The Optimal Trade Bargaining Strategies in the. Negotiation of DDA*

Transcription

1 The Opiml Trde rgining regies in he egoiion of * Young-Hn Kim** ugus 003 bsrcs: This pper exmines he opiml rde negoiion sregies in he rde negoiion involving muli-pries such s oh evelopmen gend which is chrcerized by symmeric muliple negoiors wih muli-rde issues. ue o he consensus rule which is he forml decision mking rule of WTO bilerl brgining formul is ofen ken simulneously wih he mulilerl brgining formul. We demonsre h he lrge economy which migh pose fundmenl objecion prefers he sequenil bilerl negoiion while mulilerl negoiion from he iniil sge of brgining is welfre dominn for smll economies. World welfre is lso improved wih he dopion of mulilerl negoiing regime from he iniil sge of negoiion compred o bilerl negoiion. Key Words: Opiml egoiion regies Mulilerl rgining onsensus Rule of WTO JE lssificion: F1; F13; F15 * This pper is prepred for he presenion ETG 003 meeing Mdrid. Mny vluble commens by he pricipns of he economics workshop of ungkyunkwn Universiy nd onference of he ssociion of Trde nd Indusry udies re deeply pprecied. This work ws suppored by Kore Reserch Foundion Grn (KRF ** eprmen of Economics ungkyunkwn Universiy eoul ouh Kore E-mil: kimyh@skku.edu Tel; Fx:

2 1. Inroducion The drmic greemen o lunch oh evelopmen gend s new mulilerl rde negoiion forum of WTO oh Qr in 001 significnly reduced he fer of he dedlock of he inernionl rding regime. Wih he lunch of mny criicl issues nd gend re under negoiion wih vrious ypes of brgining formul depending on he chrcerisics of brgining gend nd negoiing pries. ouh Kore for exmple is supposed o mke dels on mrke opening in griculurl commodiy mrkes nd vrious service secor mrkes. In ddiion mulilerl negoiion o se up more rigorous inernionl rules of ni-dumping mesures nd oher rde remedy mesures is srongly suppored by mny ewly Indusrilized counries in ddiion o Koren mnufcurers. epending on he chrcerisics of issues he mrke power of negoiing pries vries. ouh Kore commnds mrke power in severl mnufcured goods such s semi-conducors nd shipbuilding indusries while i is price ker in griculurl commodiies nd oher service secor indusries. ll hese feures of of WTO cn be chrcerized s negoiion over muliple issues beween symmeric muliple negoiion pries. Moreover he mjor decision-mking rule of WTO is he consensus rule which is differen from he mjoriy rule or he unnimiy rule. ccording o he consensus rule mulilerl greemen is reched WTO when no delegion physiclly presen in he ouncil hs fundmenl objecion on n issue. This consensus rule ensures h only decisions on which here is no mjor opposiion nd consequenly which hve good chnces of being implemened re mde. ue o he consensus rule bilerl brgining formul is ofen ken simulneously wih he mulilerl brgining formul o ddress ny possible mjor opposiion. Refer Hoekmn & Kosecki (001 for he more deiled discussion on he consensus rule.

3 The nlysis of he equilibrium srucure in inernionl rde negoiion hs is origin in clssic works of sh (1950 nd Rubinsein (198. The pplicion of hese clssic xiomic nd exensive brgining heories ino inernionl rde negoiion nlysis cn be cegorized ino 3 groups. The firs group is composed of ixi (1987 gwell nd iger (1990 nd Riezmn (1991 who exmine issues of rde cooperion by wy of wo-counry model in which governmens choose rde policies in repeed-gme seing. They show h here re muliple brgining equilibri including inefficien ones nd sugges h mulilerl rding regime such s WTO my help counries o coordine on more efficien equilibri. The second group focuses on he role of mulilerl rding regime focusing on he informion-ghering role of WTO led by Hungerford (1991 Kovenoch nd Thursby (199 nd Mggi (1999. This pproch focuses on he informion-ghering role of WTO h enbles o discern beween rue violions of he greemen hus fciliing he use of bilerl repuion mechnism o suppor cooperion. The hird group exmines he role h prive informion plys in he operion of rde policies. Jensen nd Thursby (1990 nlyze non-cooperive rde policy gme while he operion of rde policies in cooperive seing were nlyzed by Feensr nd ewis (1991 c nd Rff (1997 nd Mclmn (00. Finlly he nlysis on rde negoiion mong symmeric counries is ddressed by Myer (1981 Kennn nd Riezmn (1988 Mcren (1997 Furusw (1999 nd Prk (000. Especilly Furusw (1999 hs shown h more pien counries gin more from negoiion when he ime lg in he negoiion is shor nd Prk (000 demonsres h direc rnsfer migh improve he welfre effec in negoiion mong symmeric counries bsed on bilerl brgining formul. While he erlier sudies hve significnly exended he undersnding of inernionl rde negoiion mechnism he equilibrium srucure of mulilerl rde negoiion mong symmeric counries hs no been ddressed ye. In ddiion he comprive welfre nlysis of bilerl nd mulilerl negoiion regime mong

