The Economics of International Trade Agreements
Friday, Jan. 5, 2018 10:15 AM - 12:15 PM
- Chair: Kamal Saggi, Vanderbilt University
DCBFTs and Trade
AbstractWe examine the effects of ‘destination based cash flow tax’ on trade. The implementation of this policy has been referred to as a ‘border tax adjustment’ because it exempts export sales from the tax but does not allow firms to deduct purchases of imported intermediates from the taxable cash flow. The aim of this tax, which would replace the current US corporate tax system, is to remove the incentive of multinational firms to locate part of their operations in low-tax jurisdictions. Under plausible assumptions of a specific-factors model the tax would effectively raise the return to import-competing goods relative to exportables, resulting in a flow of resources out of the exportable sector.
Preferential Trade Agreements and Rules of the Multilateral Trading System
AbstractPreferential trade agreement (PTA) members have to eliminate internal tariffs with each other but are allowed to discriminate against non-members. This can be in potential conflict with the WTO's overall non-discrimination clause. Using a competing exporters model of endogenous trade agreement formation, we study the central rules that govern PTAs. We find that the free trade agreements' (FTAs) requirement to eliminate internal tariffs increases total welfare when circumstances are such that global free trade is infeasible. However, it also reduces the likelihood of reaching global free trade. We also find that the MFN constraint does not just contribute to the achievement of global free trade but also delivers a welfare-superior outcome when global free trade is not possible. Finally, we show that the MFN constraint complements the PTA rules in achieving global free trade for only FTAs but not customs unions (CUs). However, when global free trade is infeasible, the MFN constraint is welfare improving for both types of PTAs. We conclude that while the likelihood of global free trade within the WTO requirements depends on the nature of PTAs, these requirements are necessarily welfare improving in a tariff-ridden world.
Contesting an International Trade Agreement
AbstractWe develop a new theoretical framework of trade agreement (TA) formation, called a `parallel contest', that emphasizes the political fight over TA ratification within countries. TA ratification is inherently uncertain in each country where anti- and pro-trade interest groups contest each other to influence their own governments' ratification decision. Unlike prior literature, the protection embodied in negotiated TA tariffs reflects a balance between the liberalizing force of lobbying and inherently protectionist government preferences. Moreover, new international political externalities emerge that are not internalized by governments that just internalize terms of trade externalities.
- F1 - Trade