Preferential Trade Agreements as Stumbling Blocks for Multilateral Trade Liberalization: Evidence for the United States

Abstract

Most countries are members of preferential trade agreements (PTAs). The effect of these agreements has attracted much interest and raised the question of whether PTAs promote or slow multilateral trade liberalization, i.e., whether they are a "building block" or "stumbling block" to multilateral liberalization. Despite this long-standing concern with PTAs and the lack of theoretical consensus, there is no systematic evidence on whether they are actually a stumbling block to multilateral liberalization. We use detailed data on U.S. multilateral tariffs to provide the first systematic evidence that the direct effect of PTAs was to generate a stumbling block to its MTL. We also provide evidence of reciprocity in multilateral tariff reductions. (JEL: D78; F13; F14; F15)

Preferential Trade Agreements and Antidumping Protection

“…Some studies provide evidence in support of a building-block effect of PTAs (e.g., Estevadeordal et al, 2008), whereas others offer evidence showing that PTAs are stumbling blocks towards tariff liberalization at the multilateral level (e.g., Limão, 2006; Karacaovali and Limão, 2008). The paper by Estevadeordal et al (2008), which also makes a distinction between FTAs and CUs, is probably the closest to ours (at least) as far as results are concerned.…”

“…Still, if we were 24 With a 5% threshold, 12 more PTAs, of which one is a CU, are used to compute our main regressors of interest. 25 If we were to reduce the threshold even further to 1%, the estimated coefficients of the key regressors would also be smaller (in absolute terms) and somewhat less significant but the main qualitative results would survive. The only major difference compared with Table 7 would be that the coefficient for the interaction of implemented FTAs and import growth would be positive and statistically significant in column (4).…”

Do countries free ride on MFN?

“…Table 3 shows the effects of changes in the HHI from 1983 to 1993 on changes in final bound tariffs, both specific and ad valorem, between the Tokyo and Uruguay Rounds. 52 The tariff change data is from Limão (2006Limão ( , 2007. We use Tobit to account for the fact that tariff changes are never positive.…”

New Evidence on Preference Utilization

“…This makes it harder to restructure the economy when preferences are removed or eroded over time (Hoekman & Özden, 2005). It has also been noted that preferences create interests opposed to further non-discriminatory liberalization (Limão, 2006;Özden & Reinhardt, 2005). Kleen & Page (2005) note that, overall, preferences have engendered rent transfers to interest groups rather than promoted broad-based industrial development.…”