On the Relationship between Preferential and Multilateral Trade Liberalization: The Case of Customs Unions

Kamal Saggi (k.saggi@vanderbilt.edu), Alan Woodland and Halis Yildiz

No 1116, Vanderbilt University Department of Economics Working Papers from Vanderbilt University Department of Economics

Abstract: This paper analyzes a game of trade policy (called Bilateralism) between three countries in which each country chooses whether to liberalize trade preferentially in the form of a Customs Union (CU), multilaterally, or not at all. We also analyze a restricted version of this game (called Multilateralism) under which countries do not have the option to form CUs. The analysis sheds light on the relationship between multilateral and preferential trade liberalization as sanctioned by GATT Article XXIV. We find that when countries have symmetric endowments, global free trade can be achieved without permitting CUs. Allowing for asymmetry, we isolate circumstances where Article XXIV helps further the cause of multilateral liberalization as well as when it does not. Furthermore, we show that Article XXIV's stipulation -- that countries forming a CU not raise tariffs on outsiders -- fails to make multilateral liberalization any more attractive to countries. However, such a tariff restriction does lower the adverse impact of a CU on the non-member.

Keywords: Customs Unions; preferential trade agreements; multilateral trade liberalization; GATT; WTO (search for similar items in EconPapers)
JEL-codes: F12 F13 (search for similar items in EconPapers)
Date: 2011-09
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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http://www.accessecon.com/pubs/VUECON/vu11-w16.pdf First version, September 2011 (application/pdf)

Related works:
Chapter: On the Relationship between Preferential and Multilateral Trade Liberalization: The Case of Customs Unions (2018)
Journal Article: On the Relationship between Preferential and Multilateral Trade Liberalization: The Case of Customs Unions (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:van:wpaper:1116

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