Multilateral Tariff Cooperation During the Formation of Customs Unions
55 Pages Posted: 17 Oct 2007 Last revised: 2 Dec 2022
Date Written: November 1993
Abstract
We study the implications of customs union formation for multilateral tariff cooperation. We model cooperation in multilateral trade policy as self-enforcing, in that it involves balancing the current gains from deviating unilaterally from an agreed-upon trade policy against the future losses from forfeiting the benefits of multilateral cooperation that such a unilateral defection would imply. The early stages of the process of customs union formation are shown to alter this dynamic incentive constraint in a way that leads to a temporary 'honeymoon' for liberal multilateral trade policies. We find, however, that the harmony between customs unions and multilateral liberalization is temporary: Eventually, as the full impact of the emerging customs union becomes felt, a less favorable balance between current and future conditions reemerges, and the liberal multilateral policies of the honeymoon phase cannot be sustained. We argue that this is compatible with the evolving implications of the formation of the European Community customs union for the ability to sustain liberal multilateral trade policies under the General Agreement of Tariffs and Trade.
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Multilateral Trade Negotiations, Bilateral Opportunism and the Rules of GATT
By Kyle Bagwell and Robert W. Staiger
-
Political Externalities, Nondiscrimination, and a Multilateral World (Second Version)
-
Economic and Legal Aspects of the Most Favoured Nation Clause
By Henrik Horn and Petros C. Mavroidis
-
By Kyle Bagwell and Robert W. Staiger