Patricia Tovar

Preferential Trade Agreements and Unilateral Liberalization: Evidence from CAFTA

There is no consensus in the literature on whether preferential trade agreements help or hinder trade liberalization toward non-members. We examine the link between preferential trade liberalization and tariffs imposed against non-member countries for the case of CAFTA-DR. Using product data at the 6-digit HS level, we find that products with larger reductions in preferential tariffs experienced larger increases (or smaller decreases) in most-favored nation tariffs applied against non-members. However, we also uncover some interesting dynamics regarding the relationship between preferential liberalization and tariffs imposed against non-members. When we split the sample period into two sub-periods, we find an initial negative relationship between changes in preferential and most-favored nation tariffs during the first half of the sample period, followed by a positive relationship during the second half, although the evidence on the latter is not as strong. The results thus provide the first evidence of an initial stumbling block effect of preferential trade liberalization on unilateral liberalization, as well as (weaker) evidence of a subsequent building block effect.

What Do We Know About Preferential Trade Agreements and Temporary Trade Barriers

Two of the most important trade policy developments to take place since the 1980s are the expansion of preferential trade agreements and temporary trade barriers, such as antidumping, safeguards, and countervailing duties. Despite the empirical importance of preferential trade agreements and temporary trade barriers and the common feature that each can independently have quite discriminatory elements, relatively little is known about the nature of any relationships between them. This paper surveys the literature on some of the political-economic issues that can arise at the intersection of preferential trade agreements and temporary trade barriers and uses four case studies to illustrate variation in how countries apply the World Trade Organizations global safeguards policy instrument. The four examples include recent policies applied by a variety of types of countries and under different agreements: large and small countries, high-income and emerging economies, and free trade areas and customs unions. The analysis reveals important measurement and identification challenges for research that seeks to find evidence of systematic relationships between the formation of preferential trade agreements, the political-economic implications of their implementation, and the use of subsequent temporary trade barriers.

Preferential Liberalization, Antidumping, and Safeguards: Stumbling Block Evidence from MERCOSUR

There is no consensus in the literature on trade agreements as to whether preferential liberalization leads to more or less multilateral liberalization. Research has focused mostly on tariff measures of import protection. We develop more comprehensive measures of trade policy that include the temporary trade barrier (TTB) policies of antidumping and safeguards. Studies in other contexts have similarly shown how these policies can erode some of the trade liberalization gains that appear based on an assessment of tariffs alone. We examine the experiences of Argentina and Brazil during the formation of the Mercosur customs union (1990–2001) and find that an exclusive focus on applied tariffs may lead to a mischaracterization of the relationship between preferential liberalization and liberalization toward nonmember countries. We find that any “building block” evidence associated with a focus on tariffs during the period in which Mercosur was a free trade area can disappear once we include changes in import protection from TTBs. Furthermore, there is evidence of a “stumbling block” effect of preferential tariff liberalization for the period in which Mercosur became a customs union, and this result tends to strengthen upon inclusion of TTBs. Finally, we provide a first empirical examination of whether market power motives can help explain the patterns of changes to import protection that are observed in these settings.

External tariffs under a free-trade area

How do free-trade areas affect the tariffs that member countries impose against non-members? There is no consensus in the literature regarding this important question. In this study, we use a political-economy model of endogenous protection to show that if individual preferences exhibit loss aversion or if the governments objective is characterized by diminishing marginal political support, a free-trade area can lead member countries to increase their external tariffs and thus act as a stumbling block to unilateral liberalization. We also argue that the stumbling block result is more likely to arise under loss aversion than under diminishing marginal political support and confirm this using a simulation. Finally, we show that the stumbling block effect can also take place under multilateral liberalization. Our results highlight a new type of mechanism through which preferential trade agreements may affect external tariffs.

Preferential Liberalization, Antidumping, and Safeguards: 'Stumbling Block' Evidence from Mercosur

There is no consensus in the literature on trade agreements as to whether preferential liberalization leads to more or less multilateral liberalization. Research has focused mostly on tariff measures of import protection. We develop more comprehensive measures of trade policy that include the temporary trade barrier (TTB) policies of antidumping and safeguards. Studies in other contexts have similarly shown how these policies can erode some of the trade liberalization gains that appear based on an assessment of tariffs alone. We examine the experiences of Argentina and Brazil during the formation of the Mercosur customs union (1990–2001) and find that an exclusive focus on applied tariffs may lead to a mischaracterization of the relationship between preferential liberalization and liberalization toward nonmember countries. We find that any “building block�? evidence associated with a focus on tariffs during the period in which Mercosur was a free trade area can disappear once we include changes in import protection from TTBs. Furthermore, there is evidence of a “stumbling block�? effect of preferential tariff liberalization for the period in which Mercosur became a customs union, and this result tends to strengthen upon inclusion of TTBs. Finally, we provide a first empirical examination of whether market power motives can help explain the patterns of changes to import protection that are observed in these settings.