4 symmeric counries hs no been ried ye. The im of his pper is o exmine hese unexplored issues focusing on he symmery in erms of counry size which will hve symmeric impcs on ech counry s role nd influence in he WTO negoiion process under he consensus rule. The purpose of his pper is o exmine he opiml negoiion sregies in he ew Round Trde egoiion which is chrcerized by symmeric muliple plyers. sed on he model which focuses on he symmery of negoiors in erms of mrke size nd he resuling symmery in negoiing power we demonsre h he lrge economy prefers he bilerl rding regime while mulilerl brgining regime is welfre dominn for smll economy. World welfre is lso improved wih he dopion of mulilerl negoiing regime. This pper is orgnized s follows. ecion explins he model srucure o nlyze he opiml brgining sregies beween symmeric counries nd he non-cooperive mulilerl rde policy gme which is equivlen o he rde wrfre se is discussed s benchmrk discussion. In secion 3 he equilibri under he globl rde policy cooperion he mulilerl rde policy cooperion under he consensus rule nd he bilerl rde policy cooperion re exmined. ecion 4 exmines he opiml rde negoiion sregies for ech differen ype of counry bsed on he equilibri obined in secion 3 nd secion 5 discusses he policy implicions nd concludes. The mjor feure of oh evelopmen gend of WTO is h i i is negoiion beween symmeric muliple negoiors nd h ii i is single underking of muli-rde issues bsed on issue-linkge sregies. In h conex he nlysis on he equilibrium issue-linkge sregy should be germne pr of he nlysis. This pper s n iniil sudy o exmine he equilibrium negoiion sregies mong symmeric mulilerl negoiors focuses on he mulilerl negoiion on single issue riff negoiion issue. The nlysis of he equilibrium issue-linkge sregy in mulilerl negoiion would be mjor sk of fuure sudies s n exension of presen model nlysis.

5 . The Model. ssume h here is one lrge counry nd hree smll counries nd he inverse demnd funcion of ech counry is s follows: P bq where i nd Q i is he ol quniy demnded in mrke i. There is one represenive firm in ech counry. The inverse demnd funcion in counry is given s follows: P b( χ χ χ q x i where q is he oupu of firm for he home mrke nd is he oupu produced by he firm in counry o expor o counry. When we ssume h he mrginl producion cos is sme mong four counries he profi funcion of firm is described s: ( P c q ( P c χ ( P c χ ( P c χ (1 i where is he impor riff imposed by counry i. i The inverse demnd funcions nd he profi funcions for re defined in he sme wy respecively. The governmen of ech counry decides is rde policy i.e. he impor riff level nd hen ech firm decides is oupu sregy fer i observes he rde policies. In his wo-sge gme he equilibrium mrke condiion cn be obined by bckwrd inducion. Wih he consensus rule s he forml decision mking rule of WTO i is ssumed h mulilerl greemen is reched only when here is no fundmenl objecion from mjor rding counry. To consider he effec of he consensus rule in he model we ssume h mong four counries counry is lrge counry which migh pose mjor opposiion while counry re relively smll counries. In ddiion when wo smll counries form coliion he coliion migh rise fundmenl objecion while ech individul smll counry hs no chnce of offering he mjor opposiion. Therefore mulilerl rde greemen under he consensus rule is reched only when here is no objecion from counry or from ny coliion of smll counries. 3 3 Every counry in his model hs he mrke power in he sense h even he counry wih smll

