FTA Trade in Goods Agreements: 'Entrenching' the Benefits of Reciprocal Tariff Concessions
35 Pages Posted: 26 Apr 2007
Date Written: April 2007
Abstract
Despite the proliferation of free trade agreements (FTAs) between nations today, academics and policy makers alike have yet to fully understand why trading nations actively pursue free trade agreements. With what aim do governments enter into an FTA? In this paper, we propose that the exclusionary effects that take place when nations are not part of an FTA are what drive non-members to seek preferential market access that an FTA ensures. An FTA works as a vehicle through which a party obtains preferential market access in a partnering country's market in exchange for access into its own market. We find support for this explanation by reviewing the trade in goods chapter of a free trade agreement. The section dealing with the trade in goods of an FTA provides the contractual terms of the reciprocal exchange of market access between FTA partners. In addition, it ensures that the expected benefits obtained from tariff elimination or reduction are protected from any future actions by an FTA partner. We conclude with a cautionary observation that the chance of a successful multilateral trade round is further reduced as the exclusionary effects of existing FTAs accelerates proliferation of new FTAs.
Keywords: FTA, GATT, WTO, International, Trade, Tariff
JEL Classification: K33, F10, F15
Suggested Citation: Suggested Citation