Are Trade Blocs Building or Stumbling Blocs?

Abstract

The stumbling-bloc argument asserts that regionalism hinders MFN tariff cutting. If this was of first-order importance over previous decades, we should detect this in the levels of the tariffs. Using tariff line data for 23 large trading nations we find that MFN and PTA tariffs are complements, not substitutes since margins of preferences tend to be low or zero for products where nations apply high MFN tariffs. One interpretation is that regionalism is neither a building nor a stumbling bloc. Sectoral vested interests are a ‘third factor’ that generates the positive correlation between MFN and PTA tariff levels.