Politics of free trade areas: tariffs versus quotas

In this paper we compare and contrast the political viability of bilateral Free Trade Area (FTA) Agreements in the presence of tariffs and quotas. Assuming that the government maximizes a weighted sum of welfare and producer profits, we show that the political viability of FTAs varies according to whether trade restrictions take the form of tariffs or quotas. A key result is that whereas an FTA is unambiguously rejected by one of the countries under a tariff, it may be endorsed by both trading partners under a voluntary export quota or import quota that provides equal protection as the tariff.