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The New Economics Of Trade Agreements From Trade Liberalization To Regulatory Convergence

Lamy, P (2015), “The New World of Commerce,” Jan Tumlir conference. Lamy, P (2016), “The changing landscape of international trade,” The Frank D. Graham Lecture. [2] We also assume that the new trade agreement prohibits employment aid. The reason is that, as we show Grossman et al. (2019), either a consumer subsidy or employment assistance could be used to offset market power, but employment aid does not have the same desirable quality as consumer subsidies. In other words, even under national treatment, governments would not unilaterally put such subsidies at their optimum level at the global level, without a provision of the agreement asking as much. A simple new trade agreement could ban the use of employment aid and give countries the freedom to choose their best consumer subsidies. This new landscape for trade negotiations emphasizes harmonization or, at the very least, convergence of regulatory measures.

However, as Sykes (1999a, 1999b, 2000) asserts, international differences in income, cultures, risk preferences and tastes in general justify regulatory heterogeneity, even with the additional costs associated with implementing a multitude of different rules. Consider as a reference a free trade agreement that limits tariffs to zero and requires national treatment for consumer subsidies, but which also leaves governments completely free to choose their internal policies3. Each government leaves its local businesses free of regulation, but imposes a burden on import goods to transfer companies from abroad to the domestic market. This confirms Sykes`s (1999b) intuition that regulatory cooperation may be necessary if governments are limited in the application of their preferred protectionist instruments.4 In addition, an old trade mutual recognition agreement no longer corresponds to the effective outcome of a new trade agreement. Therefore, even if consumer externalities are exclusively geographical in places where such externalities are important, a new trade agreement containing detailed rules on national country rules may surpass an old trade agreement based either on a national processing obligation or on a mutual recognition clause, to guide the regulatory decisions of its member governments.