Price Undertakings, VERs, and Foreign Direct Investment: The Case of Foreign Rivalry
30 Pages Posted: 12 Jul 2007
Date Written: July 2007
Antidumping (AD) petitions are often withdrawn in favor of VERs and price undertakings. We compare foreign firms' incentive to engage in foreign direct investment (FDI) under a VER and a price undertaking, with special emphasis on foreign rivalry. We show that a VER is less likely to induce FDI than a price undertaking or AD. Thus, the importing country can increase the level of protection by replacing an AD duty with a VER. This may account for the GATT ban on VERs, given the proliferation of AD cases during the 1990s.
Keywords: FDI, price undertakings, antidumping, VER, WTO
JEL Classification: F1
Suggested Citation: Suggested Citation