Seminar

Strategic Trade Liberalization

Johannes Van Biesebroeck (University of Leuven)

May 19, 2014, 14:00–15:30

Room MF 323

Industrial Organization seminar

Abstract

We analyze strategic trade policy within a WTO compliant framework. Countries are assumed to select an FTA partner by comparing the domestic welfare implications of each potential agreement. First, we evaluate theoretically the features of import demand and domestic supply that can produce heterogeneous effects for different FTAs. In particular, we show how the pass-through of tariff reductions and ease of substitution between imports and domestically produced goods depend on the underlying demand parameters. Second, we compute domestic welfare effects using counterfactual simulations of alternative FTAs between Canada and either South Korea, Japan, or the E.U., focusing solely on the auto- motive sector. Third, we develop a simplified methodology to calculate comparable effects for all major importing sectors using only trade information. Applied to the Canadian case, we find that to rationalize the choice of Korea as first negotiation partner, the Canadian government must have placed a disproportionate weight on domestic producer surplus or a disproportionate weight on low-income households in consumer surplus.