6 We ssume h ech counry simulneously decides he opiml riffs. I is ssumed h he riff re of ech counry includes he impc of non-riff brriers. Therefore even wih he differen riff res wih respec o differen counries he Mos Fvored ion cluse is no violed. In he mulilerl rding sysem he cooperive rde regime cn be suppored only when he lrge economy joins he mulilerl greemen while he cooperion from he every smll counry is no necessry condiion under he consensus rule. The non-cooperive rde policies under mulilerl negoiion regime The cse of non-cooperive mulilerl rder is exmined when echnologies re symmeric s benchmrk discussion while he mrke size of counry is ssumed o be significnly lrger hn hose of smll counries. 5 When ech counry s rde policy is decided in non-cooperive wy he non-cooperive sh riffs of counry under he simulneous decision-mking process re decided in he following wy. y bckwrd inducion he equilibrium oupu of he firm in ech counry is deermined firs. The bes response funcions of firm in ech mrke re derived from he profi mximizion problem wih respec o oupu levels s sregic vribles. The bes response funcions of firm re derived in he sme wy. Then he four represenive firms equilibrium oupus in counry re decided s follows by solving four firms recion funcions in counry simulneously ssuming he mrginl cos (c o be 0 for he simpliciy of exposiion: 6 mrke size cn influence he mrke price due o he oligopoly mrke srucure in which he equilibrium price is derived from he bes response funcion of ech counry. Therefore discussion of he consensus rule nd he mjor opposiion in he conex of mrke power is improper in his model. Hence i is ssumed h he counry wih lrges mrke size nd coliion beween ny wo counries migh pose fundmenl objecion in he conex of he consensus rule. The opiml riffs re exmined in ech cse of rde negoiion regime including he cse when he rde policy coliion is formed. The cse of globl rde cooperion mulilerl rde cooperion nd he bilerl rde cooperion re he cses of coliion only differing in he number of coliion members. The cse of globl rde wrfre in his pper denoes he cse when here is no coliion in he process of rde negoiion. The mrke size of counry cn be described by he vericl inercep of he inverse demnd funcion in counry i.e.. When we denoe he inercep of inverse demnd funcions of smll counries s 1 for simpliciy he symmery in mrke size cn be described s >> 1. 6 The concviy of he objecive funcion of he represenive firm nd he governmen is shown s

7 q 3 χ χ χ ( Wih symmeric echnologies nd demnd funcions he equilibrium oupu in counry nd re respecively: q q q 3 χ χ χ 3 χ χ χ (3 3 χ χ χ 3 Ech firm sells in is domesic mrke by he moun of foreign mrkes by he moun of j in equilibrium where i i nd in hree represens he riff re of he home counry nd j is he riff re imposed by he foreign counry. The socil welfre funcion of he counry is defined s he summion of he consumer surplus he producer surplus nd he governmen surplus i.e. he impor riff revenue: W P G ( P dp ( χ χ χ P* (4 Wih he coninuously qusi-concve well-behving socil welfre funcion he opiml rde policy for counry under he non-cooperive rde regime is derived s soluion of he firs order condiion of he socil welfre mximizion problem wih respec o he riff s follows: * 3( c /11 3 / 11 where c 0. 7 When ech counry s rde policy is decided in non-cooperive wy he non-cooperive follows even wih he zero cos ssumpion: W s. o. c. b < 0 s. o. c. b < 0 q. This q concviy of he objecive funcion is obined from he ssumpion of he ourno fshion compeiion wih he downwrd sloping demnd funcion. However he inroducion of he symmeric cos srucure ino he model would provide more bundn insighs which would be he sk of he fuure sudy. 7 We check he cse when echnologies re symmeric i.e. c 0 while he mrke size of ( is significnly lrger hn hose of smll counries which is ssumed o be 1 wihou loss of generliy: >> 1.

