Free-Trade Areas and Contingent Protection between Competing Exporters

Abstract

This paper investigates the impact of free-trade areas (FTAs) on the use of contingent protection between competing exporters. We develop a dynamic model similar to the competing-importers one of Tabakis (2015), in which countries are limited to self-enforcing cooperative multilateral trade agreements and the economic environment is characterized by trade-flow volatility. Our analysis demonstrates that the findings of Tabakis (2015) extend to our competing-exporters case. In particular, the parallel formation of different FTAs results in a gradual but permanent easing of multilateral trade tensions, especially as far as contingent protection is concerned. Thus, our results highlight a building-block effect of FTAs on multilateral trade cooperation.