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Preferential Trade Agreements and Rules of the Multilateral Trading System

Author

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  • Kamal Saggi

    (Department of Economics, Vanderbilt University, Nashville, TN)

  • Woan Foong Wong

    (Department of Economics, University of Oregon, Eugene, Oregon)

  • Halis Murat Yildiz

    (Department of Economics, Ryerson University, Toronto, Canada)

Abstract

In a three-country model of endogenous trade agreements, we study the effects of major WTO rules governing the conduct of free trade agreements (FTAs). We show that FTA members retain positive internal tariffs even if they seek to maximize their joint welfare. Requiring FTAs to eliminate internal tariffs — as stipulated by current WTO rules — makes the non-member better o§ although it simultaneously reduces the likelihood of achieving global free trade by encouraging free-riding on its part. While the WTO’s non-discrimination constraint is not necessarily conducive to reaching global free trade, it raises welfare in a tariff-ridden world.

Suggested Citation

  • Kamal Saggi & Woan Foong Wong & Halis Murat Yildiz, 2017. "Preferential Trade Agreements and Rules of the Multilateral Trading System," Working Papers 067, Ryerson University, Department of Economics.
  • Handle: RePEc:rye:wpaper:wp067
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    References listed on IDEAS

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    Cited by:

    1. Elie Appelbaum & Mark Melatos, 2018. "Are Customs Unions Really So Scarce?," The Economic Record, The Economic Society of Australia, vol. 94(307), pages 391-404, December.

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    More about this item

    Keywords

    Free Trade Agreements; Tariffs; Customs Unions; World Trade Organization; Coalition proof Nash equilibrium; Welfare;
    All these keywords.

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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