DP2002 Harmonizing External Quotas in a FTA: A Step Backward?

Author(s): Olivier Cadot, Jaime de Melo, Marcelo Olarreaga
Publication Date: October 1998
Keyword(s): FTA, Political Economy, Quotas
JEL(s): F11, F13, F15
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=2002

This paper explores how political-economy forces shape quantitative barriers against the rest of the world in a FTA. We show that whereas the dilution of lobbying power in a FTA typically leads to a relaxation of external quotas, this result is likely to be overturned as integration deepens. In particular, we show that cooperation among member countries on the level of their external quotas, cross-border lobbying by import-competing interests in the free-trade area and the consolidation of national external quotas into a single one, all lead to stiffer restrictions against imports from the rest of the world. We also show that unlike tariffs, endogenous quotas are not crucially affected by the presence of rules of origin.