Afraid of Commitment? Why Small Countries Join Trade Agreements with Escape Clauses

Building on the framework of Maggi and Rodr̀ıguez-Clare (1998), this paper will explore whether a small country facing domestic political pressures values joining a trade agreement with flexibility in the form of an escape clause (a feature included in many trade agreements, including the WTO). More specifically, this paper will examine if a government would prefer to join a trade agreement with an escape clause instead of joining a free trade agreement, even if it is joining a trade agreement as a means to commit to free trade and escape distortions caused by domestic political pressures. Initially, it appears that by adding the flexibility to the government’s trade agreement choice, it will be giving up its ability to not protect the lobbying industry. Initial results, however, suggest that the flexibility provides a better alternative to the government in some scenarios.