Trade Policy Reform : How to Win Wide-ranging Support ?

This paper analyzes the effects of international trade policies on an imperfectly competitive domestic market, taking account of consumers as well as upstream and downstream firms. We first study the impact of a classic decrease in import duty and find that this policy harms upstream firms and may decrease domestic fiscal revenues. We then examine the effect of an increase in non-tariff barriers, which reduce the degree of substitutability between domestic and imported goods. This results in an improvement in each agent’s situation as international competition becomes less fierce. Finally, we show that market conditions may exist such that a dual policy (import duty decrease and non-tariff barrier increase) makes all agents better off. This can explain the proliferation of domestic standards at national level in order to counterbalance the effect of lower tariffs negotiated by governments.