Bargaining Power and Trade Liberalization: European External Trade Policies in the 1960s

Abstract: Shortly after the creation of the European Economic Community (EEC, 1958), European countries accepted a far-reaching liberalization of their previously fairly protectionist external trade relations. I provide an explanation of this astonishing development that builds on the argument that the establishment of a customs union increases the bargaining power of its member countries in international trade negotiations. When facing discrimination from a customs union, exporters in excluded countries have an incentive to become politically active and lobby their governments for relief. This increase in exporter lobbying, in turn, weakens the negotiating position of excluded countries in international trade negotiations by making them more eager to achieve a negotiated agreement that lowers the external barriers of the customs union. The evidence presented backs this argument by showing that the EEC member countries accepted external trade liberalization in the 1960s because they could gain disproportionate concessions for European exporting interests in international trade negotiations.