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How does import market power matter for trade agreements?

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  • Beshkar, Mostafa
  • Lee, Ryan

Abstract

We evaluate two potential causes of deviation from efficiency in WTO negotiations: (i) a free-riding problem that may be caused by the WTO's nondiscrimination requirement, and (ii) asymmetric information about government preferences. Theories based on the above two causes generate starkly different predictions about the pattern of negotiated tariffs. We find that the WTO agreement provides more tariff flexibility in products with lower import market power. This finding is consistent with the implication of a negotiation model under asymmetric information, which predicts a tradeoff between flexibility and discipline in tariff obligations. Finally, we use the model together with data on negotiated and applied tariffs to calibrate the political weight of each import-competing industry for all WTO member countries.

Suggested Citation

  • Beshkar, Mostafa & Lee, Ryan, 2022. "How does import market power matter for trade agreements?," Journal of International Economics, Elsevier, vol. 137(C).
    • Handle: RePEc:eee:inecon:v:137:y:2022:i:c:s0022199622000125
    DOI: 10.1016/j.jinteco.2022.103580
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    Cited by:

    1. Jakubik, Adam & Keck, Alexander & Piermartini, Roberta, 2022. "Trade policy implications of a changing world: Tariffs and import market power," WTO Staff Working Papers ERSD-2022-14, World Trade Organization (WTO), Economic Research and Statistics Division.

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    More about this item

    Keywords

    Import market power; Tariff binding; Free-riding; Most favored nation clause; Flexible trade agreements; WTO;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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