214-1245, December. [Downloadable!] (restricted)
  4. Bond, Eric W. & Syropoulos, Constantinos & Winters, L. Alan, 2001. "Deepening of regional integration and multilateral trade agreements," Journal of International Economics, Elsevier, vol. 53(2), pages 335-361, April. [Downloadable!] (restricted)
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  5. Carlo Perroni & John Whalley, 1994. "The New Regionalism: Trade Liberalization or Insurance?," NBER Working Papers 4626, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Fernandez, Raquel & Portes, Jonathan, 1998. "Returns to Regionalism: An Analysis of Nontraditional Gains from Regional Trade Agreements," World Bank Economic Review, Oxford University Press, vol. 12(2), pages 197-220, May.
  7. Lisandro Abrego & Carlo Perroni & John Whalley & Randall M. Wigle, 1997. "Trade and Environment: Bargaining Outcomes from Linked Negotiations," NBER Working Papers 6216, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. 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. [Downloadable!] (restricted)
  9. Giovanni Maggi, 1999. "The Role of Multilateral Institutions in International Trade Cooperation," American Economic Review, American Economic Association, vol. 89(1), pages 190-214, March. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Limão, Nuno, 2005. "Preferential Trade Agreements as Stumbling Blocks for Multilateral Trade Liberalization: Evidence for the US," CEPR Discussion Papers 4884, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  2. Kyle Bagwell & Robert W. Staiger, 2004. "Backward stealing and forward manipulation in the WTO," Discussion Papers 0405-06, Columbia University, Department of Economics. [Downloadable!]
    Other versions:
  3. Karacaovali, Baybars & Limão, Nuno, 2005. "The Clash of Liberalizations: Preferential vs. Multilateral Trade Liberalization in the European Union," CEPR Discussion Papers 4973, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  4. Limão, Nuno & Olarreaga, Marcelo, 2005. "Trade Preferences to Small Developing Countries and the Welfare Costs of Lost Multilateral Liberalization," CEPR Discussion Papers 5045, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  5. repec:att:wimass:192049 is not listed on IDEAS
  6. Baybars Karacaovali & Nuno Limao, 2008. "The Clash of Liberalizations: Preferential versus Multilateral Trade Liberalization in the European Union," Fordham Economics Discussion Paper Series dp2008-02, Fordham University, Department of Economics. [Downloadable!]
    Other versions:
  7. Nuno Lim, 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. [Downloadable!]
  8. Ludema, Rodney D & Mayda, Anna Maria, 2005. "Do Countries Free Ride on MFN?," CEPR Discussion Papers 5160, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
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