8 sh riff of counry under simulneous decision mking re respecively: 3/11 3/11 3/11 nd 3/11. The reson h ech counry s riff is independen from ech oher counry s mrke size is h hree mrkes re sepred mrkes. In his non-cooperive rding regime he socil welfre of counry re obined by subsiuing he equilibrium riffs nd equilibrium oupus ino he socil welfre funcions respecively s follows: 3( 33 4b 103 4b 103 4b nd 103 4b leding o he world welfre level of b. These pyoffs nd opiml riffs from he non-cooperive rde regime re equivlen o he cses of he rde wrfre se. 3. Equilibri under he cooperive rde regime 3.1 Globl rde policy cooperion wih he unnimiy rule There re hree differen ypes of negoiion formul o rech cooperive rde regime. The firs ype is he globl rde policy cooperion wih he unnimiy rule in which ll counries bide by he cooperive rde policies wihou exempion. The second wy o rech cooperive rde regime is mulilerl rde negoiion bsed on he consensus rule. Reflecing he chrcerisics of he consensus rule which ssume h n greemen is reched when here is no fundmenl objecion mulilerl rde greemen cn be chieved when les he lrge economy nd he wo of he smll counries rech n greemen due o our ssumpion h coliion beween smll counries migh rise fundmenl objecion. In his mulilerl greemen les hree counries including he lrge counry should bide by he cooperive rde policies simulneously. The policy commimen for free rding regime is credible only when i sisfies he self-enforcing condiion becuse we ssume here is no credible inernionl enforcemen mechnism s observed in he reliy. The hird ype of negoiion o rech cooperive rde regime is he bilerl negoiion.

9 If he rde cooperion is rrnged by bilerl negoiion jus beween wo counries while wo oher counries keep non-cooperive sregies he rde regime will be prilly cooperive regime. 8 We exmine which rde negoiion regime mong hree ypes of rde policy cooperion is more efficien in erms of welfre effecs for smll nd lrge counries nd he world welfre level. Firs we check he cse of globl rde policy coordinion in he unnimiy fshion. The equilibrium under globl rde policy cooperion is derived in he sme wy s in he cse of non-cooperive mulilerl regime bsed on bckwrd inducion. The recion funcions of four represenive firms re derived nd hen he firms equilibrium oupus re obined s soluions of four simulneous equions of recion funcions. Then by subsiuing hese equilibrium oupus ino he world welfre mximizion problem wih respecive o he coordined riff he opiml rde policy for ech counry is obined s specific impor subsidy by he moun of (3/1. Then wih he subsiuion of he opiml subsidy ino he welfre funcion he world welfre level of he globl rde policy cooperion is derived s WW 00b while he welfre of he lrge counry ( nd he ech smll counry ( or or re respecively: W 800b W W W. The 480b inuiion behind his resul is h becuse ech mrke is sepred he impor riff of ech counry does no provide he sregic proecion effec for domesic indusries. Therefore he impor subsidy is he bes policy wih he consumer surplus ( increse effec from he impor subsidy dominn o he governmen surplus (G decrese effec from he subsidy. For he globl free rde regime under he unnimiy rule o be susined he following self-enforcemen condiion should hold for ech lrge nd smll counry. Ech counry is ssumed o ke he rigger sregy. Then he self-enforcemen 8 The globl rde policy cooperion cn be reched hrough 6 consecuive bilerl rde greemens for free rde lso. In his model however he bilerl greemen implies he prilly cooperive rde regime o emphsize he srucurl difference beween he globl rde cooperion mulilerl cooperion nd he pril cooperion.

10 condiion for he lrge counry ( o keep he cooperive policy in n infiniely repeed rde policy gme is given s follows: I for : W ( W ( W ( (5 τ 1 The firs erm on he righ hnd side of s self-enforcemen condiion (5 represens he one-period deviion pyoff from he cooperive policy while he second erm represens s socil welfre when ll he oher counries relie wih he non-cooperive riffs from he nex period. The righ hnd side of condiion (5 represens he discouned socil welfre when ll he counries bide by he cooperive rde policies. The mximum deviion pyoff for is ined when kes he non-cooperive sh sregy while ll he oher counries bide by he cooperive policy which reches o b he cooperive sregy is given s b τ 0 nd he minimum pyoff o from. Therefore he incenive compibiliy condiion for cn be expressed s: ( b 1 4b b The bove incenive compibiliy condiion for he lrge counry which is counry is reduced o s follows: d1 ( In he sme wy he self-enforcemen condiion for smll counry comes s follows 9 : I for : W ( W ( W ( (7 τ 1 τ b b b 9 mong hree symmeric smll counries nd we check he cse of counry in checking he self-enforcemen condiion for he smll counries. However i does no cuse ny chnge if we check he cse wih counry or.

