Ebook: Preferential Liberalization and Self-Enforcing Multilateral Cooperation: Evidence from Latin America’s Use of Tariffs, Antidumping and Safeguards

I test the predictions of Bagwell and Staiger´s (1999) theory of the effects of preferential
liberalization on import protection imposed against non-member countries. In contrast to the
existing literature, which has (for the most part) focused on investigating whether external
tariffs rise or fall due to preferential trade liberalization, by testing the predictions of a specific
model in a way that closely follows the theory, I am able to examine the channels through
which those effects take place. Importantly, and unlike most existing studies, I analyze not only
tariffs but also the temporary trade barrier (TTB) policies of antidumping and safeguards. I
focus on Latin America and find strong support for the theoretical predictions of Bagwell and
Staiger (1999). First, there is evidence of tariff complementarity: i) a larger reduction in the
preferential import protection leads to a larger reduction in protection against non-members;
ii) the more consumption increases, the more external protection decreases with the fall in
preferential protection; and iii) the more imports from the rest of the world fall, the more
external protection decreases with a preferential protection cut. Furthermore, I also find
evidence of the punishment effect and the tariff discrimination effect, which arise when
enforcement difficulties are incorporated into the theory. To my knowledge, this is also the
first paper to test theoretical predictions that specifically arise from introducing multilateral
enforcement issues. Finally, the overall results point toward a building block effect of
preferential liberalization.
Keywords: preferential trade agreements, multilateral liberalization, tariffs, antidumping,
safeguards, temporary trade barriers.
JEL Codes: F13.