Read the article and answer the question based on what you read. Please DO NOT PLAGIARISM.

7. Describe how PTAs can serve as "building blocks" to further trade liberalization. Provide some arguments.

Article :While economists have reached general agreement about the appropriate framework for analysis in studying the effects of PTAs on their members and on the rest of the world (although disagreements remain with respect to the verdicts on individual PTAs), economists differ dramatically in their thinking about how PTAs will affect the open multilateral trading system. Some believe that PTAs are a facilitating intermediate step on the path to greater global trade liberalization. Others provide models that reach the opposite conclusion.Those who consider PTAs "building blocks" to further trade liberalization have put forward several lines of reasoning. First, they point to the empirical evidence that PTAs are predominantly, if not overwhelmingly, trade-creating (discussed further in the next section). Then, they use these findings to argue that PTAs provide support for further multilateral liberalization. As a matter of political economy, this claim is a delicate one. Additional exports among PTA partners may create interests that would fear losing sales outside of the trade agreement if multilateral liberalization were to succeed, and thus would probably oppose it. For example, Caribbean nations who had received unilateral preferences from the United States in the Caribbean Basin Initiative typically opposed Mexican accession to NAFTA because of concern over trade and investment shifting from the Caribbean to Mexico. Mexican exporters to the United States may oppose further multilateral liberalization out of concern that they would lose their preferences relative to, say, Brazilian competitors.However, the evident success of the European Union provides a counterexample, since it was a successful customs union whose internal trade was liberalized as external opening also took place. The key difference here is whether the new trade within the preferential trading block is opened up between globally low cost producers, in which case they need not fear additional multilateral competition, or whether it is an attempt to protect high cost suppliers within the trade agreement from outside competition. The presumption behind the "natural trading blocks" argument of Krugman (1991) and Summers (1991), mentioned earlier, is that preferential agreements work well when they match countries that should "naturally," because of proximity, be economically intertwined with each other.

A second argument, closely related, is that regional trading arrangements arise out of the success of multilateral liberalization among developed countries, as developing countries try to "lock in" their trade reforms and induce trade and investment flows from large countries. Ethier (1998) offers a strong version of this argument. Ethier recognizes that trade diversion and protectionist pressures will constitute threats, but he views preferential regional arrangements as typically consisting of a large country linking with one or more small countries, with the latter motivated to lock in their liberalized trade regimes. Seen in this light, PTAs are a symptom of the success of the open multilateral system and are fully compatible with further multilateral liberalization.

A third line of argument has focused on the effects of preferential trading agreements on producer lobbies in member countries that have tariffs above those in their partners. When those tariffs are placed on intermediate goods, the increased competition with producers in the low input tariff country can lead producers to lobby for lower tariffs in their country. There is anecdotal evidence of this occurring in Canada in response to NAFTA and in New Zealand under the Australia-New Zealand preferential trade agreement. This argument also explains one reason a free trade agreement may do a better job of encouraging multilateral trade liberalization; in a customs union, all producers face the same external tariffs, but in an FTA, where they face differential external tariffs, producer pressure will arise to lower multilateral tariff levels to the level of the PTA partner.

A fourth argument suggests the use of preferential trading agreements as a bargaining threat to encourage multilateral trade agreements. When the Uruguay Round was finally completed, for example, some analysts claimed that Europeans had been motivated to reach an agreement out of concern that they would face a trading block emerging out of APEC or in the western hemisphere. However, this argument could cut either way, depending on circumstances; for example, a nation that belonged to a number of preferential trade agreements might feel less need to help make multilateral trade talks reach a successful conclusion.