Before continuing a headlong rush to form free trade agreements with partners around the globe, Ottawa should pause to consider the effects of a web of FTAs. Matthew B. Adler argues that FTAs tend to interfere with multilateral trade negotiations, which potentially would deliver broader benefits.international policy, free trade agreements, Doha Round

Matthew B. Adler

English

Research Papers in Economics

e-brief
Stumbling Forward on Trade: The Doha Round, 
Free Trade Agreements, and Canada
By Matthew B. Adler
In recent years, the world has seen a proliferation of free trade agreements (FTAs) and, with the Doha Round on 
the rocks, the trend will likely continue.
1The flurry of newly ratified and potential US FTAs, notably with Australia and
Korea, has been particularly worrisome for Canadians. Fears that Canada’s importance in US trade could dwindle,
relegating Canada to a spoke on a US trading hub – a sentiment which helped bring about the Canada–US FTA and
ultimately NAFTA – have re-emerged (Wonnacott 1990). These fears have brought calls to deepen North American
integration (Robson 2007, Dymond and Hart 2008) and – the focus of this study – to expand Canada’s roster of 
FTA partners (Standing Committee on International Trade 2007).
2Indeed, in the past year, Canada’s federal government
has initiated or negotiated trade agreements with numerous countries, including Colombia, Peru, and Korea and, most
recently, the European Union. 
But before continuing headlong into the FTA game, Ottawa should pause to consider the effects of creating a web of
FTAs. The decision to pursue FTAs should not be made lightly, because FTAs have the tendency to interfere with
multilateral trade negotiations that potentially would deliver broader benefits (Limão 2006, Karacaovali and Limão
2008 and Adler 2007).
How do they interfere?  Countries’ interests may shift away from global trade toward regional FTAs (Bhagwati 1991,
2008). The benefit a country derives from an FTA may cause it to approach multilateral trade negotiations with more
I
N
D
E
P
E
N
D
E
N
T

