Essays on preferential trade agreements

A dominant trend in the international trading system is the proliferation of preferential trade agreements (PTAs) between countries. While many have seen PTAs as a step towards the goal of global free trade, others fear that, while they lower tariffs internally, they may also raise barriers against those countries outside the agreement. Thus, PTAs may actually constitute a step back from free trade. Following, this dissertation addresses the impact on the external trade barriers of countries that are members of a PTA. The first chapter summarizes and evaluates a portion of the voluminous literature on PTAs. The chapter analyzes the effect of PTAs for various aspects including welfare and trade policy for all relevant countries, as well as the implication on world free trade. Using a three-country model with trade under oligopolistic competition, the second chapter investigates the possibility that the external barriers imposed by countries rise after they enter into a preferential agreement (in violation of the spirit of Article XXIV of the GATT). It is shown that the likelihood of an increase in the external barriers of a PTA member is higher in those industries in which the partner country is an inefficient supplier relative to the rest of the world. Therefore, the finding strengthens the argument (familiar from Viner (1950)) against PTAs with inefficient partner countries. In the third chapter, I investigate the behavior of trade barriers imposed by Mexico on non-member countries subsequent to the North American Free Trade Agreement (NAFTA) using a detailed data set (organized at the six-digit Harmonized System level of disaggregation) on external tariffs and imports in Mexican manufacturing industries. Whether external barriers rose in Mexico and whether they rose in the manner predicted by the theoretical analysis conducted in the second chapter are analyzed. The results support the theory: External barriers (external tariffs) in Mexico did rise, and the barriers rose to a greater extent in industries in which its NAFTA partner countries were less efficient suppliers (as measured by the magnitude of their exports to Mexico, relative to Mexico's total imports).