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Multilateralisation of Preferences versus Reciprocity when FTAs are Underutilized

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  • Jayant Menon

Abstract

type="main" xml:id="twec12203-abs-0001"> Most studies worldwide, and all on East Asia on the impact of free trade agreements (FTAs), have assumed full utilisation of preferences. The evidence suggests that this assumption is seriously in error, with the estimated uptake particularly low in East Asia. In this paper, we assume a more realistic utilisation rate in estimating impacts. We find that actual utilisation rates significantly diminish the benefits from preferential liberalisation, but in a non-linear way. Reciprocity is an important motivation for pursuing FTAs over unilateral actions, such as multilateralisation of preferences. We isolate the impact of reciprocity, but find that the additional benefits also depend on utilisation rates. Furthermore, the potential for trade deflection combined with possible retaliatory actions could negatively affect members and non-members. In the absence of Doha, unilateral multilateralism or non-reciprocal multilateralisation of preferences is the practical route that is most likely to deliver the greatest benefits.

Suggested Citation

  • Jayant Menon, 2014. "Multilateralisation of Preferences versus Reciprocity when FTAs are Underutilized," The World Economy, Wiley Blackwell, vol. 37(10), pages 1348-1366, October.
    • Handle: RePEc:bla:worlde:v:37:y:2014:i:10:p:1348-1366
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    File URL: http://hdl.handle.net/10.1111/twec.2014.37.issue-10
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    Cited by:

    1. repec:era:eriabk:2021-impact-of-the-atiga-on-intra-asean-trade is not listed on IDEAS
    2. Hal Hill & Jayant Menon, 2021. "Trade policy in Indonesia and Thailand," The World Economy, Wiley Blackwell, vol. 44(12), pages 3492-3506, December.
    3. Jayant Menon, 2021. "ASEAN’s limited regional Integration spells globalisation, not Failure," Departmental Working Papers 2021-02, The Australian National University, Arndt-Corden Department of Economics.
    4. Prema-chandra Athukorala & Dayaratna Silva, 2019. "The FTA debate in Sri Lanka: Rhetoric and Reality," ASARC Working Papers 2019-03, The Australian National University, Australia South Asia Research Centre.
    5. Prema-chandra Athukorala, 2020. "Free Trade Agreements in the World Trade System: Substance and Semantics," Foreign Trade Review, , vol. 55(1), pages 13-20, February.

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