Preferential Trade Agreements and Multilateral Liberalization

Abstract

Summarizes theoretical and empirical evidence on the relationship between regionalism and multilateralism, with the aim of discerning whether the spread of regionalism is likely to be a threat to, or an opportunity for, broader trade liberalization. Littleevidence supports that regionalism is overwhelmingly bad for themultilateral trade system,while there issome evidence that regionalism is associated with generalliberalization.Four ideal guidelines ensure that regionalism acts as a positive force in the future: (1) bind tariff rates at applied rates, leaving no room for tariff increases following a trade agreement; (2) agree to lower multilateral tariffs partway, through the use of preferential tariffs; (3) redefine North-South agreements to incorporate preferences from the North in response to most favored nation (MFN) liberalization on the part of the South; and (4) keep regional agreements open, extending eligibility to all countries willing to follow the rules.

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