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From:
[log in to unmask] (Pat Gunning)
Date:
Fri Mar 31 17:18:44 2006
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Following up on earlier posts, I think that the public choice argument  
would take account of the difference between the power of the head of  
state and the power of the legislative branch of the government. Heads  
of state have the power to negotiate multilateral trade agreements,  
although they typically cannot pass the legislation needed to sign the  
agreement. Legislators typically have no power to negotiate such agreements. 
 
To see the difference, one must first understand the positions of the  
special interests under alternative free trade proposals. Consider first  
unilateral free trade. If a president or legislator advocates unilateral  
free trade, he will find himself disliked by firms that face competition  
from imports because these firms are relatively certain they will lose  
and their losses are significant. He will be liked by potential  
exporters or other beneficiaries who understand the economics of  
international trade. (Under the usual assumptions, dinars spent on  
foreign goods must eventually be spent by the foreigners on domestic  
goods or something that benefits citizens.) But these people don't study  
international trade theory and, even if they did, the gains to any  
particular exporter or other beneficiaries are uncertain, particularly  
in a competitive market. People in their role as consumers, of course,  
stand to gain from free trade. But the benefits to each are relatively  
small. Moreover, there is rational ignorance about the effects of  
government policies, leaving most consumer-voters in the dark about the  
effects of trade policies. So the special interest anti-free trade group  
is relatively strong in the pressure group competition that influences  
presidents and legislators. 
 
That strength is reduced in a bilateral trade agreement, as the gains to  
some exporters become more certain. Also a bilateral agreement can often  
be tailored so that it does not hurt particularly important special  
interest domestic producers and so that particularly important exporters  
are pinpointed as beneficiaries. 
 
Multilateral agreements /significantly/ reduce the relative strength of  
firms facing import competition by significantly strengthening the  
interests of exporters. Thus GATT, the ECM, and WTO could be more  
successful from a political standpoint than unilateral decisions and  
bilateral trade agreements. As I recall, this argument, or something  
like it, is made in the typical international trade texts (see Krugman  
and Obstfeld for example) and also in Mankiw's introductory textbook. 
 
One complaint I have about the Lusztigs book, as reported by O'Brien, is  
partly that it fails to recognize this pressure and how it plays out,  
given the powers of the head of state and the legislature. Under most  
constitutions, only heads of state can negotiate international trade  
deals. They are subject to the same pressure as legislators, it seems to  
me, albeit more concentrated on specific legislators as Sam pointed out.  
The most important difference is not the differential concentration of  
pressure, however, but the powers. 
 
If I understand it correctly, the theory presented by Lusztigs seems to  
be a kind of after-the-fact justificationist theory. It says that  
because presidents have negotiated free trade deals, they must be  
subject to less anti free-trade pressure, on balance. The problem is  
that legislators are not even in a position to negotiate such deals. So  
how can we know the different relative pressure that they, as a group,  
would face if they were in that position? 
 
 
Pat Gunning 
 
 

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