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Preferential Trade Agreements And Multilateral Tariff Cooperation

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  • Kamal Saggi

Abstract

Are preferential trade agreements (PTAs) "building" or "stumbling blocks" for multilateral trade liberalization? I address this question in an infinitely repeated tariff game between three countries engaged in intraindustry trade under oligopoly. The central result is that when countries are symmetric, a free trade agreement (FTA) undermines multilateral tariff cooperation by adversely affecting the cooperation incentive of the nonmember whereas a customs union (CU) does so via its effect on the cooperation incentives of members. However, when countries are asymmetric with respect to either market size or cost, there exist circumstances where PTAs facilitate multilateral tariff cooperation. Copyright 2006 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

Suggested Citation

  • Kamal Saggi, 2006. "Preferential Trade Agreements And Multilateral Tariff Cooperation ," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(1), pages 29-57, February.
    • Handle: RePEc:ier:iecrev:v:47:y:2006:i:1:p:29-57
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    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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