Plurilateral Trade Agreements: A Complementary Margin to Preferential Liberalization

We show that plurilateral agreements facilitate global tariff liberalization by creating an MFN-based margin of cooperation that leaves preferential access via preferential trade agreements (PTAs) unchanged. In a model of endogenous trade agreement formation with farsighted gov-ernments, PTAs become rigid once exclusion or freeriding incentives bind, constraining further PTA expansion. Plurilateral agreements relax these constraints by allowing countries to liberalize selectively in a differentiated goods sector without altering existing PTAs. As a result, the stable equilibrium trade network consists of the PTAs that would arise absent plurilaterals, augmented— but not replaced—by plurilateral MFN liberalization. This mechanism provides an explanation for the growing role of sectoral plurilateral agreements within the WTO as preferential liberalization becomes increasingly constrained.