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The Clash of Liberalizations: Preferential versus Multilateral Trade Liberalization in the European Union

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  • Baybars Karacaovali

    (Fordham University, Department of Economics)

  • Nuno Limao

    (University of Maryland, Department of Economics; NBER; CEPR)

Abstract

Preferential trade agreements (PTAs) are characterized by liberalization with respect to only a few partners and thus they can potentially clash with, and retard multilateral trade liberalization (MTL). Yet there is almost no systematic evidence on whether the numerous existing PTAs actually affect MTL. We provide a model showing that PTAs hinder MTL unless they entail accession to a customs union with internal transfers. Using product-level tariffs negotiated by the European Union (EU) in the last two multilateral trade rounds we find that several of its PTAs have clashed with its MTL. However, this effect is absent for EU accessions. Moreover, we provide new evidence on the political economy determinants of trade policy in the EU.

Suggested Citation

  • Baybars Karacaovali & Nuno Limao, 2008. "The Clash of Liberalizations: Preferential versus Multilateral Trade Liberalization in the European Union," Fordham Economics Discussion Paper Series dp2008-02, Fordham University, Department of Economics.
    • Handle: RePEc:frd:wpaper:dp2008-02
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    Cited by:

    1. Kyle Handley & Nuno Limão, 2018. "Trade and Investment under Policy Uncertainty: Theory and Firm Evidence," World Scientific Book Chapters, in: Policy Externalities and International Trade Agreements, chapter 4, pages 89-122, World Scientific Publishing Co. Pte. Ltd..
    2. Calvo-Pardo, Hector & Freund, Caroline & Ornelas, Emanuel, 2009. "The ASEAN Free Trade Agreement: impact on trade flows and external trade barriers," LSE Research Online Documents on Economics 28602, London School of Economics and Political Science, LSE Library.
    3. Baybars Karacaovali, 2016. "Trade-diverting free trade agreements, external tariffs, and feasibility," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 25(1), pages 1-22, February.
    4. Caroline Freund, 2010. "Third‐country Effects of Regional Trade Agreements," The World Economy, Wiley Blackwell, vol. 33(11), pages 1589-1605, November.
    5. Takumi Naito, 2021. "Trade diversion is reversed in the long run," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 39, pages 202-219, January.
    6. 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.
    7. Baybars Karacaovali & Deveraux Talagi, 2017. "International Trade Effects of Trans-Pacific Partnership for North America," Working Papers 201701, University of Hawaii at Manoa, Department of Economics.
    8. Baybars Karacaovali, 2015. "Varying Political Economy Weights of Protection: The Case of Colombia," Economics and Politics, Wiley Blackwell, vol. 27(2), pages 290-312, July.
    9. Natália Barbosa & Maria Helena Guimarães & Ana Paula Faria, 2017. "Single Market Non-Compliance: How Relevant Is The Institutional Setting?," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 62(05), pages 1115-1135, December.
    10. Kyle Bagwell & Chad P. Bown & Robert W. Staiger, 2016. "Is the WTO Passé?," Journal of Economic Literature, American Economic Association, vol. 54(4), pages 1125-1231, December.
    11. Ornelas, Emanuel & Tovar, Patricia, 2022. "Intra-bloc tariffs and preferential margins in trade agreements," Journal of International Economics, Elsevier, vol. 138(C).
    12. Sajal Lahiri & Peri Silva, 2016. "Potential Pareto-Improving Move Toward Most Favored Nation Tariffs," Economic Inquiry, Western Economic Association International, vol. 54(2), pages 1086-1104, April.
    13. Seidmann, Daniel J., 2009. "Preferential trading arrangements as strategic positioning," Journal of International Economics, Elsevier, vol. 79(1), pages 143-159, September.
    14. Hayakawa, Kazunobu, 2017. "Asymmetric tariff pass-through to trade prices," IDE Discussion Papers 631, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    15. Patricia Tovar, 2014. "External tariffs under a free-trade area," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 23(5), pages 656-681, August.
    16. Kuenzel, David J. & Sharma, Rishi R., 2021. "Preferential trade agreements and MFN tariffs: Global evidence," European Economic Review, Elsevier, vol. 138(C).
    17. 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.
    18. 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.
    19. Tabakis, Chrysostomos & Zanardi, Maurizio, 2019. "Preferential trade agreements and antidumping protection," Journal of International Economics, Elsevier, vol. 121(C).
    20. Bown,Chad P. & Crowley,Meredith A & Bown,Chad P. & Crowley,Meredith A, 2016. "The empirical landscape of trade policy," Policy Research Working Paper Series 7620, The World Bank.
    21. 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.
    22. Safet KURTOVIC & Blerim HALILI & Nehat MAXHUNI, 2017. "The effect of preferential tariffs of the EU: Some evidence from B&H," Journal of Economics and Political Economy, KSP Journals, vol. 4(3), pages 247-262, September.
    23. Paul Missios & Halis Murat Yildiz, 2017. "Do SouthSouth preferential trade agreements undermine the prospects for multilateral free trade?," Canadian Journal of Economics, Canadian Economics Association, vol. 50(1), pages 111-161, February.
    24. Tarlok Singh, 2010. "Does International Trade Cause Economic Growth? A Survey," The World Economy, Wiley Blackwell, vol. 33(11), pages 1517-1564, November.
    25. 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.

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    More about this item

    Keywords

    Preferential trade agreements; customs unions; multilateral trade negotiations; MNF tariff concessions; reciprocity;
    All these keywords.

    JEL classification:

    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration

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