Conditionality, separation, and open rules in multilateral institutions

We examine the implications for the viability of multilateral cooperation of different legal principles governing how separate international agreements relate to each other. We contrast three alternative legal regimes: conditionality - making cooperation in one area a condition for cooperation in another - separation - forbidding sanctions in one area to be used to enforce cooperation in others - and open rules, i.e. absence of any restriction on the patterns of cross-issue cooperation arrangements and sanctions. As an example, we focus on a scenario where countries can enter into selective and separate binding trade and environmental agreements with different partners. Our analysis suggests that conditionality is more likely to facilitate multilateral, multi-issue cooperation in situations where the environmental policy stakes are small relative to the welfare effects of trade policies; when the costs of environmental compliance are high, a conditionality rule can hinder multilateral cooperation. Separation can undermine cooperation by limiting punishment, but can also promote broad cooperation by making partial cooperation more diffcult to sustain. Thus, how different linkage regimes affect multilateral negotiations depends on the structure of cooperation incentives for the countries involved

Issue Linkage and Issue Tie-in in Multilateral Negotiations

We describe a model of international, multidimensional policy coordination where countries can enter into selective and separate agreements with different partners along different policy dimensions. The model is used to examine the implications of negotiation tie-in - the requirement that agreements must span multiple dimensions of interaction - for the viability of multilateral cooperation when countries are linked by international trade flows and transboundary pollution. We show that, while in some cases negotiation tie-in has either no effect or can make multilateral cooperation more viable, in others a formal tie-in constraint can make an otherwise viable joint multilateral agreement unstable.international cooperation, trade and environmental policy negotiations

Self-Enforcing International Agreements and Domestic Policy Credibility

We explore the relationship between international policy coordination and domestic policy credibility when both must be self-supporting. Our arguments are presented in the context of a two-country, two-period model of dynamic emission abatement with transboundary pollution, where government policies suffer from a time-consistency problem. In the absence of repeated interaction, any form of coordination - between governments, and between governments and their respective private sectors - improves policy making. Nevertheless, under repeated interaction international policy spillovers can make it possible to overcome the domestic credibility problem; and, conversely, the inability to precommit to policy domestically can help support international policy cooperation.policy commitment, self-enforcing international agreements

Many multinationals may pull out of the UK if it leaves the Customs Union

As March 2019 draws closer, the UK government remains divided over the type of trade relationship it wants to achieve in the ongoing negotiations with the EU. Paola Conconi (ULB/LSE) explains why Japanese multinationals may pull out of the UK in case of a hard Brexit, one which would mean there is no kind of customs union with the EU

Strategic trade policy and the threat of regionalism

We examine the formation of trade agreements when markets are characterized by imperfect competition and governments can alter the strategic interaction between oligopolistic firms through the use of import tariffs and export subsidies. Using a simple three-country model of intra-industry trade, we show that whether preferential trade agreements are stepping stones or stumbling blocs towards the attainment of multilateral cooperation depends on the degree of product di¤erentiation and industry concentration. However, when import tariffs are the only available policy instrument, global free trade is always sustainable. Our analysis provides a rationale for the recent attempts to strengthen international rules against the use of export subsidies. It also suggests that focusing on one dimension of strategic interaction only might result in drawing incorrect conclusions about the outcome of the trade negotiations

Trade bloc formation under imperfect competition

We examine the endogenous formation of trade blocs when markets are characterized by imperfect competition and governments use import tariffs and export subsidies to alter the strategic interactions between oligopolistic firms. Using a simple model of intra-industry trade between three ex-ante symmetric countries, we find that, while 'pure' customs unions - entailing tariff cooperation only - are stepping stones towards global free trade, 'impure' customs unions - involving the coordinated use of both tariffs and subsidies - are stumbling blocs against it. Our analysis suggests that an international ban on export subsidies could held to sustain global free trade

Green and producer lobbies: enemies or allies?

In this paper we employ a common agency model to study the role of green and producer lobbies in the determination of trade and environmental policies. We focus on two large countries that are linked by trade flows and transboundary pollution externalities. We show that the nature of the relationship between lobbies and the relative efficiency of unilateral and cooperative policy outcomes depend crucially on three factors: the type of policy regime, whether governments act unilaterally or cooperatively, and the extend of the 'pollution leakages'

Is Partial Tax Harmonization Desirable?

We consider a setting in which capital taxation is characterized by two distortions working in opposite directions. On one hand, governments engage in tax competition and are tempted to lower capital tax rates. On the other hand, they are unable to commit to future policies and, once capital has been installed, have incentives to increase taxes. In this setting, there exists a tax that optimally trades off the two distortions. We compare three possible tax harmonization scenarios: no tax harmonization (all countries set taxes unilaterally), global tax harmonization (all countries coordinate their capital taxes), and partial tax harmonization (only a subset of all countries coordinate capital taxes). We show that, if capital is sufficiently mobile, partial tax harmonization benefits all countries compared to both global and no harmonization.Tax Competition ; Commitment ; Partial Coordination