DP2480 Deepening of Regional Integration and Multilateral Trade Agreements

Author(s): Eric W Bond, Costas Syropoulos, L. Alan Winters
Publication Date: August 2000
Keyword(s): Europe '1992', Kemp-Wan Tariff Adjustments, Regional Integration, Sustainable Tariff Agreements
JEL(s): F02, F13, F15
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=2480

We construct a three-country, two-bloc, multi-product trade model in which tariff agreements between customs union members are binding whereas inter-bloc tariff agreements are self-enforcing. Our main objective is to explore how the liberalization of trade between customs union members (i.e. the deepening of regional integration) affects the sustainability of tariff agreements with the rest of the world (ROW). We derive conditions under which Kemp-Wan (1976) adjustments in the external tariffs of union members result in self-enforcing tariff agreements with ROW and then use these adjustments to evaluate the general tariff-setting incentives of the two trading blocs.