11 The bove incenive condiion for smll counry is reduced o: d (8 For he globl rde policy cooperion o be susined he self-enforcing condiion for nd should hold simulneously. 3. The mulilerl negoiion equilibrium under he consensus rule ow we check he cse of mulilerl negoiion under he consensus rule where he cooperive rde greemen cn be reched when les he lrge economy i.e. counry nd wo of smll counries ( nd for exmple rech n greemen. The equilibrium riffs nd he oupu mouns of he represenive firm re derived by he bckwrd inducion s in he erlier cse. In his cse he cooperive riff for he counries who coopere such s counry under consensus rule is: (/51 while he opiml riff of he counry who does no join he coordinion is 3/11 which is sme s he non-cooperive riff level. y subsiuing he equilibrium oupu levels nd he riffs ino he socil welfre funcion of ech counry which is composed of consumer surplus producer surplus nd he governmen surplus counry nd s welfre re obined s follows: he lrge counry ( s socil welfre: W nd s welfre: 95650b W W 95650b s welfre: W nd he world welfre: b WW b The mulilerl rde policy cooperion under he consensus rule is susinble when he following incenive compibiliy condiion is held The mximum deviion pyoff for under mulilerl negoiion is ined when kes he deviion sregy while ll he oher counries bide by he cooperive policy which reches o b.

12 I for : (9 0 1 ( ( ( τ τ W W W b b b ( The incenive compibiliy condiion for i.e. counry o keep he cooperive rde policy is reduced o he following condiion: (71 d (10 The bove self-enforcemen condiion holds lwys becuse he discoun fcor for is ssumed o be non-negive. I mens h under mulilerl negoiion he lrge counry hs no incenive o devie from he cooperive rde policy. The inuiion behind his resul is h under he ssumpion of sepred mrkes he riff hs no sregic effec in proecion for domesic producers. Therefore under he consensus rule he deviion pyoff is no high enough o induce he deviion becuse one smll counry is lredy lef ou of he policy coordinion. Therefore he lrge counry hs n incenive o keep he cooperive rde policy lwys. In he sme wy he self-enforcemen condiion for smll counry comes s follows: I for : ( ( ( ( τ τ W W W b b b The bove incenive condiion for under mulilerl negoiion is reduced o: ( (131 4 d (1 For he mulilerl rde policy cooperion o be susined he self-enforcing condiion for nd should hold simulneously. However s he self-enforcing condiion of lwys holds he probbiliy for he mulilerl cooperion is much higher hn he cse of globl rde policy cooperion.

13 3.3 ilerl negoiion equilibrium Finlly he cse of bilerl negoiion is exmined. To evlue he welfre effec of bilerl greemen he welfre effec nd he self-enforcing condiion is checked from he perspecive of smll counry nd he lrge counry. Firs we check he cse when he smll counry negoies wih lrge counry bilerlly nd he self-enforcemen condiion for o coopere wih. In his bilerl greemen beween nd he opiml riff is (1/10 which is higher hn he mulilerl negoiion cse ((/51 nd much higher hn he globl free rde cse. Then s welfre level from he bilerl rde policy coordinion wih counry is: W. s welfre under bilerl greemen wih is: 11000b W. Then he welfre level for smll counries nd 11000b which re lef ou of policy cooperion is: W W b The bilerl rde policy cooperion beween lrge economy nd he smll counry is susinble when he following incenive compibiliy condiion is sisfied. 11 I for : W ( b τ 1 1 W ( 3( 33 4b 1 1 τ 0 W ( b (1 The incenive compibiliy condiion for i.e. counry o keep he cooperive rde policy is reduced o he following condiion: 13( d5 ( The bove self-enforcemen condiion holds lwys becuse he discoun fcor for is ssumed o be non-negive. I mens h under bilerl negoiion he lrge counry hs no incenive o devie from he cooperive rde policy. The criicl vlue 11 The mximum deviion pyoff for under bilerl negoiion is obined when kes he deviion sregy which is non-cooperive riff he level of 3/ll while counry bides by he cooperive riff policy (1/10.

