THE POLITICS OF FREE-TRADE AGREEMENTS

Suppose that an opportunity arises for two countries to negotiate a free-trade agreement (FTA). Will an FTA between these countries be politically viable? And if so, what form will it take? We address these questions using a political-economy framework that emphasizes the interaction between industry special-interest groups and an incumbent government. We describe the economic conditions necessary for an FTA to be an equilibrium outcome, both for the case when the agreement must cover all bilateral trade and for the case when a few politically sensitive sectors can be excluded from the agreement.