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Preferences, rent destruction and multilateral liberalization: The building block effect of CUSFTA

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  • Ketterer, Tobias D.
  • Bernhofen, Daniel
  • Milner, Chris

Abstract

If a free trade agreement (FTA) is characterized by the exchange of market access with a large and competitive trading partner, the agreement can cause a leakage of protectionist benefits to domestic industry from lobbying against external tariff cuts. This rent destruction effect of an FTA can free policy makers to be more aggressive in multilateral tariff cuts. We argue that the Canadian–US free trade agreement (CUSFTA) provides an ideal policy experiment to link this mechanism to the data. Exploring the determinants of Canada's tariff cuts at the 8-digit HS product level, we find that CUSFTA acted as an additional driver of Canadian multilateral tariff reductions during the Uruguay Round.

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  • Ketterer, Tobias D. & Bernhofen, Daniel & Milner, Chris, 2014. "Preferences, rent destruction and multilateral liberalization: The building block effect of CUSFTA," Journal of International Economics, Elsevier, vol. 92(1), pages 63-77.
  • Handle: RePEc:eee:inecon:v:92:y:2014:i:1:p:63-77
    DOI: 10.1016/j.jinteco.2013.10.011
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    Cited by:

    1. Xuepeng Liu & Emanuel Ornelas, 2014. "Free Trade Agreements and the Consolidation of Democracy," American Economic Journal: Macroeconomics, American Economic Association, vol. 6(2), pages 29-70, April.
    2. Crivelli, Pramila, 2016. "Regionalism and falling external protection in high and low tariff members," Journal of International Economics, Elsevier, vol. 102(C), pages 70-84.
    3. Yanase, Akihiko & Tsubuku, Masafumi, 2022. "Trade costs and free trade agreements: Implications for tariff complementarity and welfare," International Review of Economics & Finance, Elsevier, vol. 78(C), pages 23-37.
    4. Chad P. Bown & Patricia Tovar, 2016. "Preferential Liberalization, Antidumping, and Safeguards: Stumbling Block Evidence from MERCOSUR," Economics and Politics, Wiley Blackwell, vol. 28(3), pages 262-294, November.
    5. 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.
    6. Kuenzel, David J. & Sharma, Rishi R., 2021. "Preferential trade agreements and MFN tariffs: Global evidence," European Economic Review, Elsevier, vol. 138(C).
    7. Ketterer, Tobias D. & Bernhofen, Daniel M. & Milner, Chris, 2015. "The impact of trade preferences on multilateral tariff cuts: Evidence for Japan," Journal of the Japanese and International Economies, Elsevier, vol. 38(C), pages 31-51.
    8. Emanuel Ornelas, 2016. "Special and Differential Treatment for Developing Countries," CESifo Working Paper Series 5823, CESifo.
    9. Emanuel Ornelas & Patricia Tovar, 2021. "Intra-bloc tariffs and preferential margins in trade agreements," CEP Discussion Papers dp1791, Centre for Economic Performance, LSE.
    10. Joseph Mai & Andrey Stoyanov, 2015. "The effect of the Canada‐US Free Trade Agreement on Canadian multilateral trade liberalization," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 48(3), pages 1067-1098, August.
    11. Teti, Feodora & Felbermayr, Gabriel & Yalcin, Erdal, 2017. "Free Trade Agreements, Customs Unions In Disguise?," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168243, Verein für Socialpolitik / German Economic Association.
    12. Tobias D. Ketterer, 2015. "EU Regionalism and External Tariff Protection: The Role of Initial Tariffs and the Heterogeneity of Preferential Market Access," Discussion Papers 2015-03, University of Nottingham, GEP.
    13. Gabriel Felbermayr & Feodora Teti & Erdal Yalcin & Gabriel J. Felbermayr, 2018. "On the Profitability of Trade Deflection and the Need for Rules of Origin," CESifo Working Paper Series 6929, CESifo.
    14. Ornelas, Emanuel & Tovar, Patricia, 2022. "Intra-bloc tariffs and preferential margins in trade agreements," Journal of International Economics, Elsevier, vol. 138(C).
    15. Tovar, Patricia, 2019. "Preferential and multilateral liberalization: Evidence from Latin America’s use of tariffs, antidumping and safeguards," Journal of Development Economics, Elsevier, vol. 141(C).
    16. Tobias D. Ketterer, 2015. "Antidumping Use and Its Effect on Trade Liberalization. Evidence for the European Union," Discussion Papers 2015-11, University of Nottingham, GEP.
    17. Nuno Limão, 2016. "Preferential Trade Agreements," NBER Working Papers 22138, National Bureau of Economic Research, Inc.
    18. Ni, Niannian & Liu, Yulin & Zhou, Hui, 2022. "Financial openness, capital rents and income inequality," European Journal of Political Economy, Elsevier, vol. 71(C).

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    More about this item

    Keywords

    Preferences; Rent destruction; Multilateral liberalization; CUSFTA;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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