14 of discoun fcor suppors he self-enforcing condiion for he lrge counry lwys. Therefore i is no requied o compre he criicl vlue of discoun fcor beween he mulilerl negoiion nd he bilerl negoiion regime. However s shown in nex secion he welfre level for he lrge counry in bilerl negoiion is higher hn he cse of bilerl negoiion nd his welfre dominnce of bilerl negoiion regime for he lrge counry is refleced in he lower criicl vlue of he discoun fcor which suppors he self-enforcemen condiion. In he bilerl negoiion regime he self-enforcemen condiion for smll counry comes s follows: I for : W ( W ( W ( ( b τ b 1 1 τ b The bove incenive condiion for under bilerl negoiion is reduced o: 13( d6 ( The comprison of he criicl vlues of he smll counry s discoun fcor supporing he self-enforcemen condiion beween bilerl negoiion regime nd mulilerl negoiion regime provides n mbiguous resul wih he criicl vlue in bilerl negoiion regime being lower hn h in he mulilerl negoiion regime when he vlue of is lrger i.e. when he mrke size difference beween he lrge counry nd he smll counry becomes bigger. This resul is consisen wih he inuiion h wih he bigger mrke size difference i is more likely h he smll counry complies wih he lrge counry in he bilerl rde negoiion regime. 4. The opiml rde negoiion sregies To deermine he opiml negoiion sregies of ech counry we compre he welfre levels of he lrge economy ( s nd he smll economy in four differen rde negoiion regimes. The welfre levels of he lrge counry from four ypes of

15 rde regimes re s follows: lrge counry ( s welfre: i W (globl rde wrfre: 3( 33 4b (he non-cooperive sh equilibrium regime ii W (globl rde cooperion: iii W (mulilerl rde cooperion: iv W (bilerl rde cooperion: b b b From his comprison i is found h in cse of he lrge economy he welfre level under he bilerl rde cooperion is lwys welfre dominn o he mulilerl rde policy cooperion: W (bilerl rde cooperion - W (mulilerl rde cooperion b > 0 when > 1. In ddiion from he comprison beween ii nd iv i is found h only when he mrke size difference is no so lrge he globl rde cooperion is welfre dominn for he lrge economy. However when he mrke size difference is lrge he lrge economy prefers he bilerl greemen o he globl cooperion. Th is he lrge counry s welfre from he globl cooperion is superior o he bilerl rde cooperion only when he mrke size difference is no so lrge: W globlrdecooperion > W (bilerlrdecooperion only when 1 < < ( When we compre W (globl rde wrfre nd W (globl rde cooperion i is found h he globl rde policy cooperion provides higher welfre level o he lrge counry hn he globl rde wrfre only when he mrke size difference is relively smll: W (globl rde cooperion > W (globl rde wrfre only when 1 < < In ddiion i is found h he lrge counry ( prefers he bilerl greemen o he rde wrfre when s mrke size is close o hose of he smll counries: W (bilerl rde cooperion > W (globl rde wrfre when 1 < < However when he mrke size difference is relively lrge he lrge counry

16 ( prefers he rde wrfre: W (bilerl rde cooperion < W (globl rde wrfre when > The bove resuls show h wih he relively big mrke-size difference he lrge counry prefers he non-cooperive rde policies o cooperive policies. mong cooperive policies he lrge counry prefers he bilerl rde negoiion regime hn he mulilerl rde cooperion. Wihin he mulilerl rde cooperion he lrge counry prefers he globl rde cooperion wih he unnimiy rule o he mulilerl cooperion wih he consensus rule only when he mrke size difference is relively smll: W (globl rde cooperion > W (mulilerl rde cooperion when < In summry i hs been found h when he mrke size difference is relively lrge he lrge counry prefers non-cooperive rde policy regime nd mong rde policy cooperion prefers more limied level of cooperion. The inuiion behind his resul is h cn commnd lrger mrke power in non-cooperive rde regime. 1 In cooperive rde regime cn commnd lrger mrke power wih policy cooperion wih smller number of counries hn he cse wih lrger number of counries. On he oher hnd he smll counry s welfre levels from differen regimes of rde policy negoiion come s follows. mll counry ( s welfre levels: i W (globl rde wrfre: b ii W (globl rde cooperion: b iii W (mulilerl rde cooperion: b iv W (bilerl rde cooperion wih he lrge economy: In oher words he non-cooperive rde regime provides he lrge counry wih lrger room for he sregic behviors while i needs no worry bou he possible prisoners dilemm due o he lrge mrke size difference when he vlue of is relively lrge. The sme logic pplies o he resul h he welfre level of he lrge counry is higher in cooperive rde regime wih smller number of counries.

