Welfare Implications of Regionalism in the GATT: The Presence of Foreign Ownership

This paper examines the welfare implications of an existence of free trade agreements (FTAs) and customs unions (CUs) in the GATT system, in the presence of cross-foreign ownership among countries. In particular, two GATT regimes are analyzed: a pure GATT regime without any regional free trade agreements, and modified GATT regime with either an FTA or a CU. This paper argues that, when foreign ownership exists significantly between the countries, no countries in the GATT have an incentive to form a regional trade agreement before they participate in multilateral tariff negotiations.