Multilateral Tariff Cooperation during the Formation of Free Trade Areas

The authors consider the impact of the formation of free-trade agreements on multilateral tariff cooperation. They assume that countries are limited to self-enforcing multilateral arrangements that balance the gains from deviating against the costs of an ensuing trade war. The authors find that the emergence of free-trade areas will be accompanied by a temporary retreat from liberal multilateral trade policies, as the initial balance supporting multilateral cooperation is upset. Eventually, however, as the full impact of the emerging free-trade agreement on multilateral trade patterns is felt, this initial balance tends to reemerge and liberal multilateral trade policies can be restored. Copyright 1997 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.