IDEAS home Printed from https://ideas.repec.org/a/eee/inecon/v79y2009i1p143-159.html
   My bibliography  Save this article

Preferential trading arrangements as strategic positioning

Author

Listed:
  • Seidmann, Daniel J.

Abstract

We analyze a three-country model of trade negotiations in which countries can form bilateral free trade areas, bilateral customs unions or a trilateral preferential trading arrangement, and can continue negotiating after reaching an agreement. In contrast to the literature on multilateral bargaining, the set of agreements can form a (nonpartitional) network, while in contrast to the network literature, players can reach multilateral agreements. Patient enough countries only reach bilateral agreements if insiders gain more than outsiders, which allows them to manipulate the status quo in subsequent negotiations. However, a hub and spoke pattern may then emerge, and insiders then dissipate the advantages of strategic positioning. We also use variants on the model to explain why a US commitment not to bargain bilaterally sustained progress at GATT negotiations, and the rarity of open access preferential trading arrangements.

Suggested Citation

  • Seidmann, Daniel J., 2009. "Preferential trading arrangements as strategic positioning," Journal of International Economics, Elsevier, vol. 79(1), pages 143-159, September.
  • Handle: RePEc:eee:inecon:v:79:y:2009:i:1:p:143-159
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0022-1996(09)00093-2
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Raymond Riezman & John Douglas Wilson, 2013. "Political Reform and Trade Policy," World Scientific Book Chapters,in: International Trade Agreements and Political Economy, chapter 13, pages 201-224 World Scientific Publishing Co. Pte. Ltd..
    2. Richard E. Baldwin, 1997. "The Causes of Regionalism," The World Economy, Wiley Blackwell, vol. 20(7), pages 865-888, November.
    3. Armando Gomes & Philippe Jehiel, 2005. "Dynamic Processes of Social and Economic Interactions: On the Persistence of Inefficiencies," Journal of Political Economy, University of Chicago Press, pages 626-667.
    4. Macho-Stadler & Licun Xue, 2006. "Winners And Losers From The Gradual Formation Of Trading Blocs," Departmental Working Papers 2006-27, McGill University, Department of Economics.
    5. Eric W. Bond & Raymond G. Riezman & Constantinos Syropoulos, 2013. "A strategic and welfare theoretic analysis of free trade areas," World Scientific Book Chapters,in: International Trade Agreements and Political Economy, chapter 8, pages 101-127 World Scientific Publishing Co. Pte. Ltd..
    6. Dutta, Bhaskar & Ghosal, Sayantan & Ray, Debraj, 2005. "Farsighted network formation," Journal of Economic Theory, Elsevier, pages 143-164.
    7. Bagwell, Kyle & Staiger, Robert W., 1997. "Multilateral tariff cooperation during the formation of customs unions," Journal of International Economics, Elsevier, pages 91-123.
    8. Grossman, Gene M & Helpman, Elhanan, 1995. "The Politics of Free-Trade Agreements," American Economic Review, American Economic Association, pages 667-690.
    9. Sang-Seung, Yi, 1996. "Endogenous formation of customs unions under imperfect competition: open regionalism is good," Journal of International Economics, Elsevier, pages 153-177.
    10. Aghion, Philippe & Antras, Pol & Helpman, Elhanan, 2007. "Negotiating free trade," Journal of International Economics, Elsevier, pages 1-30.
    11. Kala Krishna & Anne Krueger, 1995. "Implementing Free Trade Areas: Rules of Origin and Hidden Protection," NBER Working Papers 4983, National Bureau of Economic Research, Inc.
    12. Karacaovali, Baybars & Limão, Nuno, 2008. "The clash of liberalizations: Preferential vs. multilateral trade liberalization in the European Union," Journal of International Economics, Elsevier, pages 299-327.
    13. Kalyan Chatterjee & Bhaskar Dutia & Debraj Ray & Kunal Sengupta, 2013. "A Noncooperative Theory of Coalitional Bargaining," World Scientific Book Chapters,in: Bargaining in the Shadow of the Market Selected Papers on Bilateral and Multilateral Bargaining, chapter 5, pages 97-111 World Scientific Publishing Co. Pte. Ltd..
