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Did the Multi-fiber Agreement Make the NAFTA Politically More Acceptable? A Theoretical Analysis

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Author Info
Arvind Panagariya (University of Maryland)
Rupa Dutta Gupta (IMF)

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Abstract

The central question addressed in this paper is whether the presence of the MFA made the NAFTA politically more acceptable. Assuming that the government maximizes a weighted sum of welfare and producer profits, we derive four key results. First, taking the initial level of trade restriction as exogenously given, it is possible for an FTA to be endorsed by both parties under the MFA-like quota in one country though it is unambiguously rejected under a tariff that provides equal protection. Second, if the initial MFA quota is itself chosen endogenously, as long as all quota rents accrue to exporting countries, the quota is set so as to yield either autarky or free trade. Third, an intermediate outcome can obtain if quota rents are shared between the trading partners as is true, for example, under a tariff quota. Depending on the degree of the government’s bias in favor of producers, this outcome may be more or less restrictive than that obtained under a tariff. Finally, assuming parameter values that give rise to the intermediate outcome initially, it remains possible for an FTA to be endorsed under the MFA-type quota when it is turned down by one of the potential partners under a tariff. But it is now also possible for the opposite to happen: an FTA that is endorsed under a tariff may be turned down under the MFA-type quota.

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Paper provided by EconWPA in its series International Trade with number 0308010.

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Length: 345 pages
Date of creation: 18 Aug 2003
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Handle: RePEc:wpa:wuwpit:0308010

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F1 - International Economics - - Trade
F2 - International Economics - - International Factor Movements and International Business

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  2. Arvind Panagariya, 2003. "The Regionalism Debate: An Overview," International Trade 0309007, EconWPA. [Downloadable!]
    Other versions:
  3. Cadot, O. & De Melo, J. & Olarreaga, M., 1996. "Regional Integration and Lobbying for Tariffs Against Non-Members," University of Geneva Economics Working Papers 96.07, University of Geneva, Department of Political Economy.
    Other versions:
  4. Bhagwati, Jagdish N & Srinivasan, T N, 1980. "Revenue Seeking: A Generalization of the Theory of Tariffs," Journal of Political Economy, University of Chicago Press, vol. 88(6), pages 1069-87, December. [Downloadable!] (restricted)
  5. Bhagwati, J. & Panagariya, A., 1996. "Preferential Trading Areas and Multilateralism: Strangers, Friends or Foes?," Discussion Papers 1996_09, Columbia University, Department of Economics.
  6. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-50, September. [Downloadable!] (restricted)
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  7. Grossman, G.M. & Helpman, E., 1993. "The Politics of Free Trade Agreements," Papers 14-93, Tel Aviv.
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  8. Bond, Eric W. & Syropoulos, Constantinos, 1996. "The size of trading blocs Market power and world welfare effects," Journal of International Economics, Elsevier, vol. 40(3-4), pages 411-437, May. [Downloadable!] (restricted)
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  11. Pravin Krishna, 1998. "Regionalism And Multilateralism: A Political Economy Approach," The Quarterly Journal of Economics, MIT Press, vol. 113(1), pages 227-250, February. [Downloadable!] (restricted)
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  12. Arvind Panagariya, 2000. "Preferential Trade Liberalization: The Traditional Theory and New Developments," Journal of Economic Literature, American Economic Association, vol. 38(2), pages 287-331, June. [Downloadable!] (restricted)
  13. Bhagwati, Jagdish & Greenaway, David & Panagariya, Arvind, 1998. "Trading Preferentially: Theory and Policy," Economic Journal, Royal Economic Society, vol. 108(449), pages 1128-48, July. [Downloadable!] (restricted)
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  15. Winters, L. Alan, 1996. "Regionalism versus Multilateralism," CEPR Discussion Papers 1525, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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