Multilateral tariff cooperation during the formation of free trade areas

We consider the impact of the formation of free-trade agreements on multilateral tariff cooperation. We assume that countries are limited to self-enforcing multilateral arrangements that balance the gains from deviating against the costs of an ensuing trade war. We find that the emergence of free-trade areas will be accompanied by a temporary retreat from liberal multilateral trade policies, as the initial balance supporting multilateral cooperation is upset. Eventually, however, as the full impact of the emerging free-trade agreement on multilateral trade patterns is felt, this initial balance tends to reemerge, and liberal multilateral trade policies can be restored.