Co-Author: Dr Leslie Johns (University of California)
We analyze the impact of the size of domestic industries on the design of preferential trade agreements (PTA). We construct a formal model that shows that the design preferences of import-competing and export-dependent industries diverge. Import-competitors prefer flexible agreements that allow governments to protect domestic producers during "hard times." Conversely, exporters prefer more rigid contracts; i.e. agreements that tightly bind the members to their liberalizing commitments. The relative sizes of these industries affect governments' incentives when negotiating agreements. Specifically, PTA rigidity becomes less desirable to a government as its import-competing industry grows. Moreover, government preferences are also shaped by the composition of their trade partner's market. Governments prefer more rigidity as their partner markets increase in import-competition. Thus, government must balance the competing claims placed on them by producers both at home and abroad. We test our model using statistical analysis of the design attributes of trade agreements.
