The Farsighted Stability of Global Trade Policy Arrangements

In this paper, we study and compare the stability of trade policy arrangements in two different regulatory scenarios, one with without Preferential Trade Agreements (PTAs), i.e. current vs. modified WTO rules. Unlike existing literature, our paper considers an extensive choice set of trade constellations, containing both available PTAs, Customs Unions (CUs) and Free (FTAs), as well Multilateral Agreements (MTAs), while assuming unlimited farsightedness negotiating parties. With symmetric countries under WTO rules, Global (GFT) regime emerges unique stable outcome. In case asymmetry, results are driven by relative size of the countries. If world is vicinity symmetry out three countries close to identical relatively smaller than other one, the area where GFT increases when prohibiting PTAs. However, when similar larger, availability PTAs is conducive regime. Finally, if further away from symmetry, full liberalization not attainable at all an area Most-Favoured-Nation (MFN) appears the scenario without Thus, direction effect PTAs on trade liberalization depends degree asymmetry among