Preferential Trade Theory
The principle stating that third countries excluded from a preferential trade agreement must lose.
What is Haberler’s spillover?
The assumption that Home removes tariffs on Partner but not on the rest of the world.
What is unilateral tariff removal?
The group of firms/countries that must continue paying tariffs to access the Home market.
Who are firms from the Rest of the World?
The effect of preferential trade that replaces high-cost domestic production with lower-cost imports.
What is trade creation?
A preferential trade agreement in which members eliminate internal tariffs but keep their own external tariffs against non-members.
What is a free trade agreement (FTA)?
The economist who demonstrated that excluded third nations lose from preferential trade agreements.
Who is Gottfried Haberler?
The name given to Adam Smith’s general point about unilateral tariff removal toward a partner country.
What is Smith’s certitude?
What RoW firms must do to remain competitive after Home grants tariff-free access to Partner.
What is lower their pre-tariff export price?
The effect of preferential trade that shifts imports from a more-efficient to a less-efficient supplier.
What is trade diversion?
A trade arrangement in which members eliminate internal tariffs and adopt a common external tariff.
What is a customs union?
The result showing that preferential liberalization can either increase or decrease the welfare of the preference-giving nation.
What is Viner’s ambiguity?
The three players involved in Smith’s certitude analysis.
Who are Home, Partner, and the Rest of the World?
The price that RoW exporters must match after tariffs are applied.
What is the post-tariff price of Partner exporters?
Which effect introduces new price wedges and tends to reduce welfare.
What is trade diversion?
The key trade policy feature that distinguishes a customs union from a free trade agreement.
What is a common external tariff?
The economist who showed that preferential liberalization might harm the country granting preferences.
Who is Jacob Viner?
Under Smith’s certitude, the effect on the partner country when Home removes tariffs unilaterally.
What is that the Partner must gain?
Which effect removes price wedges and improves economic efficiency.
What is trade creation?
The type of trade agreement that eliminates the need for rules of origin.
What is a customs union?