TY  - JOUR
AU  - Bagwell,Kyle
AU  - Staiger,Robert W.
TI  - Multilateral Tariff Cooperation during the Formation of Customs Unions
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4543
PY  - 1993
Y2  - November 1993
UR  - http://www.nber.org/papers/w4543
L1  - http://www.nber.org/papers/w4543.pdf
N1  - Author contact info:
Kyle Bagwell
Department of Economics
Stanford University
Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
Tel: (650) 723-3251
E-Mail: kbagwell@stanford.edu

Robert W. Staiger
Department of Economics
Stanford University
Landau Economics Building
579 Serra Mall
Stanford, CA  94305-6072
Tel: 650/723-0533
Fax: 650/725-5702
E-Mail: rstaiger@stanford.edu
AB  - We study the implications of customs union formation for multilateral tariff cooperation.  We model cooperation in multilateral trade policy as self-enforcing, in that it involves balancing the current gains from deviating unilaterally from an agreed-upon trade policy against the future losses from forfeiting the benefits of multilateral cooperation that such a unilateral defection would imply. The early stages of the process of customs union formation are shown to alter this dynamic incentive constraint in a way that leads to a temporary 'honeymoon' for liberal multilateral trade policies.  We find, however, that the harmony between customs unions and multilateral liberalization is temporary: Eventually, as the full impact of the emerging customs union becomes felt, a less favorable balance between current and future conditions reemerges, and the liberal multilateral policies of the honeymoon phase cannot be sustained.  We argue that this is compatible with the evolving implications of the formation of the European Community customs union for the ability to sustain liberal multilateral trade policies under the General Agreement of Tariffs and Trade.
ER  -