Free-Trade Areas and Special Protection

Abstract

This paper investigates the impact of free-trade-area (FTA) agreements on the ability of countries to multilaterally cooperate within an economic environment characterized by trade-flow volatility. We show that the parallel formation of different FTAs leads to a gradual but permanent easing of multilateral trade tensions. In particular, we demonstrate that the emergence of the FTAs will be accompanied by a decline in global 'special'-protection activity, such as safeguard or anti-dumping initiations, but will have less significant implications for most-favored-nation tariffs, or 'normal' trade protection.