17 For smll counry he globl rde cooperion wih he unnimiy rule is lwys preferred o he globl non-cooperive rde wrfre: W (globl rde cooperion - W (globl rde wrfre > 0 when > 1. mong he cooperive rde policy regimes he welfre level for he smll counry from he globl rde cooperion wih he unnimiy rule is lwys dominn o h from he mulilerl rde cooperion wih he consensus rule: W (globl rde cooperion wih he unnimiy rule - W (mulilerl rde cooperion wih he consensus rule b > 0 when > 1. Finlly i is found h he smll counry lwys prefers he mulilerl rde cooperion o he bilerl rde cooperion wih he lrge counry: W (mulilerl rde cooperion - W (bilerl rde cooperion wih b > 0 when > 1. The bove resuls show h i is lwys preferble for he smll counry o coopere wih s mny counries s possible while for he lrge counry i is preferble o coopere wih smller number of counries. In ddiion here re wo wys o rech n greemen of globl cooperion i.e. i he sequenil bilerl negoiion for rde cooperion nd ii mulilerl negoiion for rde cooperion from he iniil sge. The bove resuls imply h for smll counry he opiml dynmic process o rech globl rde cooperion is he mulilerl negoiion from he iniil sge while he opiml dynmic process is sequenil bilerl negoiion for he lrge counry. From he comprison of wo negoiing regimes incenive compibiliy condiions for lrge counry o bide by he rde policy cooperion i urns ou h i is more likely h he lrge counry keeps he rde policy cooperion under he mulilerl rde policy cooperion regime under he consensus rule hn he cse of globl policy cooperion wih he unnimiy rule: d 1 > d 3 where d 1 is he criicl vlue of he discoun fcor for he self-enforcemen condiion for he lrge economy in he

18 globl rde cooperion wih he unnimiy rule while d 3 is he criicl vlue of he discoun fcor for he self-enforcemen condiion for he lrge economy in he mulilerl rde cooperion wih he consensus rule which urned ou o be negive vlue. However for smll counry he rde policy cooperion is more probble under he globl rde cooperion wih he unnimiy rule hn under he mulilerl cooperion wih he consensus rule when he mrke size difference is relively smll: d 4 > d when < However when he mrke size difference is relively lrge i is more likely h he smll counry bides by he cooperive policy under he mulilerl cooperion regime wih he consensus rule hn under he globl cooperion regime wih he unnimiy rule: d 4 < d when > The inuiion behind his resul is h when he mrke size difference is relively lrge he smll counry recognizes h he big counry is less likely o coopere in he globl rde cooperion wih he unnimiy rule nd more likely o coopere under he mulilerl cooperion regime wih he consensus rule. Therefore when he mrke size difference is relively lrge i is more likely h he smll counry complies wih he lrge counry under he mulilerl cooperion regime wih he consensus rule rher hn under he globl rde cooperion wih he unnimiy rule oncluding remrks sed on model ssuming liner demnd funcions nd he sepred mrke ssumpions i hs been found h he counry wih lrge mrke size prefers he ry non-cooperive rde policy regime becuse of he incresed mrke power enbled by he non-cooperive rde policy regime. Therefore s he dynmic negoiion sregy This resul is consisen wih he erlier resul we obined from he comprison of d nd d 4 which shows h i is more likely h he smll counry complies wih he lrge counry in he bilerl rde negoiion regime compred o he mulilerl negoiion regime wih he bigger mrke size difference.

