Saggi, Kamal and Wong, Woan Foong and Yildiz, Halis Murat (2017): Preferential Trade Agreements and Rules of the Multilateral Trading System.
Preview |
PDF
MPRA_paper_76330.pdf Download (316kB) | Preview |
Abstract
Preferential trade agreement (PTA) members have to eliminate internal tariffs with each other but are allowed to discriminate against non-members. This can be in potential conflict with the WTO's overall non-discrimination clause. Using a competing exporters model of endogenous trade agreement formation, we study the central rules that govern PTAs. We find that the free trade agreements' (FTAs) requirement to eliminate internal tariffs increases total welfare when circumstances are such that global free trade is infeasible. However, it also reduces the likelihood of reaching global free trade. We also find that the MFN constraint does not just contribute to the achievement of global free trade but also delivers a welfare-superior outcome when global free trade is not possible. Finally, we show that the MFN constraint complements the PTA rules in achieving global free trade for only FTAs but not customs unions (CUs). However, when global free trade is infeasible, the MFN constraint is welfare improving for both types of PTAs. We conclude that while the likelihood of global free trade within the WTO requirements depends on the nature of PTAs, these requirements are necessarily welfare improving in a tariff-ridden world.
Item Type: | MPRA Paper |
---|---|
Original Title: | Preferential Trade Agreements and Rules of the Multilateral Trading System |
Language: | English |
Keywords: | WTO, Coalition proof Nash equilibrium, Free Trade Agreement, Customs Union |
Subjects: | F - International Economics > F1 - Trade > F11 - Neoclassical Models of Trade F - International Economics > F1 - Trade > F12 - Models of Trade with Imperfect Competition and Scale Economies ; Fragmentation |
Item ID: | 76330 |
Depositing User: | Halis Murat Yildiz |
Date Deposited: | 26 Jan 2017 07:28 |
Last Modified: | 01 Oct 2019 03:16 |
References: | Aghion, Philippe, Pol Antràs, and Elhanan Helpman 2007. "Negotiating Free Trade." Journal of International Economics 73: 1-30. Bagwell, Kyle and Robert. W. Staiger, 1999a. "Regionalism and Multilateral Tariff Cooperation." In John Piggott and Allan Woodland, eds, International Trade Policy and the Pacific Rim, London: MacMillan. Bagwell, Kyle and Robert W. Staiger, 1999b. "An Economic Theory of GATT." American Economic Review 89(1): 215-48. Bagwell, Kyle and Robert W. Staiger, 2010. "Backward Stealing and Forward Manipulation in the WTO." Journal of International Economics 82(1): 49-62. Bagwell, Kyle, Chad P. Bown, and Robert W. Staiger, 2016. "Is the WTO Passé?" Journal of Economic Literature 54(4): 1125--1231. Bernheim, Douglas B., Bezalel Peleg and Michael Whinston, 1987. "Coalition-proof Nash Equilibria I. Concepts." Journal of Economic Theory 42: 1-12. Cadot, Olivier, Jaime De Melo, and Marcelo Olarreaga. 1999. "Regional integration and lobbying for tariffs against nonmembers." International Economic Review 40(3): 635-658. Caplin, Andrew, and Kala Krishna, 1998. "Tariffs and the Most Favored Nation Clause: A Game Theoretic Approach." Seoul Journal of Economics 1, 267-289. Choi, Jay P., 1995. "Optimal tariffs and the choice of technology: discriminatory tariffs vs. the most favored nation clause." Journal of International Economics 38: 143-160. Damuri, Yose Rizal, 2012. "How Preferential Are Preferential Trade Agreements? Analysis of Product Exclusions in PTAs." Graduate Institute Centre for Trade and Economic Integration Working Paper, 2012-3. Freund, Caroline 2000. "Multilateralism and the endogenous formation of preferential trade agreements." Journal of International Economics 52(2): 359-376. Freund, Caroline L., and Emanuel Ornelas, 2010. "Regional Trade Agreements." Annual Review of Economics 2: 139-166. Furusawa,Taiji and Hideo Konishi, 2007. "Free Trade Networks." Journal of International Economics 72: 310--335. Goyal, Sanjeev and Sumit Joshi, 2006. "Bilateralism