Trade policy : incomplete information, antidumping and political economy
This thesis focuses on different aspects of trade theory and policy. One of the main objections to the theory of strategic trade policy is that it presumes too much knowledge on the part of governments. The design of an optimal tariff in the presence of incomplete information is analysed in Chapter 2. In a Cournot duopoly model of international competition between a domestic and a foreign firm, it is shown that when the domestic firm and government have incomplete information about the marginal cost of a foreign firm, trade policy can be effectively designed. It is shown that when the foreign firm's output signals costs, there is a unique separating sequential equilibrium. There is a distortion in output due to signalling which is costly in terms of welfare. So, the optimal import tariff when signalling is lower than when the firm does not signal its costs through output. Expected foreign production is lower when signalling, and domestic firm's output and profits are higher. Incomplete information lessens the rent extracting and profit shifting argument for a tariff. An area of conflicting views in trade policy is that of antidumping (AD). In Chapter 3, a descriptive analysis of the use of AD worldwide and in Europe is presented, including an explanation of AD laws and of the implementation of these laws in Europe. An analysis of European antidumping decisions made by the European Commission between 1985 and 2003 is presented in Chapter 4. Using data on legal AD investigations, industry, imports and political influences, the Commission decision-making on dumping and injury is modelled weighing the relative impact of economic and political factors in predicting policy outcomes. Two hypotheses are formulated. The empirical findings confirm that Europe is operating a double track antidumping mechanism. Mainly economic variables are associated with a positive decision on dumping whereas only political variables are positively associated with affirmative decisions on injury. Besides, antidumping laws allow countries to settle antidumping actions either by levying duties or by demanding price undertakings from the foreign exporting (or importing) firms. A price undertaking is an agreement by the foreign exporter to eliminate injury by increasing its price or ceasing exports. However, countries have considerable discretion in allowing price undertakings. An empirical analysis of the acceptance of price undertaking decisions in Europe is presented in Chapter 5. A number of hypotheses are formulated. The econometric analysis indicates that the share of European exports to the country of the defendant; indicators of political pressure as well as the country of origin of certain defendants (non-market economies) are positively associated with the decision to refuse price undertakings. The research hypotheses in chapters 4 and 5 are examined using a legal database containing information about 805 antidumping investigations initiated in Europe published in the Official Journal of the European Communities and associated trade and industrial statistics. An overview of the thesis with a summary of conclusions and contributions is presented in Chapter 1. A summary of the main findings of the thesis is presented in Chapter 6.