TY - JOUR
T1 - Intra-bloc tariffs and preferential margins in trade agreements
AU - Ornelas, Emanuel
AU - Tovar, Patricia
N1 - Publisher Copyright:
© 2022 Elsevier B.V.
PY - 2022/9
Y1 - 2022/9
N2 - We study how countries choose intra-bloc tariffs and preferential margins in Preferential Trade Agreements (PTAs). Our model indicates that countries should set systematically lower preferential margins when the bloc takes the form of a free trade area, relative to a customs union. Moreover, in customs unions (but not necessarily in free trade areas) preferential margins should increase with the supply of partner countries and decrease with the level of preferential imports. These relationships reflect, respectively, the internalization of political-economy goals within the bloc and the desire to curb trade diversion. Using a sample that covers most PTAs formed by Latin American countries in the 1990s, we find empirical support for each of those predictions. These findings rationalize why governments often keep intra-bloc duties strictly positive. We show that this tends to worsen the welfare consequences of PTAs, and that requiring the elimination of internal tariffs would be socially desirable.
AB - We study how countries choose intra-bloc tariffs and preferential margins in Preferential Trade Agreements (PTAs). Our model indicates that countries should set systematically lower preferential margins when the bloc takes the form of a free trade area, relative to a customs union. Moreover, in customs unions (but not necessarily in free trade areas) preferential margins should increase with the supply of partner countries and decrease with the level of preferential imports. These relationships reflect, respectively, the internalization of political-economy goals within the bloc and the desire to curb trade diversion. Using a sample that covers most PTAs formed by Latin American countries in the 1990s, we find empirical support for each of those predictions. These findings rationalize why governments often keep intra-bloc duties strictly positive. We show that this tends to worsen the welfare consequences of PTAs, and that requiring the elimination of internal tariffs would be socially desirable.
KW - Article XXIV
KW - Customs unions
KW - Free trade agreements
KW - GATT
KW - Latin America
KW - Regionalism
KW - Tariff complementarity
UR - http://www.scopus.com/inward/record.url?scp=85132518683&partnerID=8YFLogxK
U2 - 10.1016/j.jinteco.2022.103643
DO - 10.1016/j.jinteco.2022.103643
M3 - Article
AN - SCOPUS:85132518683
SN - 0022-1996
VL - 138
JO - Journal of International Economics
JF - Journal of International Economics
M1 - 103643
ER -