Preferences, Rent Destruction and Multilateral Liberalisation: The Building Block Effect of CUSFTA
31 Pages Posted: 7 Nov 2012
Date Written: October 31, 2012
If a free trade agreement (FTA) is characterized by the exchange of market access with a large and competitive trading partner, the agreement can cause a leakage of protectionist benefits to domestic industry from lobbying against external tariff cuts. This rent destruction effect of an FTA can free policy makers to be more aggressive in multi-lateral tariff cuts. We argue that the Canadian-US free trade agreement (CUSFTA) provides an ideal policy experiment to link this mechanism to the data. Exploring the determinants of Canada‘s tariff cuts at the 8 digit HS product level, we find that CUSFTA acted as an additional driver of Canadian multilateral tariff reductions during the Uruguay Round.
Keywords: preferences, rent destruction, multilateral liberalization, CUSFTA
JEL Classification: F130, F140
Suggested Citation: Suggested Citation