Trade policy & imperfect competition

Abstract

The continuing momentum in establishing Preferential Trade Agreements (PTAs) has triggered my interest in investigating some important theoretical aspects of both multilateralism and regionalism. In particular, this Ph.D. thesis approaches these aspects by using models which include imperfect competition in commodity markets, product differentiation and strategic behavior on the part of the economic decision makers (taken here to be governments and firms). Features, that is, which are widespread in the world we live in.The First Chapter of this thesis, “Product Differentiation and the ‘Most Favored Nation’ Clause” aims at offering a richer insight on the reasons that lie behind the adoption of the MFN tariffs by trading countries in a world where the bulk of trade is in differentiated products. Furthermore, this chapter attempts to shed light on the discussion regarding the interpretation of the term “like products”, which appears in numerous places in GATT legislation, beginning from Article I, and has yet to be interpreted by WTO panels and the Appellate Body. The remaining three chapters of the thesis are guided by the idea that a principal may benefit from passing authority or power to an agent who is different than herself. Various examples of the delegation decision process one might find specifically in managerial, labor and public economics. The mainstream of the notion of delegation in international trade literature has been addressed in preferential agreements such as customs union. One of the distinguishing characteristics of customs unions is that member-states commit themselves in setting a common external tariff (CET) or a subsidy in their trade with non-member countries. However, by explicitly recognizing the strategic aspects of trade policies, a member-state may find to its advantage to delegate authority to set the external policy to its partner. The determination of the optimal policy maker in the union that sets this common trade policy is investigated in the remaining three chapters of my thesis.The Second Chapter of the thesis, “Harmony and Disagreement in Customs Union: the Role of Demand”, examines how the level of demand can influence the choice of the policy maker as well as the cohesion of a customs union.An interesting, probably, insight of this chapter that could partially be a policy recommendation is that in periods of recession that lead to a fall in demand the strains between the union members and, particularly, between the more and the less cost efficient ones increase. In such cases, intra-union transfers from the “rich” to the “poor” might be needed in order to secure the stability and the cohesion of the union, to the benefit of all. In the Third Chapter, “Delegation in a Tripartite Customs Union”, the analysis of the previous chapter is extended to investigate how the delegation decision is affected in a customs union composed of three, rather than two, countries that differ in terms of cost efficiency. The Fourth Chapter, “International Capital Mobility and Delegation in Customs Union” focuses on the so-called “deep regionalism”, namely a set of non-tariff measures in areas such as competition policy, environmental standards ,investment and capital mobility. The most important motivation that has led to this chapter is the realization that many PTAs include agreements of this kind. Another motivation was the absence in the customs union literature of a theoretical connection between capital tax harmonization and delegation decisions in a customs union. In particular, this chapter investigates how the issue of the delegation decision in a CU that decides unanimously the common capital tax system and the tax rate against non-member countries, could be knitted with the tax competition and tax harmonization literature.