Perpetual Trade Liberalization

If the costs of going back on previously agreed tari¤ reductions are high relative to the terms of trade gains, then the multilateral liberalization process becomes ‘perpetual’. Perpetual trade liberalization has two unique characteristics. (i) No ‘e¢cient’ tari¤ level exists at which liberalization stops. (ii) Some liberalization must occur in every period. International agreements and institutions that foster cooperation do so by making protectionist reversion costly. The theoretical model presented in this paper shows that consequently participating countries implicitly sign up to a liberalization process that must be continuously ongoing, but that this cannot achieve free trade.