and Free Trade." International Economic Review 47: 749--778. Horn, Henrik and Petros Mavroidis, 2001. "Economic and legal aspects of the Most-Favored-Nation clause." European Journal of Political Economy 17(2) 233-279. Johnson, H.G., 1965. "An economic theory of protectionism, tariff bargaining, and the formation of customs unions." The Journal of Political Economy pp.256-283. Kennan, John and Raymond Riezman, 1990. "Optimal tariff equilibria with customs unions." Canadian Journal of Economics 23(1): 70-83. Krishna, Pravin,1998. "Regionalism and Multilateralism: a Political Economy Approach." Quarterly Journal of Economics 113: 227--251. Lake, James and Halis M. Yildiz, 2016. "On the different geographic characteristics of Free Trade Agreements and Customs Unions", Journal of International Economics 103: 213-233. Liu, Xuepeng. 2010. "Testing Conflicting Political Economy Theories: Full-fledged versus Partial-scope Regional Trade Agreements." Southern Economic Journal 77.1: 78-103. Ludema, R.D. and Mayda, A.M., 2009. "Do countries free ride on MFN?." Journal of international Economics 77(2), pp.137-150. Ludema, R.D. and Mayda, A.M., 2013. "Do terms-of-trade effects matter for trade agreements? Theory and evidence from WTO countries." The Quarterly Journal of Economics 128(4), pp.1837-1893. McCalman, Phil, 2002. "Multilateral trade negotiations and the most favored nation clause." Journal of International Economics 27: 151-176. Missios, Paul, Kamal Saggi and Halis M. Yildiz, 2016. "External Trade Diversion, Exclusion Incentives and the Nature of Preferential Trade Agreements." Journal of International Economics 99: 105-119. Olarreaga, M. and Soloaga, I., 1998. "Endogenous tariff formation: the case of Mercosur." World Bank Economic Review, 12(2): 297-320. Ornelas, Emanuel, 2005a. "Trade Creating Free Trade Areas and the Undermining of Multilateralism." European Economic Review 49: 1717-1735. Ornelas, Emanuel, 2005b. "Rent Destruction and the Political Viability of Free Trade Agreements." Quarterly Journal of Economics 120: 1475-1506. Ornelas, Emanuel. 2007. "Exchanging market access at the outsiders' expense: the case of customs unions." Canadian Journal of Economics 40.1: 207-224. Richardson, Martin, 1993. "Endogenous protection and trade diversion." Journal of International Economics 34(3-4), pp.309-324. Richardson, Martin, 1995. "Tariff revenue competition in a free trade area." European Economic Review 39(7), pp.1429-1437. Saggi, Kamal, 2004. "Tariffs and the most favored nation clause." Journal of International Economics 63(2), 341-368. Saggi, Kamal, 2009. "The MFN Clause, Welfare, and Multilateral Cooperation between Countries of Unequal Size." Journal of Development Economics 88: 132-143. Saggi, Kamal and Halis M. Yildiz, 2010. "Bilateralism, Multilateralism, and the Quest for Global Free Trade." Journal of International Economics 81: 26-37. Saggi, Kamal and Halis M. Yildiz, 2011. "Bilateral Trade Agreements and the Feasibility of Multilateral Free Trade." Review of International Economics 19 (2): 356-373. Saggi, Kamal, Alan Woodland and Halis M. Yildiz, 2013. "On the Relationship between Preferential and Multilateral Trade Liberalization: The Case of Customs Unions." American Economic Journal: Microeconomics 5(1): 63-99. Seidmann, Daniel, 2009. "Preferential Trading Arrangements as Strategic Positioning." Journal of International Economics 79: 143--159. Stoyanov, Andrey and Halis M. Yildiz, (2015). "Preferential versus Multilateral Trade Liberalization and the Role of Political Economy." European Economic Review 80: 140-164. Wong, Woan Foong, 2016. "The Free Rider Effect and Market Power in Trade Agreements." Working Paper. WTO. 2011. "World Trade Report 2011: The WTO and Preferential Trade Agreements: From Co-Existence to Coherence." Geneva: WTO. Yi, Sang-Seung, 1996. "Endogenous formation of customs unions under imperfect competition: open regionalism is good." Journal of International Economics 41(1), pp.153-177. |
URI: | https://mpra.ub.uni-muenchen.de/id/eprint/76330 |