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Regionalism and Multilateral Tariff Cooperation

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  • Kyle Bagwell
  • Robert W. Staiger

Abstract

We consider a 3 country world in which each country's import market is served by competing exporters from its 2 trading partners. We assume that weak multilateral enforcement mechanisms prevent governments from implementing efficient trade policies through a multilateral agreement requiring tariffs to conform to the most-favored-nation (MFN) principle. We then ask whether ex- ceptions from MFN for the purpose of forming preferential agreements can lead to lower external tariffs, and thereby to a more efficient tariff structure under the multilateral agreement. We identify 3 opposing effects of prefer- ential agreements on the multilateral tariff structure in this setting. The tariff complementarity effect works to reduce the desired external tariffs of countries that join together in a preferential agreement. Two additional effects of preferential agreements arise only when enforcement issues at the multilateral level are considered. One of these, the punishment effect, weakens the ability of the member countries of a preferential agreement to punish deviations from the multilateral agreement thereby interfering with the ability of countries to sustain low tariffs under the multilateral agreement. The tariff discrimination effect lets countries to discriminate against those who would external tariffs of countries that join together in a preferential agreement. The relative strengths of these 3 effects determine the impact of a prefer- ential agreement on the tariff structure under the multilateral agreement. Our findings suggest that preferential agreements can have their most desirable effects on the multilateral system when the degree of multilateral cooperation is low.

Suggested Citation

  • Kyle Bagwell & Robert W. Staiger, 1997. "Regionalism and Multilateral Tariff Cooperation," NBER Working Papers 5921, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:5921
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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. Bagwell, K. & Staiger, R.W., 1996. "Reciprocal Trade Liberalization," Working papers 9602, Wisconsin Madison - Social Systems.
    3. 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.
    4. Kyle Bagwell & Robert W. Staiger, 1993. "Multilateral Tarriff Cooperation During the Formation of Regional Free Trade Areas," NBER Working Papers 4364, National Bureau of Economic Research, Inc.
    5. Bond, E. & Syropoulos, C., 1993. "Trading Blocs and the Sustainability of Inter-Regional Cooperation," Discussion Papers 93-17, Department of Economics, University of Birmingham.
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    Citations

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    Cited by:

    1. Mohammad Amin, 2004. "Time Inconsistency of Trade Policy and Multilateralism," International Trade 0402002, EconWPA.
    2. Nuno Limão & Marcelo Olarreaga, 2006. "Trade Preferences to Small Developing Countries and the Welfare Costs of Lost Multilateral Liberalization," World Bank Economic Review, World Bank Group, vol. 20(2), pages 217-240.
    3. 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.
    4. Horn, Henrik & Mavroidis, Petros C., 2001. "Economic and legal aspects of the Most-Favored-Nation clause," European Journal of Political Economy, Elsevier, vol. 17(2), pages 233-279, June.
    5. Baldwin, Richard, 2008. "Big-Think Regionalism: a Critical Survey," CEPR Discussion Papers 6874, C.E.P.R. Discussion Papers.
    6. Jung Hur, 2001. "Welfare Implications of Regionalism in the GATT," Departmental Working Papers wp0111, National University of Singapore, Department of Economics.
    7. Matthew Haag & Roger Lagunoff, 2006. "Social Norms, Local Interaction, And Neighborhood Planning ," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(1), pages 265-296, February.
    8. Bagwell, Kyle & Staiger, Robert W., 2010. "Backward stealing and forward manipulation in the WTO," Journal of International Economics, Elsevier, vol. 82(1), pages 49-62, September.
    9. Antoni Estevadeordal & Caroline Freund & Emanuel Ornelas, 2008. "Does Regionalism Affect Trade Liberalization Toward Nonmembers?," The Quarterly Journal of Economics, Oxford University Press, vol. 123(4), pages 1531-1575.
    10. Robert W. Staiger & Kyle Bagwell, 1999. "An Economic Theory of GATT," American Economic Review, American Economic Association, vol. 89(1), pages 215-248, March.
    11. Kyle Bagwell & Robert W. Staiger, 2000. "GATT-Think," NBER Working Papers 8005, National Bureau of Economic Research, Inc.
    12. Raquel Fernandez, 1997. "Returns to Regionalism: An Evaluation of Non-Traditional Gains from RTAs," NBER Working Papers 5970, National Bureau of Economic Research, Inc.
    13. 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.
    14. Karacaovali, Baybars & Limao, Nuno, 2005. "The clash of liberalizations : preferential versus multilateral trade liberalization in the European Union," Policy Research Working Paper Series 3493, The World Bank.
    15. Caroline L. Freund, 1998. "Multilateralism and the endogenous formation of PTAs," International Finance Discussion Papers 614, Board of Governors of the Federal Reserve System (U.S.).
    16. Saggi, Kamal & Yildiz, Halis Murat, 2010. "Bilateralism, multilateralism, and the quest for global free trade," Journal of International Economics, Elsevier, vol. 81(1), pages 26-37, May.
    17. Mai, Joseph & Stoyanov, Andrey, 2018. "Tariff Cooperation in Free Trade Areas," MPRA Paper 84398, University Library of Munich, Germany.
    18. Fernandez, Raquel, 1997. "Returns to regionalism : an evaluation of nontraditional gains from regional trade agreements," Policy Research Working Paper Series 1816, The World Bank.
    19. Freund, Caroline, 2000. "Multilateralism and the endogenous formation of preferential trade agreements," Journal of International Economics, Elsevier, vol. 52(2), pages 359-376, December.
    20. 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.

    More about this item

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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