Henrik Horn

Beyond the WTO? An Anatomy of EU and US Preferential Trade Agreements

This Blueprint looks in detail at all the provisions of all the PTAs signed by the EC or the US and other WTO members. Henrik Horn, Petros C. Mavroidis and Andre Sapir find that Europe and the US have adopted different approaches to PTAs; however, both powers may also be seeking to project their priorities.(This abstract was borrowed from another version of this item.)

Merger Policies and Trade Liberalisation

This paper is about the interactions between trade policy and a narrow but important aspect of competition policy, namely merger policy. We focus on links between merger policies and trade liberalisation. We put special emphasis on the topical issue of the role that international agreements such as the GATT play when merger policies are nationally chosen. Of particular concern is the possibility that liberalisation of international trade will induce countries to use competition policies to promote national interests at the expense of others.

Wage Formation and the Persistence of Unemployment

The basic idea is that employed and unemployed workers have diverging interest s and that wage decisions tend to favor the interest of those employe d. This is shown to imply that unemployment, once created, tends to p ersist after wage contracts have been negotiated anew. The reason is that the lower the number of workers employed yesterday, the fewer th e number of jobs required today in order to ensure the previously emp loyed workers a high probability of employment. Unions, acting in th e interest of the employed workers, may therefore raise wages so that unemployment persists. Copyright 1987 by Royal Economic Society.

Infant-Industry Protection Reconsidered: The Case of Informational Barriers to Entry

In industries with imperfect consumer information, the lack of a reputation puts latecomers at a competitive disadvantage vis-a-vis established firms. We consider whether the existence of such informational barriers to entry provides a valid reason for temporarily protecting infant producers of experience goods and services. Our model incorporates both moral hazard in an individual firms choice of quality and adverse selection among potential entrants into the industry. We find that infant-industry protection often exacerbates the welfare loss associated with these market imperfections.

Exchange rate policy, wage formation and credibility

Abstract Since the collapse of the Bretton Woods system, some European countries have pursued discretionary exchange rate policies in order to maintain or enhance the international competitiveness of the traded goods sector. These countries, which typically feature centralized wage setting, have also tended to experience high nominal wage increases. The overall outcome may be described as a ‘devaluation-wage spiral’. This paper applies two models of repeated games to analyze the strategic interaction between an exchange rate setting policy maker and a wage setting trade union. It is shown how a devaluation-wage spiral may result from a conflict of interest over the real wage. It is also shown how reputational forces may provide a way out of the devaluation-wage spiral.

Managerial effort incentives, X-inefficiency and international trade☆

Abstract A contract-theoretic general equilibrium model is employed to investigate the old idea that international competition yields welfare gains by reducing internal slack — ‘X-inefficiency’ — in firms. This popular notion is partly supported in that trade is shown to yield welfare gains by inducing increased supply of a non-contractible factor, which initially is socially under-supplied. However, it is also shown that common statements such as ‘gains from reduced X-inefficiency’ do not seem meaningful. Furthermore, contrary to popular belief, trade need not benefit the X-inefficient economy more than the X-efficient economy.

National Treatment in the GATT

The National Treatment clause (NT) is the first-line defence in the GATT (and in most other trade agreements) against opportunistic exploitation of the inevitable incompleteness of the agreement. This paper examines the role of NT as it applies to internal taxation under the GATT. It is shown that despite severely restricting the freedom to set internal taxes, NT may improve government welfare. But it will not completely solve the incomplete contract problem it is meant to remedy. Furthermore, it requires a high degree of economic sophistication on behalf of trade negotiators in order for this beneficial effect to materialize.

Trading Profiles and Developing Country Participation in the WTO Dispute Settlement System

It has been alleged since its inception that the WTO Dispute Settlement (DS) mechanism is biased against developing countries, as manifested in e.g. allegedly too low rates of dispute initiation. To shed light on this issue, this study analyses the determinants of developing country participation in the DS system, using bilateral industry-level trade data, and a data set on dispute initiation that is significantly richer than what has been employed in the literature. But the study also points to a number of fundamental conceptual and data problems that beset the whole empirical literature that seeks to draw policy conclusions based on country participation in the DS system. While perhaps appreciated by researchers working in this area, these problems appear to go unnoticed by practitioners drawing on this literature.

European Communities – Measures Affecting the Approval and Marketing of Biotech Products

The EC-Biotech dispute exposed the WTO dispute settlement system to a more challenging test than any previous dispute. Not only did the Panel have to take a stand on the limits of science, or technocratic regulatory controls, to protect against objective risk, but in this regard faced more complex issues than ever addressed before by an adjudicating body. The dispute also concerned an extremely charged political issue, partly because of inherent ethical sensitivities with regard to foodstuffs, partly due to public skepticism about the role of science, and partly due to a common public perception of the complaint as being driven by the interests of an untrustworthy industry. Because of these and other challenges, the Panel faced an almost impossible task. This paper discusses how the Panel addressed some of these issues. The recently (after our report was drafted) decided appeal in EC–Hormones Suspension is likely to reduce the significance for WTO jurisprudence of some of the Panels findings in EC–Biotech, given the apparently different approach of the AB to fundamental interpretative issues under SPS concerning the meaning of risk assessment and precaution.

Trade unions and optimal labour contracts

The recently revived literature on wage and employment determination under trade unionism, has, in our opinion, contributed important insights into the functioning of especially European labour markets. It suffers, however, from a potentially serious deficiency: with a few exceptions it neglects completely the issue of risk-shifting between workers and employers.3 In particular, it disregards entirely the possibility of such risk-shifting in economies characterized by more or less encompassing trade unions and centralized wage setting, as e.g. the Scandinavian countries, the Netherlands and Austria. A typical feature of trade unions in these countries is that they are not only concerned with wage setting, but strive in various ways to increase their member’s welfare at the expense of the employers, by reducing their members’ exposure to risk. For instance, unions demand limits to the employers’ right to require overtime or co lay off workers, or they demand occupational safety rules, work injury insurance, health insurance, etc. An actual employment contract hence not only entitles the worker to a certain wage and the employer to a certain number of working ho urs in return, but is really a package of rights and responsibilities for both parties. Increases in the amount of insurance such a package provides are sometimes explicitly declared to be obtained through foregone wage increases. While risk-shifting hence is of prime importance to real world unions, the formal trade union literature is almost entirely concerned with wage and employment setting under certainty.