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Multilateral Tariff Cooperation During the Formation of Customs Unions

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  • Bagwell, K.
  • Staiger, R.W.

Abstract

We study the implications of customs union formation for multilperation. We model copperation in multilateral trade policy as self-enforcing, in that it involves balancing the current gains from deviating unilaterally from an agreed-upon trade policy against the future losses from forfeiting the benefits of multilateral cooperation that such a unilateral defection would imply. The early stages of the process union formation are shown to alter this dynamic incentive constraint in a way that leads to a temporary "honeymoon" for liberal multilateral trade policies. We find, however, that the harmony between customs unions and multilateral liberalization is temporary: Eventually, as the full impact of the emerging customs union becomes felt, a less favorable balance between current and future conditions reemerges, and the liberal multilateral polices of the honeymoon phase cannot be sustained. We argue that this is compatible with the evolving implications of the formation of the European Community customs union for the ability to sustain liberal multilateral trade policies under the General Agreement on Tariffs and Trade.
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Suggested Citation

  • Bagwell, K. & Staiger, R.W., 1994. "Multilateral Tariff Cooperation During the Formation of Customs Unions," Working papers 9404, Wisconsin Madison - Social Systems.
  • Handle: RePEc:att:wimass:9404
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    References listed on IDEAS

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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.
    2. Bond, E.W. & Syropoulos, C., 1993. "Trading Blocs and the Sustainability of Inte-regional Cooperation," Papers 5-93-3, Pennsylvania State - Department of Economics.
    3. Bagwell, Kyle & Staiger, Robert W, 1997. "Multilateral Tariff Cooperation during the Formation of Free Trade Areas," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(2), pages 291-319, May.
    4. Kowalczyk, Carsten & Sjostrom, Tomas, 1994. "Bringing GATT into the Core," Economica, London School of Economics and Political Science, vol. 61(243), pages 301-317, August.
    5. Bond, E.W. & Syropoulos, C., 1993. "Trading Blocs and the Sustainability of Inte-regional Cooperation," Papers 5-93-3, Pennsylvania State - Department of Economics.
    6. Bagwell, K. & Staiger, R.W., 1996. "Reciprocal Trade Liberalization," Working papers 9602, Wisconsin Madison - Social Systems.
    7. Anne O. Krueger, 1993. "Free Trade Agreements as Protectionist Devices: Rules of Origin," NBER Working Papers 4352, National Bureau of Economic Research, Inc.
    8. 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.
    9. Bond, E.W. & Syropoulos, C., 1993. "Optimality and Stability of Regional Trading Blocs," Papers 5-93-2, Pennsylvania State - Department of Economics.
    10. Bond, E.W. & Syropoulos, C., 1993. "Optimality and Stability of Regional Trading Blocs," Papers 5-93-2, Pennsylvania State - Department of Economics.
    11. 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.
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    13. Arndt, Sven W, 1969. "Customs Union and the Theory of Tariffs," American Economic Review, American Economic Association, vol. 59(1), pages 108-118, March.
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    More about this item

    Keywords

    customs unions ; trade policy;

    JEL classification:

    • F1 - International Economics - - Trade
    • F2 - International Economics - - International Factor Movements and International Business

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