Fast-Track Authority: A Hold-Up Interpretation.

69 Pages Posted: 13 Mar 2018 Last revised: 17 Nov 2019

See all articles by Levent Celik

Levent Celik

City, University of London; Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute); National Research University Higher School of Economics

Bilgehan Karabay

RMIT University, School of Economics, Finance and Marketing

John McLaren

University of Virginia; NBER

Date Written: February 1, 2019

Abstract

A central institution of US trade policy is Fast-Track Authority (FT), by which Congress commits not to amend a trade agreement that is presented to it for ratification, 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 government negotiates a trade agreement with the government of a smaller economy, as the negotiations proceed, businesses in the partner economy, anticipating the opening of the US market to their goods, may make sunk investments to take advantage of the US market, such as quality upgrades to meet the expectations of the demanding US consumer. As a result, when the time comes for ratification of the agreement, the partner 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 has less bargaining power than it did ex ante, and so Congress can make changes that are adverse to the partner. As a result, if the US wants to convince such a partner country to negotiate a trade deal, it must first commit not to amend the agreement ex post. In this situation, FT is Pareto-improving.

Keywords: Fast-Track Authority; Trade Policy; Hold-up; Rules of Origin; Trade Agreements

JEL Classification: F13; F15

Suggested Citation

Celik, Levent and Karabay, Bilgehan and McLaren, John, Fast-Track Authority: A Hold-Up Interpretation. (February 1, 2019). Available at SSRN: https://ssrn.com/abstract=3139181 or http://dx.doi.org/10.2139/ssrn.3139181

Levent Celik

City, University of London ( email )

Northampton Square
London, EC1V 0HB
United Kingdom

HOME PAGE: http://www.city.ac.uk

Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute) ( email )

Politickych veznu 7
Prague 1, 111 21
Czech Republic

HOME PAGE: http://www.cerge-ei.cz

National Research University Higher School of Economics ( email )

Myasnitskaya 20
Moscow, Moscow 101000
Russia

HOME PAGE: http://www.hse.ru/en/

Bilgehan Karabay

RMIT University, School of Economics, Finance and Marketing ( email )

445 Swanston Street.
Bld. 80, Level 11
Melbourne, 3000
Australia

John McLaren (Contact Author)

University of Virginia ( email )

P.O. Box 400182
Charlottesville, VA 22904-4182
United States
434-924-3994 (Phone)
434-982-2904 (Fax)

NBER

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
15
Abstract Views
370
PlumX Metrics