Regionalism and Falling External Protection in High and Low Tariff Members

This paper provides evidence that the reduction in the MFN tariff resulting from a decrease in the preferential tariff is three times higher in high-tariff members of preferential trade agreements (PTAs) than in low tariff partners. This result lends support to the "building block" view of regionalism, in particular for countries applying high external tariffs before the agreement. Ths effect is not present in the case of custom unions (CUs), suggesting that trade diversion is the mechanism through which it operates.