Free trade agreements (FTAs) are designed to promote trade liberalization, yet politically sensitive products are frequently excluded from tariff elimination despite Article XXIV of the World Trade Organization requiring FTAs to cover substantially all trade. This paper develops a three-country, multi-sector trade model to examine how product exclusions affect endogenous FTA formation, multilateral liberalization, and welfare. Governments are politically motivated and place additional weight on producer surplus in import-competing sectors, while both internal tariffs on excluded products and external tariffs against non-members are determined endogenously. We show that FTA members maintain positive internal tariffs and impose higher external tariffs on excluded products than on non-excluded goods. Product exclusions can make otherwise infeasible FTAs politically viable and may be necessary to achieve multilateral liberalization through an FTA network. Although exclusions reduce the gains from trade liberalization, multilateral liberalization remains welfare-superior to bilateral liberalization even when it requires a greater extent of product exclusions.