In a world with 3 countries trading with each other, weak enforcement of trade policies leads to inefficient tariffs. By allowing exceptions to the most-favored-nation rule for preferential agreements, countries can lower external tariffs. However, these agreements can have three effects on the overall tariff structure: reducing desired tariffs, weakening punishment for breaking rules, and allowing discrimination against non-members. The impact of preferential agreements on tariffs depends on the balance of these effects. When multilateral cooperation is low, preferential agreements can improve the overall tariff system.