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Political–Economic Determinants of External Import Protection under a Preferential Trade Agreement

Published online by Cambridge University Press:  02 December 2021

Patricia Tovar Open the ORCID record for Patricia Tovar [Opens in a new window]
Patricia Tovar*
Affiliation:
Department of Economics, Pontificia Universidad Católica del Perú, Av. Universitaria 1801, San Miguel, Lima 32, Perú
*
Email: [email protected]
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Abstract

The stalling of WTO multilateralism and the proliferation of preferential trade agreements in recent decades have drawn substantial attention to the impacts of preferential liberalization. A critical question is how they affect the trade barriers imposed against outsiders. I examine the relationship between preferential trade liberalization and protection against non-member countries by testing the predictions of a political–economy model based on the previous literature. Focusing on a specific model allows me to uncover the mechanisms via which preferential liberalization affects external import protection, whereas most of the existing literature has focused on establishing the sign of the effect only. Furthermore, I focus on not only tariffs, as most studies do, but also on the temporary trade barriers of antidumping and safeguards. I test the predictions for Latin America and obtain results that provide solid evidence supporting two mechanisms from the theory, which lead to lower protection against non-members of a preferential trade agreement. First, a lower preferential import protection level means that the increase in preferential imports from increasing the external tariff creates a smaller increase in tariff revenue. Second, as preferential import protection is cut, there is a decrease in the markup and sales of domestic firms, and thus raising the external import protection generates less profit. Moreover, this second effect is present when the political motivation of the government is sufficiently strong.

Keywords

F13preferential trade agreementsmultilateral liberalizationtariffsantidumpingsafeguardstemporary trade barriersbuilding block
Type
Original Article
Information
World Trade Review , Volume 21 , Issue 2 , May 2022 , pp. 159 - 184
Copyright
Copyright © The Author(s), 2021. Published by Cambridge University Press

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Footnotes

web: https://sites.google.com/site/patriciatovarrod/. I thank two anonymous referees for very helpful comments and suggestions.

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