R
E
A
S
O
N
E
D

R
E
L
E
V
A
N
T
October 15, 2008
 With multilateral trade negotiations under the Doha Round in disarray, Canada
has joined the rush to sign free trade agreements (FTAs) with partners around
the globe.
 However, the decision to pursue FTAs should not be made lightly, because FTAs may
have the tendency to lessen tariff reductions in multilateral trade negotiations.
 While FTAs are a backup plan, Ottawa should put a priority on a successful
outcome for the Doha Round.
The author would like to thank Claire Brunel, Barbara Craig, Gary Hufbauer, Barbara Kotschwar and Jeffrey Schott for their
comments. 
Matthew Adler is a Research Assistant at the Peterson Institute for International Economics. The views expressed here are
solely those of the author and do not reflect the views of the Peterson Institute, its staff, or directors.
1 By 2006, 350 FTAs had been reported to the WTO, up from 124 in 1994 (WTO 2007). 
2 Alexandroff, Hufbauer, and Lucenti (2008), outline the benefits of a fresh, primarily bilateral approach to NAFTA for Canada
and the US.reluctance to liberalize than before.
3In FTA negotiations, these countries may find themselves pursuing non-trade objectives
(Limão 2007), buckling to lobbying power (Krishna 1998), or focusing on foreign policy rather than economic goals.
4And with
low bilateral trade barriers, an FTA may create closer ties between partners, not a bad thing when, for example, security is an
issue. But trade barriers have relative importance; low tariffs (and other barriers) make the biggest impact on a bilateral
relationship when barriers to other countries are relatively high.
5So countries wanting to preserve their non-trade benefits in FTAs
will keep barriers to the rest of the world high relative to their FTA barriers. 
To examine the impact of FTAs on multilateral trade, Limão (2006) and Karacaovali and Limão (2008) compared Uruguay Round
tariff reductions for goods covered by FTAs with Uruguay Round reductions for goods not included in FTAs.
6If reductions on non-
FTA goods were statistically larger than those on FTA-included goods, it would suggest FTAs hindered the Uruguay Round of
multilateral trade negotiations – in other words, FTAs were stumbling blocks to freer global trade.
7
Following from this method, the United States’ FTAs caused the United States to liberalize less than they otherwise would have
during the Uruguay Round. Limão (2006) found that the mean tariff reduction on goods included in FTAs was 2.8 percent,
compared to 4.0 percent for non-FTA goods. Hence, US tariff cuts during the Uruguay Round on FTA-covered goods would have
been about 1.3 percent larger had no US FTAs been in place, thereby making the Round harder to complete because the package
on the table was less attractive.
8
Similarly, Karacaovali and Limão (2008) found that the EU mean tariff reduction was 2.9 percentage points for goods included in FTAs
and 4.4 percentage points for non-FTA goods. Moreover, the authors’ econometric work shows that EU tariff cuts on FTA-included
goods would have been approximately 1.5 percentage points larger had no EU FTAs been in place. My own econometric work, which
follows from Limão (2006) and Karacaovali and Limão (2008), suggests that Canadian tariff reductions during the Uruguay Round on
goods included in NAFTA would have been approximately 1.0 percentage point larger had NAFTA not been in effect (Adler 2007).
9
Implications
Canada is a founding member of the GATT and the WTO, and has long been committed to the success of the multilateral trading
system. With grim prospects for Doha, FTAs appear to be an attractive backup plan. But the findings I raise here complicate
matters. FTAs cannot be enacted without running the risk that they will make the Doha Round harder to complete. So if Canada
truly values the multilateral trading system, Ottawa’s leadership should put a priority on a successful outcome for the Doha Round.
This does not imply that Canada should immediately abandon plans for further FTAs. While statistically significant, the impact of
US, EU, and Canadian FTAs on the Uruguay Round was small relative to each country’s overall tariff cuts. Moreover, the Uruguay
Round was ultimately completed. The countries were able to derive benefits from their FTAs and a complete multilateral trade
INDEPENDENT REASONED RELEVANT
| 2 e-brief
3 The title of this e-brief alludes to a term coined by Bhagwati (1991). He calls FTAs “stumbling blocks” if they hinder multilateral trade
negotiations and “building blocks” if they help. For a review of this field see Panagariya (2000). Limão (2006) provides an update.
4 A likely example is the US-Israel FTA. 
5 For example, a zero tariff between two countries will have a much bigger impact if those countries’ tariffs to the rest of the world are 50
percent rather than 5 percent. 
6 To be sure, the second set of goods is usually smaller than the first. 
7 Baldwin and Seghezza (2008) provide an alternative method for investigating the impact of FTAs on multilateral trade negotiations. They
find no indication that FTAs hinder multilateral trade negotiations. 
8 The 1.3 percent figure comes from the author’s econometric analysis; it does not follow directly from a comparison of the mean tariff
reductions.
9 This effect may seem quite small, but as a share of the average Canadian Uruguay Round Tariff reduction (5.8 percent) it is more than 15
percent of Canadian tariff cuts.INDEPENDENT REASONED RELEVANT
e-brief /3
10 For some results on the productivity benefits of NAFTA see Trefler (2004). For an alternative result that finds no welfare benefits from
NAFTA, see Romalis (2007). Romalis additionally conjectures that NAFTA may have made multilateral trade liberalization more
difficult since it increased trade volumes to a greater degree in sectors that were highly protected.
11 Alternatively, a completed Doha Round could be so watered down that it would be virtually meaningless.
round. Canada, in particular, was able to foster closer ties with the United States,
10 and gain from the Uruguay Round, although, 
as evidence indicates, the gains from the Round were smaller than otherwise would have been the case. 
Even without any FTAs, however, there is little assurance that Doha can yet be completed. The disagreements on sensitive issues 
like agriculture and the many other issues complicating the success of the Round would still be at play. So for any country,
including Canada, it may be rational to engage in FTAs despite their negative impact on Doha, because the benefits of the Round
may never come.
11 Consequently, in its decision to engage in FTAs, Canada must weigh the cost of adding to the witches’ brew that
already plagues the Doha Round, against the cost of sitting alone on the sidelines of the FTA game, hoping that the Round is
completed. However, Canada, with its history of engagement in the GATT and WTO and relative importance in the world economy
may be uniquely placed to provide leadership on the issues hindering the Round. A bold show of support out of Ottawa may go 
a long way to helping the struggling Doha Round succeed.INDEPENDENT REASONED RELEVANT
References:
Adler, Matthew B. 2007. The Effect of Preferential Trade on Multilateral Trade Liberalization: Canada and the North American Free Trade Agreement.
Oberlin College Economics Honors 2007. Oberlin: Oberlin College.
Alexandroff, Alan S., Gary Clyde Hufbauer, and Kristi Lucenti. 2008. Still Amigos: A Fresh Canada-US Approach to Reviving NAFTA. 
The Border Papers. C.D. Howe Institute Commentary No. 274. September.
Baldwin, Richard E., and Elena Seghezza. 2008. Are Trade Blocs Building or Stumbling Blocks? New Evidence. CEPR Discussion Paper No.
DP6599.
Bhagwati, Jagdish. 1991. The World Trading System at Risk. Princeton: Princeton University Press.
–––– . 2008. Termites in the Trading System: How Preferential Agreements Undermine Free Trade. New York: Oxford University Press.
Dymond, Bill, and Michael Hart. 2008. Navigating New Trade Routes: The Rise of Value Chains, and the Challenges for Canadian Trade Policy.
C.D. Howe Institute Commentary No. 259. March.
Karacaovali, Baybars, and Nuno Limão. 2008. “The Clash of Liberalizations: Preferential vs. Multilateral Trade Liberalization in the
European Union.” Journal of International Economics. 74(2) March: 299-327.
Krishna, Pravin. 1998. “Regionalism and Multilateralism: A Political Economy Approach.” The Quarterly Journal of Economics. 113(1),
February: 227-251.
Limão, Nuno. 2006a. “Preferential Trade Agreements as Stumbling Blocks for Multilateral Trade Liberalization: Evidence for the United
States.” American Economic Review, 96(2), June: 896-914.
Limão, Nuno. 2007. “Are Preferential Trade Agreements with Non-trade Objectives a Stumbling Block for Multilateral Liberalization?”
Review of Economic Studies. 74(3), July: 821-855.
Panagariya, Arvind. 2000. “Preferential trade liberalisation: the traditional theory and new developments.” Journal of Economic Literature, 37
(June): 287-331.
Robson, William B.P. 2007. “Stuck on a Spoke: Proliferating Bilateral Trade Deals are a Dangerous Game for Canada.” C.D. Howe
Institute. E-brief.
Romalis, John. 2007. “NAFTA’s and CUSFTA’s Impact on International Trade.” The Review of Economics and Statistics 89(3).
Schott, Jeffrey J. 2008. America, Europe, and the New Trade Order. Paper prepared for the 1st Transatlantic Economic Dialogue “A Declining
Regime? America and Europe in the Multilateral Trading System,” BMW Stiftung Herbert Quandt. Washington DC, March 4-5.
Standing Committee on International Trade. 2007. Ten Steps to a Better Trade Policy: Recommendations. House of Commons. 39th Parliament,
1st Session. Ottawa.
Trefler, Daniel. 2004. “The Long and Short of the Canada-US Free Trade Agreement.” American Economic Review 94(4).
World Trade Organization. 2007. Regionalism: Friends or Rivals. Geneva. www.wto.org/english/thewto_e/whatis_e/tif_e/bey1_e.htm.
(accessed March 18, 2008).
This e-brief is a publication of the C.D. Howe Institute.
Matthew Adler is a Research Assistant at the Peterson Institute for International Economics, Washington.
For more information contact Matthew Adler at 1-202-454-1337.
This e-brief is available at www.cdhowe.org.
Permission is granted to reprint this text if the content is not altered and proper attribution is provided.
e-brief /8

