Search results

This chapter provides a formal analysis of the economic welfare effects for large and small partners to free trade agreements. Michaely (1998) has demonstrated that large country welfare is U-shaped in the small country's size. I derive the welfare for the large country for all possible small country sizes, and show that the maximum possible loss for the large country is twice its tariff revenue. I identify the data necessary to estimate the welfare effects and consider how initial trade volumes, tariffs, and international price differences affect the large country's welfare.

Much of the literature on strategic trade policy deals with industries and sectors characterized by international rivalry for market shares, and the struggle to capture “rents” over and above normal factor rewards. The present paper explores the validity and implications of strategic trade policy for small “states” and small firms that are not major players in international markets. The smallness of the firms may, in fact, be an advantage rather than a hindrance. The implications of smallness for strategic behavior are examined in the framework of a simple game-theoretic framework. These insights become sharper when extended to intra-industry trade in differentiated products. The desirable policy interventions for small countries and firms are quite different from those for large firms.

The chapter discusses the characteristics of audiovisual (AV) media sectors in the Baltic Sea region. Therein it focuses on the specifics of media industries in small countries in the region as they are challenged in ways notably different from large countries with large domestic markets for media content. It discusses the differences between the AV media industries in the Nordic and Baltic countries and suggests that while in the first case long-term welfare society policies and conscious policy-driven system building have conditioned growth and international success then also in the second case innovation policy rationales have facilitated recent growth and dynamics. It then discusses the specific challenges, especially platformisation to small media industries in contemporary globalising media markets, and suggests that opportunities to resist these challenges may be in local inter-sectoral cooperation, that is, in building cross-innovation systems.

We have used the Michigan computable general equilibrium (CGE) model of World Production and Trade to calculate the aggregate welfare and sectoral employment effects of the menu of U.S.–Japan trade policies. The menu of policies encompasses the various preferential U.S. and Japan bilateral and regional free trade agreements (FTAs) negotiated and in process, unilateral removal of existing trade barriers by the two countries, and global (multilateral) free trade. The U.S. preferential agreements include the FTAs approved by the U.S. Congress with Chile and Singapore in 2003, those signed with Central America, Australia, and Morocco and awaiting Congressional approval in 2004, and prospective FTAs with the Southern African Customs Union (SACU), Thailand, and the Free Trade Area of the Americas (FTAA). The Japanese preferential agreements include the bilateral FTA with Singapore signed in 2002 and prospective FTAs with Chile, Indonesia, Korea, Malaysia, Mexico, Philippines, and Thailand. The welfare impacts of the FTAs on the United States and Japan are shown to be rather small in absolute and relative terms. The sectoral employment effects are also generally small in the United States and Japan, but vary across the individual sectors depending on the patterns of the bilateral liberalization. The welfare effects on the FTA partner countries are mostly positive though generally small, but there are some indications of potentially disruptive employment shifts in some partner countries. There are indications of trade diversion and detrimental welfare effects on nonmember countries for some of the FTAs analyzed. Data limitations precluded analysis of the welfare effects of the different FTA rules of origin and other discriminatory arrangements.

In comparison with the welfare gains from the U.S. and Japan bilateral FTAs, the gains from both unilateral trade liberalization by the United States, Japan, and the FTA partners and global (multilateral) free trade are shown to be rather substantial and more uniformly positive for all countries in the global trading system. The U.S. and Japan FTAs are based on “hub” and “spoke” arrangements. We show that the spokes emanate out in different and often overlapping directions, suggesting that the complex of bilateral FTAs may create distortions of the global trading system.