REGIONALISM

In this paper we investigate whether multilateral trade liberalisation undermines or encourages preferential trade liberalisation. We use highly disaggregated data at the tariff-line level and find an ‘emulator effect ’ of multilateral trade liberalisation on preferential trade agreements. Indeed, our regression results show that products for which the U.S. agreed to cut its MFN rate substantially between the end of the Tokyo and Uruguay Rounds of GATT negotiations (1979-1994) are also the products for which subsequent tariff cuts on a preferential basis are boldest. In this sense, regionalism complements multilateralism. Our empirical investigations also reveal that sectoral differences are important determinants of the preference margin, as well as the identity of trading partners. When crossed with the results of Limão (2006) and others on the causal link between regionalism and multilateral liberalisations in the realm of the GATT/WTO institutional framework, our results establish that the multilateral trading system and the incentives to expand regionalism interact in complex ways