City Research Online

Abstract

A central institution of US trade policy is Fast-Track Authority (FT), by whichCongress commits not to amend a trade agreement that is presented to it for ratifica-tion, but to subject the agreement to an up-or-down vote.We offer a new interpretation of FT based on a hold-up problem. If the US gov-ernment negotiates a trade agreement with the government of a smaller economy, asthe negotiations proceed, businesses in the partner economy, anticipating the openingof the US market to their goods, may make sunk investments to take advantage ofthe US market, such as quality upgrades to meet the expectations of the demandingUS consumer. As a result, when the time comes for ratification of the agreement, thepartner economy will be locked in to the US market in a way it was not previously.At this point, if Congress is able to amend the agreement, the partner country hasless bargaining power than it didex ante, and so Congress can make changes that areadverse to the partner. As a result, if the US wants to convince such a partner countryto negotiate a trade deal, it mustfirst commit not to amend the agreementex post.Inthis situation, FT is Pareto-improving.

Publication Type:	Monograph (Working Paper)
Subjects:	H Social Sciences > HF Commerce J Political Science > JK Political institutions (United States)
Departments:	School of Policy & Global Affairs > Economics
SWORD Depositor:	Symplectic Administrator

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