19 leding o he globl cooperion he sequenil bilerl negoiion sregy is he welfre dominn negoiion sregy for he lrge economy. However for smll economy i hs been shown h he cooperive rde regime wih lrger number of counries provides higher welfre. Therefore he opiml negoiion sregy for smll economy owrd he globl rde cooperion is o pursue he mulilerl negoiion wih s mny negoiing counries s possible from he iniil sge of he negoiion. The bove resuls provide severl policy implicions on negoiion sregies. In he negoiion of mrke opening for griculurl commodiies nd service mrkes he counry wih lile mrke power should void he inerim bilerl negoiion. In he cul experience of WTO negoiion i hs been observed h he green room negoiion beween few mjor skeholders is he engine of mulilerl negoiion. In oher words he bilerl negoiion or he negoiion beween limied number of counries is he mjor mens o rech mulilerl negoiion in reliy. In his conex he counry wih lile mrke power in he negoiion gend should minimize he chnces for he green room negoiion. In sed hose counries wih smll mrke size should resor o he mulilerl negoiion nd coliion formion sregy if vilble from he iniil sge of he WTO negoiion. The model in his pper cn be exended o inroduce he symmery beween he negoiion counries such s in discoun fcors reflecing he symmery in negoiion power in ddiion o he disgreemen pyoffs. The echnology differences beween he negoiing pries nd incomplee informion in mulilerl negoiion re lso imporn fcors chrcerizing he negoiion sregies in mulilerl negoiion. These issues should be ddressed in he fuure sudies. References c M nd H. Rff (1997 heory of rde concessions. Journl of Inernionl

20 Economics 4: gwell Kyle; iger Rober (1990 Theory of Mnged Trde mericn Economic Review 80: lig ndeep (1995 Mulilerl brgining wih Imperfec Informion Journl of Economic Theory 67 p enne Eline (1997 Mulilerl rgining Problems Gmes nd Economic ehvior 19 pp onconi Pol & rlo Perroni (00 Issue inkge nd issue ie-in mulilerl negoiions Journl of Inernionl Economics 57 pp ixi vinsh (1987 regic specs of Trde Policy dvnces in economic heory: Fifh World ongress pp Feensr Rober & T. ewis egoied Trde Resricions wih Prive Poliicl Pressure Qurerly Journl of Economics Volume 106 Issue 4 pp Furusw T. (1999 The negoiion of susinble riffs Journl of Inernionl Economics 48: Hoekmn. nd M. Kosecki (001 The Poliicl Economy of he World Trding ysem Oxford: Oxford Universiy Press. Hungerford Thoms (1991 GTT: ooperive Equilibrium in oncooperive Trding Regime? Journl of Inernionl Economics Volume 31 Issue 3-4 pp Jensen Richrd & M. Thursby (1988 Triffs wih Prive Informion nd Repuion Journl of Inernionl Economics Volume 9 Issue 1- pp Kennn John & R. Riezmn o ig ounries Win Triff Wrs? Inernionl Economic Review Volume 9 Issue 1 Februry 1988 pp Kovenock n & M. Thursby (199 GTT ispue elemen nd ooperion Economics nd Poliics 4: Krishn Vijy & R. errno (1996 Mulilerl rgining Review of Economic udies 63 p Mggi Giovnni (1999 The role of mulilerl insiuions in Inernionl rde cooperion The mericn Economic Review 89 n. 1. pp Myer W. (1981 Theoreicl onsiderions on egoied Triff djusmens Oxford Economic Ppers 33: Mclmn P. (00 Muli-lerl rde negoiions nd he Mos Fvored ion cluse Journl of Inernionl Economics 57 Issue 1:

21 Mcren J. (1997 ize sunk coss nd Judge owker's objecion o free rde mericn Economic Review 87: sh John (1950 The rgining Problem Economeric 18: Prk J. (000 Inernionl Trde greemens eween ounries of symmeric ize Journl of Inernionl Economics Vol. 50 pp Riezmn Rymond (1991 ynmic Triffs wih symmeric Informion Journl of Inernionl Economics v30 n3-4 pp Rubinsein. (198 Perfec equilibrium in brgining model Economeric 50 pp