Third country effects of a discriminatory tariff
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Date
1992-06
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Institute of Public Policy studies , Michigan
Abstract
Motivated by the interests of members of free trade areas in the trade policies undertaken by their FTA partners against outsiders, this paper conducts a partial equilibrium anlysis of the effects of a discriminatory tariff on third countries. Both competitive and segmented market models are considered, in each case using ''low order analysis'' to clarify what would otherwise be a bewildering array of possibilities. Even with that simplification, however, the results are mixed, indicating cases in which a tariff both benefits and harms third country interests. In the most general and symmetric case, the tariff tends to benefit the third country as a whole without materially damaging particular producer interests within it. However in a number of special asymmetric cases, producers, consumers and even the third country as a whole can lose from the tariff. All of this suggests the need for some coordination of external trade policies among members of an FTA.
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Keywords
Tariffs