Free trade areas and the construction of an efficient mechanism to satisfy industrialization targets

This dissertation comprises a survey and three essays of preferential trade liberalization. The main objective of the first essay is to provide a proof that starting from an arbitrary world trade equilibrium, a free trade area (FTA) equilibrium can be found involving only transfers that is at least as satisfactory for every consumer as the original allocation. The first essay also sheds light on the relationship between the choice of rules of origin and welfare enhancing FTAs.; The presence of industrialization targets is usually a threat to social welfare let alone the formation of welfare enhancing FTAs. It is important then to know how to efficiently satisfy industrial objectives. The second essay of this dissertation discusses the formation of FTAs in the presence of industrialization targets. This essay shows that the formation of an FTA that incorporates a particular selection of rules of origin, and the application of commodity taxation to satisfy the industrial targets at the minimum level needed, directed only to the variables of interest, is an optimal policy, as long as each member country chooses tariffs to keep its trade flows with the rest of the world constant at the pre-formation levels.; The third essay investigates the role played by domestic importers and foreign exporters in improving preferential access to the domestic market. To this end, the framework used in this essay extends the protection for sale analysis to explicitly model the role of domestic importers and foreign exporters in the determination of preferential trade treatment. The predictions of the model are tested using data on preferential trade between the United States and Latin American countries. The results suggest that Latin American exporters and US importers' lobbying efforts have a significant, and important role in determining the extent of preferential access granted by the United States. More interestingly, these findings also show that U.S. importers capture a very substantial share of the rents generated by tariff preferences.