Until the postwar era, most favored nation (MFN) status was far from universal. With the passage of the Reciprocal Trade Agreements Act in 1934, the United States shifted to an MFN policy for countries with whom a treaty was negotiated and, in the postwar years, strongly supported MFN through the General Agreement on Tariffs and Trade, explicitly rejecting preferential arrangements. One can at least in principle often achieve geographic discrimination through a sufficiently pointed structure of tariffs. A central question is whether formation of preferential trading arrangements (PTAs) is conducive to leading the world closer to multilateral free trade or, instead, is likely to lead to larger trade barriers between PTA groupings. Even if we did have an accepted theory of the political economy of tariff determination, we would still need a theory and methodology for estimating what bilateral trade flows would be under each of the hypothesized circumstances. In discussions of the European Union, North American Free Trade Agreement, and other regional arrangements, one question has been whether there is anything special about regional PTAs.
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