The “Emulator Effect” of the Uruguay Round on US Regionalism

• Published date: 01 November 2014
• Author: Frédéric Robert‐Nicoud,Marco Fugazza
• DOI: http://doi.org/10.1111/roie.12154
• Date: 01 November 2014

The “Emulator Effect” of the Uruguay Round on

US Regionalism

Marco Fugazza and Frédéric Robert-Nicoud*

Abstract

Using a detailed data set at the tariff line level, we find an emulator effect of multilateralism on subsequent

regional trade agreements (RTAs)involving the USA. We exploit the variation in the frequency with which

the US grants immediate duty free access (IDA) to its RTA partners across tariff lines.A key finding is that

the US grants IDA status especially on goods for which it has cut the multilateral most favored nation

(MFN) tariff during the Uruguay Round the most. Our results suggest that the Uruguay Round multilateral

“concessions” have elicited subsequent preferential trade liberalization.

1. Introduction

Many preferential trade agreements have come to light since the completion in 1994

of the Uruguay Round of multilateral trade negotiations under the auspices of the

Generalized Agreement on Tariffs and Trade (GATT). The USA is no exception. The

seven preferential trade agreements involving the USA vary in scope—the number of

goods included in the agreement varies across agreements—and breadth—the US

tariff on some goods goes to zero immediately upon implementing the agreement but

the imports of many others are fully liberalized only gradually. In this paper, we

exploit the United Nations Conference on Trade and Development—Trade Analysis

and Information System (UNCTAD-TRAINS) and World Trade Organization—

Consolidated Tariff Schedule (WTO-CTS) Bound Duty Rates databases in order to

shed light on the causes of these cross-good variations.1We show that they are best

thought of as the continuation of a process that includes multilateral liberalizations.

Specifically, we find that, among the products in which there was a most favored

nation (MFN) tariff cut, the imports of goods to which the USA grants immediate

duty free access (IDA) to its preferential trade agreement partners the most fre-

quently were also the goods for which it granted the boldest tariff cuts during the

Uruguay Round and/or those for which the current MFN tariff levels were low. Both

findings are robust to a variety of specifications.The quantitative effects are also quite

large. We interpret the former finding as evidence that current preferential trade

agreements have emulated anterior multilateral trade agreements; the latter finding is

* Fugazza: UNCTAD, Palais.des Nations, CH-1211, Geneva 10, Switzerland. Tel: +41-22-917772. Fax: +41-

22-9070044. Email: marco.fugazza@unctad.org. Robert-Nicoud: GSEM, University of Geneva, Switzerland

and CEPR, London, UK.We are especially grateful to Alessandro Nicita, Marcelo Olarreaga and Emanuel

Ornelas for detailed feedback and comments as well as to Richard Baldwin, Emily Blanchard, Céline

Carrère, Caroline Freund, Jaya Krishnakumar,Ugo Panizza, Esteban Rossi-Hansberg, Anirudh Shingal, and

participants in seminars at the WTO, John Hopkins, Simon Fraser, Glasgow University, the Workshop on

“The New Political Economy of Trade” at the European University Institute, and the CEPR/Swiss NSF

2013 workshop held in Villars for useful discussions and suggestions.We would also like to thank the two

anonymous referees. Part of this paper was written when Robert-Nicoud was a Peter B. Kenen Visiting

Scholar at Princeton University; the hospitality of its International Economics Section is gratefully

acknowledged.

Review of International Economics, 22(5), 1049–1078, 2014

DOI:10.1111/roie.12154

© 2014 JohnWiley & Sons Ltd

consistent with the idea that the marginal benefits of new regional trade agreements

are especially large when multilateral tariffs are low.2

The question this paper addresses, namely, whether multilateral trade agreements

(MTAs) shape preferential trade agreements, is little studied in international trade. It

is also important for two additional and related reasons. First, the concern that prefer-

ential trade agreements, which we henceforth refer to as “regional” trade agreements

(RTAs), may work as “stumbling blocks” to multilateralism is widespread and is sup-

ported by the data in the US context (Limão, 2006); we complement this question by

documenting that multilateralism also influences the content of RTAs. Second, taken

together, Limão’s findings and ours suggest that the success of one MTA may actually

lead to the failure of the following multilateral trade negotiations as a result of the

increased regionalism that the former MTA triggered. Another original contribution

of this paper is to analyze the effect of MTAs on RTAs using differences rather than

levels, thus avoiding the assumption of stationary tariffs usually made in the theoreti-

cal literature but which is clearly counterfactual for US tariffs (see Figure 1).3

Our next aim is to establish that the empirical relationship between the Uruguay

Round and the ulterior RTA tariffs is causal. We achieve this by, first, choosing only

RTAs signed by the USA whose negotiations were initiated well after the Uruguay

Round of 1994 (a total of seven agreements signed between 2001 and 2006). Second,

we add sector dummies to control for any political economy or other unobserved

factors common to all goods in a sector that can affect the swiftness of liberalization

across sectors. Third, we instrument for the actual Uruguay Round tariff cuts and

levels. Our preferred instrumental variables consist of hypothetic tariff cuts based on

overall market access provisions negotiated at the Uruguay Round and tariff cuts

negotiated by the European Union at that same Round. Our qualitative results stand

in all these alternative specifications.

2

3

4

5

6

(%)

1989 1995 2007

year

MFN Applied Tariff Effectively Applied Tariff

Figure 1. US Tariffs (Simple Means)

Note. At the tariff line level, the effectively applied tariff corresponds to the lowest available

tariff.Whenever it exists, the lowest preferential tariff is the effectively applied tariff. Otherwise

it is the MFN applied tariff.

1050 Marco Fugazza and Frédéric Robert-Nicoud

© 2014 JohnWiley & Sons Ltd