External trade diversion, exclusion incentives and the nature of preferential trade agreements

Paul Missios, Kamal Saggi () and Halis Yildiz

Chapter 10 in Economic Analysis of the Rules and Regulations of the World Trade Organization, 2018, pp 223-237 from World Scientific Publishing Co. Pte. Ltd.

Abstract: In a game of endogenous trade agreements between three countries, we show that while the pursuit of customs unions (CUs) prevents global free trade from emerging as a coalition-proof Nash equilibrium, the pursuit of free trade agreements (FTAs) does not. This result reflects the relatively flexible nature of FTAs: whereas each FTA member can independently undertake further trade liberalization with respect to the non-member, CU members must do so as a group due to their common external tariff. By diverting members’ exports away from the non-member, both types of trade agreements induce the non-member to voluntarily lower its import tariffs.

Keywords: Multilateral Trading System; Trade Agreements; Trade Liberalization; International Tariff Cooperation; WTO Disputes; Case Studies (search for similar items in EconPapers)
JEL-codes: F13 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (6)

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Related works:
Journal Article: External trade diversion, exclusion incentives and the nature of preferential trade agreements (2016)
Working Paper: External Trade Diversion, Exclusion Incentives and the Nature of Preferential Trade Agreements (2015)
Working Paper: External Trade Diversion, Exclusion Incentives and the Nature of Preferential Trade Agreements (2015)
Working Paper: External Trade Diversion, Exclusion Incentives and the Nature of Preferential Trade Agreements (2014)
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