Ben Zissimos and David Vines
CSGR Working Paper No. 49/00
Why is further multilateral trade liberalisation proving so difficult to achieve? This paper shows that Article XXIV itself, the set of WTO rules governing trade block formation, undermines the multilateral liberalisation process. Trade block formation under Article XXIV can be thought of as a coalition formation game with negative externalities. We suppose that the usual mechanism through which block formation exerts a negative externality on non-members - a rise in external tariffs - is precluded by Article XXIV. But essentially the same effect is created by internal tariff reduction. From this it follows that free trade is not an equilibrium.
Keywords: free trade, protection, trade liberalisation.