Preferential Liberalization, Antidumping, and Safeguards: Stumbling Block Evidence from MERCOSUR

Abstract

There is not yet consensus in the trade agreements literature as to whether preferential liberalization leads to more or less multilateral liberalization. However, research thus far has focused mostly on tariff measures of import protection. We develop more comprehensive measures of trade policy that include the temporary trade barrier (TTB) policies of antidumping and safeguards; studies in other contexts have also shown how these policies can erode some of the trade liberalization gains that arise when examining tariffs alone. We examine the experiences of Argentina and Brazil during the formation of the MERCOSUR over 1990–2001, and we find that an exclusive focus on applied tariffs may lead to a mischaracterization of the relationship between preferential liberalization and liberalization toward non‐member countries. First, any “building block” evidence that arises by focusing on tariffs during the period in which MERCOSUR was only a free trade area can disappear once we also include changes in import protection that arise through TTBs. Furthermore, there is also evidence of a “stumbling block” effect of preferential tariff liberalization for the period in which MERCOSUR became a customs union, and this result tends to strengthen upon inclusion of TTBs. Finally, we also provide a first empirical examination of whether market power motives can help explain the patterns of changes to import protection that are observed in these settings.

False friends? Empirical evidence on trade policy substitution in regional trade agreements

“…Blonigen (2005) examines whether a specific NAFTA provision, more precisely its Chapter 19 dispute settlement panel, has contributed to a reduction of US AD and countervailing activity against Canada and Mexico and finds little such evidence. By contrast, Bown and Tovar (2016) provide empirical evidence that MERCOSUR's preferential liberalisation process has led to increased extra-bloc import protection including AD in the case of Argentina and Brazil. In a similar vein, Tabakis and Zanardi (2017) investigate the effects of the negotiation and implementation of PTAs on the use of AD by member countries against non-members but generally find a negative relation in this respect.…”

“…The institutional fundament of RTAs is the substantial and sustainable removal of tariffs between member countries across all sectors, regardless of the participants' preferences (Bown & Tovar, 2016). Tariff concessions are thus likely to be negotiated and granted to fellow member countries even in sectors which country i would have otherwise potentially protected in domestic interest.…”

“…reduction of tariffs, the elimination of intra-bloc tariffs not only occurs gradually, if at all, but the coverage of sectors negotiated as well as the actual extent of tariff cuts in RTAs varies widely (Bown & Tovar, 2016;Estevadeordal, Freund, & Ornelas, 2008). An important and interesting question would therefore be whether in the course of mutual tariff concessions, member countries of RTAs use AD measures more or less frequently against one another as opposed to third countries.…”

“…With the removal of intra-bloc tariffs, temporary trade barriers such as AD appear to be one of the few remaining legitimate tools to restore MFN-like treatment that member countries departed from through the implementation of the RTA (Bown, Karacaovali, & Tovar, 2014). Although Bown and Tovar (2016) argue that the notion of liberalising all trade under the GATT Article XXIV is imprecise, it implements the institutional requirement of decreasing preferential tariffs across all sectors, regardless of a country's preferences. In Section 3, we develop a simple theoretical framework which takes this circumstance into account and argue that RTA members tend to substitute tariffs with AD measures to mitigate the costs associated with preferential tariff reduction.…”

The Impact of PTAs on the Duration of Antidumping Protection

“…The relevance of this issue is also highlighted in the work of Blonigen (2005) who studied the impact of NAFTA on the U.S. AD activity (during the immediate post-NAFTA period), and Bown and Tovar (2016) who investigated the effect of MERCOSUR on temporary trade barriers for Argentina and Brazil. 1 This study takes advantage of two databases developed by the World Bank -the Global Antidumping Database (Bown, 2015) and the Content of Deep Trade Agreements database (Mattoo et al, 2020).…”