    14. Mansfield, Edward D., 1992. "The Concentration of Capabilities and International Trade," International Organization, Cambridge University Press, vol. 46(03), pages 731-764, June.
    15. Hideo Konishi & Carsten Kowalczyk & Tomas Sjöström, 2009. "Global Free Trade is in the Core of a Customs Union Game," Review of International Economics, Wiley Blackwell, vol. 17(SI), pages 304-309, May.
    16. Bloch, Francis & Jackson, Matthew O., 2007. "The formation of networks with transfers among players," Journal of Economic Theory, Elsevier, vol. 133(1), pages 83-110, March.
    17. Karacaovali, Baybars & Limao, Nuno, 2005. "The clash of liberalizations : preferential versus multilateral trade liberalization in the European Union," Policy Research Working Paper Series 3493, The World Bank.
    18. Kamal Saggi & Halis Murat Yildiz, 2011. "Bilateral Trade Agreements and the Feasibility of Multilateral Free Trade," Review of International Economics, Wiley Blackwell, vol. 19(2), pages 356-373, May.
    19. Ines Macho-Stadler & Licun Xue, 2007. "Winners and Losers from the Gradual Formation of Trading Blocs," Economica, London School of Economics and Political Science, vol. 74(296), pages 664-681, November.
    20. Antoni Estevadeordal & Caroline Freund & Emanuel Ornelas, 2008. "Does Regionalism Affect Trade Liberalization Toward Nonmembers?," The Quarterly Journal of Economics, Oxford University Press, vol. 123(4), pages 1531-1575.
    21. Syropoulos, Constantinos, 2003. "Rules for the disposition of tariff revenues and the determination of common external tariffs in customs unions," Journal of International Economics, Elsevier, pages 387-416.
    22. Lisandro Abrego & Raymond Riezman & John Whalley, 2013. "How often are propositions on the effects of regional trade agreements theoretical curiosa?," World Scientific Book Chapters,in: International Trade Agreements and Political Economy, chapter 9, pages 129-148 World Scientific Publishing Co. Pte. Ltd..
    23. Richard E. Feinberg, 2003. "The Political Economy of United States' Free Trade Arrangements," The World Economy, Wiley Blackwell, vol. 26(7), pages 1019-1040, July.
    24. C. Fred Bergsten, 1997. "Open Regionalism," The World Economy, Wiley Blackwell, vol. 20(5), pages 545-565, August.
    25. 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.
    26. Richardson, Martin, 1995. "Tariff revenue competition in a free trade area," European Economic Review, Elsevier, vol. 39(7), pages 1429-1437, August.
    27. Aghion, Philippe & Antras, Pol & Helpman, Elhanan, 2007. "Negotiating free trade," Journal of International Economics, Elsevier, pages 1-30.
    28. Bagwell, Kyle & Staiger, Robert W., 2005. "Erratum to Multilateral trade negotiations, bilateral opportunism and the rules of GATT/WTO," Journal of International Economics, Elsevier, pages 268-294.
    29. Sanjeev Goyal & Sumit Joshi, 2006. "Bilateralism And Free Trade," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(3), pages 749-778, August.
    30. Levy, Philip I, 1997. "A Political-Economic Analysis of Free-Trade Agreements," American Economic Review, American Economic Association, vol. 87(4), pages 506-519, September.
    31. Kyle Hyndman & Debraj Ray, 2007. "Coalition Formation with Binding Agreements," Review of Economic Studies, Oxford University Press, vol. 74(4), pages 1125-1147.
    32. Armando Gomes, 2005. "Multilateral Contracting with Externalities," Econometrica, Econometric Society, vol. 73(4), pages 1329-1350, July.
    33. Eric W. Bond & Jee-Hyeong Park, 2002. "Gradualism in Trade Agreements with Asymmetric Countries," Review of Economic Studies, Oxford University Press, vol. 69(2), pages 379-406.
    34. Daniel J. Seidmann & Eyal Winter, 1998. "A Theory of Gradual Coalition Formation," Review of Economic Studies, Oxford University Press, vol. 65(4), pages 793-815.