America, Europe, and the New Trade Order. Paper prepared for the 1st Transatlantic Economic Dialogue “A Declining Regime? America and Europe in the Multilateral Trading System,” BMW Stiftung Herbert Quandt.

Are Preferential Trade Agreements with Non-trade Objectives a Stumbling Block for Multilateral Liberalization?” Review of Economic Studies.

Are Trade Blocs Building or Stumbling Blocks? New Evidence.

For more information contact Matthew Adler at 1-202-454-1337. This e-brief is available at www.cdhowe.org. Permission is granted to reprint this text if the content is not altered and proper attribution is provided.

NAFTA’s and CUSFTA’s

Navigating New Trade Routes: The Rise of Value Chains, and the Challenges for Canadian Trade Policy.

Preferential Trade Agreements as Stumbling Blocks for Multilateral Trade Liberalization: Evidence for the United States.”

Preferential trade liberalisation: the traditional theory and new developments.”

Regionalism and Multilateralism: A Political Economy Approach.”

Standing Committee on International Trade.

Still Amigos: A Fresh Canada-US Approach to Reviving NAFTA. The Border Papers.

Stuck on a Spoke: Proliferating Bilateral Trade Deals are a Dangerous Game for Canada.” C.D. Howe Institute.

Termites in the Trading System: How Preferential Agreements Undermine Free Trade.

The Clash of Liberalizations: Preferential vs. Multilateral Trade Liberalization in the European Union.”

The Effect of Preferential Trade on Multilateral Trade Liberalization: Canada and the North American Free Trade Agreement. Oberlin College Economics Honors

The Long and

The World Trading System at Risk.

This e-brief is a publication of the C.D. Howe Institute. Matthew Adler is a Research Assistant at the Peterson Institute for International Economics,

World Trade Organization.

Stumbling Forward on Trade: The Doha Round, Free Trade Agreements, and Canada

Stumbling Forward on Trade: The Doha Round, Free Trade Agreements, and Canada

Abstract

Similar works

Full text

Available Versions

Research Papers in Economics