Plurilateral agreements: a promising trade liberalization modality?

In this paper we evaluate the opportunities given by plurilateral agreements (or plurilaterals) in terms of concluding trade liberalization agreements and study the characteristics of “agreeable” plurilaterals: inclusive or exclusive agreements, i.e. inclusion or not of an MFN clause, inclusion of specific trading partners, of specific sectors. We first design a theoretical model of international trade with four countries and four goods, where countries have implemented import duties based on terms-of-trade externalities, to identify the mechanisms by which these types of trade agreement affect members and non-members. Second, we use a static version of a multi-region multi-sector Computable General Equilibrium (CGE) model to evaluate the welfare consequences of 64,770 potential plurilaterals to estimate the number of “agreeable” deals, first because they increase members’ welfare, second because either they are inclusive, or they are exclusive and do not decrease non-members’ welfare. We conclude that the addition of an MFN clause tends to decrease members’ welfare and increase non-members’ welfare. “Agreeable” plurilaterals tend to include the European Union and to cover liberalization of capital goods while they tend to exclude Sub-Saharan Africa and agriculture. Keywords: Plurilateral trade agreements, Most-Favored Nation clause, Computable General Equilibrium model JEL classification: F11, F13, F15