    35. Panagariya, Arvind & Krishna, Pravin, 2002. "On necessarily welfare-enhancing free trade areas," Journal of International Economics, Elsevier, pages 353-367.
    36. 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.
    37. Bagwell, Kyle & Staiger, Robert W., 2005. "Erratum to "Multilateral trade negotiations, bilateral opportunism and the rules of GATT/WTO" [J. Int. Econ. 63 (1) (2004) 1-29]," Journal of International Economics, Elsevier, pages 267-267.
    38. Ornelas, Emanuel, 2008. "Feasible multilateralism and the effects of regionalism," Journal of International Economics, Elsevier, pages 202-224.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kyle Bagwell & Chad P. Bown & Robert W. Staiger, 2016. "Is the WTO Passé?," Journal of Economic Literature, American Economic Association, pages 1125-1231.
    2. Jin Zhang & Licun Xue & Lei Zu, 2013. "Farsighted free trade networks," International Journal of Game Theory, Springer;Game Theory Society, vol. 42(2), pages 375-398, May.
    3. David Vines & Monika Mrazova, 2008. "Is the WTO's Article XXIV Bad?," Economics Series Working Papers 417, University of Oxford, Department of Economics.
    4. Lake, James & Yildiz, Halis M., 2016. "On the different geographic characteristics of Free Trade Agreements and Customs Unions," Journal of International Economics, Elsevier, pages 213-233.
    5. Kamal Saggi & Alan Woodland & Halis Murat Yildiz, 2013. "On the Relationship between Preferential and Multilateral Trade Liberalization: The Case of Customs Unions," American Economic Journal: Microeconomics, American Economic Association, vol. 5(1), pages 63-99, February.
    6. Eric Bond, 2009. "Paths of efficient self-enforcing trade agreements," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 41(1), pages 85-104, October.
    7. repec:smu:ecowpa:1403 is not listed on IDEAS
    8. Stoyanov, Andrey & Yildiz, Halis Murat, 2015. "Preferential versus multilateral trade liberalization and the role of political economy," European Economic Review, Elsevier, vol. 80(C), pages 140-164.
    9. Debraj Ray & Rajiv Vohra, 2013. "Coalition Formation," Working Papers 2013-1, Brown University, Department of Economics.
    10. Maggi, Giovanni, 2014. "International Trade Agreements," Handbook of International Economics, Elsevier.
    11. Saggi, Kamal & Wong, Woan Foong & Yildiz, Halis Murat, 2017. "Preferential Trade Agreements and Rules of the Multilateral Trading System," MPRA Paper 76330, University Library of Munich, Germany.
    12. Ben Zissimos, 2011. "Why are Trade Agreements Regional?," Review of International Economics, Wiley Blackwell, vol. 19(1), pages 32-45, February.
    13. Noritsugu Nakanishi, 2011. "Farsightedly Stable FTA Structures," Discussion Papers 1114, Graduate School of Economics, Kobe University.
    14. James Lake, 2016. "Free Trade Agreements as dynamic farsighted networks," Departmental Working Papers 1602, Southern Methodist University, Department of Economics.
    15. Zhang, Jin & Cui, Zhiwei & Zu, Lei, 2014. "The evolution of free trade networks," Journal of Economic Dynamics and Control, Elsevier, vol. 38(C), pages 72-86.
    16. Jeongmeen Suh & Sihoon Nahm & Seung-Gyu Sim, 2016. "The Most Favored Nation Principle: Passive Constraint or Active Commitment?," Korean Economic Review, Korean Economic Association, pages 77-99.
    17. repec:bla:ecinqu:v:55:y:2017:i:1:p:31-50 is not listed on IDEAS
    18. Ray, Debraj & Vohra, Rajiv, 2015. "Coalition Formation," Handbook of Game Theory with Economic Applications, Elsevier.
    19. Mrázová, Monika & Vines, David & Zissimos, Ben, 2013. "Is the GATT/WTO's Article XXIV bad?," Journal of International Economics, Elsevier, pages 216-232.
    20. James Lake, 2016. "Why don't more countries form Customs Unions instead of Free Trade Agreements? The role of flexibility," Departmental Working Papers 1601, Southern Methodist University, Department of Economics.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:inecon:v:79:y:2009:i:1:p:143-159. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/inca/505552 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.