MULTILATERAL TARIFF COOPERATION DURING THE FORMATION OF FREE-TRADE AREAS

We consider the impact of the formation of free-trade agreements on mu ltilateral tariff cooperation. We assume that countries are limited to self-enforcing multilateral arrangements that balance the gains from deviating against the costs of an ensuing trade war. We find that the emergence of free-trade areas will be accompanied by a temporary retre at from liberal multilateral trade policies, as the initial balance su pporting multilateral cooperation is upset. Eventually, however, as th e full impact of the emerging free-trade agreement on multilateral tra de patterns is felt, this initial balance tends to reemerge, and liber al multilateral trade policies can be restored.