FTA/EPA Negotiations and Domestic Reforms in Two-Level Games Analysis
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We examine the effects of domestic reforms on FTA/EPA negotiations, using two-level games analysis. Our main conclusions are summarized as follows. First, we discuss international trade negotiations and agricultural reforms. With respect to agricultural negotiations in the Uruguay Round, the following points were agreed upon: (1) the tariffication of nontariff barriers and, (2) the restraint of price-supporting policies and the promotion of direct payment policies. We examine how in Japan, agriculture policies are strongly affected by international agreements, and how they have changed from price-supporting policies to direct payment policies.
Second, we build a formal model for FTA/EPA negotiations and domestic reforms, using two-level games analysis. While taking the lead of Rosendorff (Endogeneous trade restrictions and domestic political pressure. In Feenstra R, Grossman G, Irwin D (eds) The political economy of trade policy: papers in honor of Jagdish Bhagwati. MIT Press, Cambridge, MA, 1996), Milner and Rosendorff (J Confl Resolut 41:117–146, 1997), and Ishiguro (Kobe Univ Econ Rev 53:9–30, 2007), we expand upon their models and analyze domestic reforms, such as agricultural reforms (direct payment policy) and structural reforms (reduction of production cost). In our model, the domestic reform (direct payment policy) is one characterized by side payments (Mayer, Int Organ 46:793–818, 1992).
Third, we examine the effects of domestic reforms on FTA/EPA negotiations. The influence that domestic agricultural reforms have on FTA/EPA negotiations depends on just how inwardly oriented the ministry (bureau) with veto powers is. When the difference in preference between the government and the inward-looking ministry is sufficiently large, domestic reforms promote negotiations. In the case of there being only a small difference in preference, the result of negotiations depends on the preference of the government. If the difference is sufficiently small, the result of negotiations will be determined by the preference of the foreign government.
KeywordsFree trade agreement (FTA) Two-level games International trade negotiations Agricultural reform Asia
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