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Multilateral Tariff Cooperation During the Formation of Regional Free Trade Areas

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  • Bagwell, K.
  • Staiger, R.W.

Abstract

We explore the impact of the formation of regional free trade agreements on the ability of countries to maintain low cooperative multilateral tariffs. We assume that countries can not make binding international commitments, but are instead limited to self-enforcing arrangements. Specifically, we model cooperation in multilateral trade policy as involving a constant balance between, on the one hand, the gains from deviating unilaterally from an agreed-upon trade policy, and on the other, the discounted expected future benefits of maintaining multilateral cooperation, with the understanding that the latter would be forfeited in the trade war which followed a unilateral defection in pursuit of the former. In this context, we explore the way in which the formation of regional free trade agreements upsets the balance between current and future conditions, and trace through the dynamic ramifications of these effects for multilateral cooperation. Our results suggest that the emergence of regional free trade areas will be accompanied by a temporary retreat from liberal multilateral trade policies. Eventually, however, as the full impact of the emerging free trade agreement on multilateral trade patterns is felt, the initial balance between current and expected future conditions tends to reemerge, and liberal multilateral trade policies can be restored.
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  • Bagwell, K. & Staiger, R.W., 1994. "Multilateral Tariff Cooperation During the Formation of Regional Free Trade Areas," Working papers 9403, Wisconsin Madison - Social Systems.
  • Handle: RePEc:att:wimass:9403
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    1. Bagwell, Kyle & Staiger, Robert W., 1997. "Multilateral tariff cooperation during the formation of customs unions," Journal of International Economics, Elsevier, vol. 42(1-2), pages 91-123, February.
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    Cited by:

    1. Frankel, Jeffrey A. & Wei, Shang-Jin, 1995. "European Integration and the Regionalization of World Trade and Currencies: The Economics and the Politics," Center for International and Development Economics Research (CIDER) Working Papers 233413, University of California-Berkeley, Department of Economics.
    2. 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.
    3. Winters, L. Alan, 1996. "Regionalism versus Multilateralism," CEPR Discussion Papers 1525, C.E.P.R. Discussion Papers.
    4. Eduardo Fernández-Arias & Mark M. Spiegel, 1997. "Uniones aduaneras norte-sur y movilidad internacional del capital," Research Department Publications 4061, Inter-American Development Bank, Research Department.
    5. Carlo Perroni & John Whalley, 2000. "The new regionalism: trade liberalization or insurance?," Canadian Journal of Economics, Canadian Economics Association, vol. 33(1), pages 1-24, February.
    6. Fernandez-Arias, Eduardo & Spiegel, Mark M., 1998. "North-South customs unions and international capital mobility," Journal of International Economics, Elsevier, vol. 46(2), pages 229-251, December.
    7. Conconi, Paola, 2000. "Trade Bloc Formation Under Imperfect Competition," Economic Research Papers 269342, University of Warwick - Department of Economics.
    8. Baldwin, Richard, 2008. "Big-Think Regionalism: a Critical Survey," CEPR Discussion Papers 6874, C.E.P.R. Discussion Papers.
    9. Kyle Bagwell & Robert W. Staiger, 1997. "Regionalism and Multilateral Tariff Cooperation," NBER Working Papers 5921, National Bureau of Economic Research, Inc.
    10. Levy, Philip I., 1999. "Lobbying and international cooperation in tariff setting," Journal of International Economics, Elsevier, vol. 47(2), pages 345-370, April.
    11. Lisandro Abrego & Carlo Perroni & John Whalley & Randall M. Wigle, 2001. "Trade and Environment: Bargaining Outcomes from Linked Negotiations," Review of International Economics, Wiley Blackwell, vol. 9(3), pages 414-428, August.
    12. Ben Zissimos, 2011. "Why are Trade Agreements Regional?," Review of International Economics, Wiley Blackwell, vol. 19(1), pages 32-45, February.
    13. Conconi, Paola & Perroni, Carlo, 2002. "Issue linkage and issue tie-in in multilateral negotiations," Journal of International Economics, Elsevier, vol. 57(2), pages 423-447, August.
    14. Soamiely Andriamananjara, 2001. "On the size and number of preferential trading arrangements," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 11(3), pages 279-295.
    15. Bhattacharya, Swapan K. & Bhattacharyay, Biswa N., 2007. "An empirical analysis on prospects and challenges of BIMSTEC-Japan trade integration," Journal of Asian Economics, Elsevier, vol. 18(3), pages 509-536, June.
    16. Burbidge, John B. & James A. DePater & Gordon M. Meyers & Abhijit Sengupta, 1997. "A Coalition-Formation Approach to Equilibrium Federations and Trading Blocs," American Economic Review, American Economic Association, vol. 87(5), pages 940-956, December.
    17. Bac, Mehmet & Raff, Horst, 1997. "A theory of trade concessions," Journal of International Economics, Elsevier, vol. 42(3-4), pages 483-504, May.
    18. Bond, Eric W. & Syropoulos, Constantinos, 1996. "The size of trading blocs Market power and world welfare effects," Journal of International Economics, Elsevier, vol. 40(3-4), pages 411-437, May.
    19. Rodney D. Ludema, 1998. "On the Value of Preferential Trade Agreements in Multilateral Negotiations," International Trade 9802003, University Library of Munich, Germany.
    20. Paola Conconi & Carlo Perroni, 2003. "Self-Enforcing International Agreements and Domestic Policy Credibility," CESifo Working Paper Series 988, CESifo.
    21. Carsten Kowalczyk & Donald R. Davis, 1998. "Tariff Phase-Outs: Theory and Evidence from GATT and NAFTA," NBER Chapters, in: The Regionalization of the World Economy, pages 227-258, National Bureau of Economic Research, Inc.
    22. Piazolo, Daniel, 1995. "The impact of regionalism on the multilateral trading order: French tariff bargaining in the Uruguay Round," Kiel Working Papers 705, Kiel Institute for the World Economy (IfW).
    23. Dinopoulos, Elias & Syropoulos, Constantinos, 1997. "Tariffs and Schumpeterian growth," Journal of International Economics, Elsevier, vol. 42(3-4), pages 425-452, May.

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    More about this item

    Keywords

    trade policy;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration

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