A POLITICAL MODEL OF INTERNATIONAL TRADE NEGOTIATIONS: Empirical Test of US Bargaining Success

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A POLITICAL MODEL OF INTERNATIONAL TRADE
NEGOTIATIONS Empirical Test of US Bargaining
Success

• ERICK DUCHESNE
• Department of Political Science
• University at Buffalo, SUNY
• 520 Park Hall, Box 604120
• Buffalo, NY, USA 14260-4120
• [phone] x415
• Duchesne_at_buffalo.edu

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A Political Model of International Trade
Negotiations Empirical Test of US Bargaining
Success Using Section (Super) 301, 1974-1993

• OUTLINE
• I- Introduction Why Do We Need to Study
  International Trade Negotiations?
• II- Theoretical Model Of International Trade
  Negotiations and Bargaining
• III- Empirical Test Section (Super) 301
• IV- Conclusion

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The Big Picture

• Research Aim
• Develop a theory of international trade
  negotiations that can be applied to a large
  number of cases.
• Particularly, discrepancies in the level of
  success the US has.
• Link between formal (stylized) studies in
  Economics and Political Science IR Theory (and
  case studies).
• Argument
• International/domestic context and interrelation
  matter.
• It influences the distribution of the gains among
  trading partners.
• The context of negotiation influences the process
  of bargaining.

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DEFINITIONS

• BARGAINING
• Refers to the process of demand formation and
  revision which provides the basic mechanism
  whereby the parties converge to an agreement.
• NEGOTIATION
• Refers to the whole situation within which
  bargaining occurs.

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Empirical Test Section 301

• The Trade Act of 1974, under Section 301,
  expanded discretionary authority to retaliate
  against unjustifiable and unreasonable foreign
  barriers.
• Data set (75 cases)
• Sources Bayard and Elliott (1994), Reciprocity
  and Retaliation in U.S. Trade Policy, IIE. And
  various other sources. 
• Period of Study 1974-1993.
•  
• Method of Analysis Ordered Multinomial Logit.

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What is Section 301?

• An American efforts to retaliate unilaterally
  against acts, policies and practices of a foreign
  government in the area of international trade.
• It typically concerns an action taken by a
  foreign government that is seen as unfair to
  American exporters trying to compete with that
  countrys domestic producers.
• This is what distinguishes Section 301 from
  countervailing duty and antidumping actions,
  which are concerned with the effects on American
  producers of foreign imports.
• Furthermore, Section 301 is aimed at altering the
  behavior of foreign governments, while
  antidumping and countervailing duties deal
  primarily with the trade practices of foreign
  private corporations, and their relationship with
  their respective governments.

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How does initiation work?

• Section 301 actions can be commenced in two ways
  
• Either the U.S.T.R. may self-initiate an
  investigation
• Or an interested person, such as a trade
  association, trade union or an enterprise, may
  petition the U.S.T.R. to investigate the trade
  measure on their behalf.
• The scope of Section 301 actions is generally
  broad and includes the traditional category of
  trade in goods, but also covers trade in services
  and foreign investment issues as well.
• Within 45 days of receiving a petition, the
  U.S.T.R. must decide whether to initiate an
  investigation and publish this decision in the
  Federal Register.
• If the U.S.T.R. decided to initiate, then a
  public hearing is held where interested parties
  can assert their views

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Dependent Variable

• America's success in reaching their objectives
  when resorting to section 301.
•  
• Coded as Failure (0) Case was not implemented
  to US satisfaction
•  
• Nominal success (1) Agreement reached but not
  implemented to US satisfaction
•  
• Partial success (2) Some objectives achieved
•  
• Success (3) Objectives totally or largely
  implemented

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Independent Variables I

• 1) Interdependence
• -Trade Interdependence (-)
•  
• 2) Threat Credibility
• - Type of Issue ()
•  
• 3) Institutional Constraint
• -US Political Constraint ()
• -Target Political Constraint (-)
• Note Expected sign of the coefficient is
  indicated between parentheses.

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Independent Variables II

• 4) Political Necessity
• -Misery Index (Inflation Unemployment) (-)
• -Threat or Use of Retaliation (-)
• -Severity of a Case (-)
• 5) Domestic Support
• -Trade Balance (-)

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TABLE IDESCRIPTIVE STATISTICSN75

• Variable Mean Std. Dev.
  Min Max
• -------------------------------------------------
  -------------
• Level of Success 1.44 .919 0
  3
• Trade Interdependence -1.352 1.783
  -4.723 1.418
• Target Institutional Constraint 10.853 3.216
  4 15
• Type of Issue .4 .493 0
  1
• Use or Explicit Threat of Retal. .253
  .438 0 1
• Misery Index 10.836 3.872 5.57
  20.5
• Trade Balance -7.507 15.096 -52.6
  11.972
• Value of Contested Goods .467 .502
  0 1
• US Institutional Constraint .507
  .503 0 1

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TABLE 2ORDERED MULTINOMIAL LOGIT ESTIMATES

• Number of obs 75 Correctly Predicted 52
• chi2(8) 43.52 Null Predicts 37
• Prob gt chi2 0.0000 Percentage
  Improvement 40
• Pseudo R2 0.2239
• Log Likelihood -75.431646
  
• --------------------------------------------------
  --------------------------------------------------
  -----------------
• Success Coef. Std. Err. z
  Pgtz
• --------------------------------------------------
  --------------------------------------------------
  -----------------
• Trade Interdependence .5878 .2306
  2.549 0.011
• Target Institutional Constraint -.3121
  .1214 -2.57 0.010
• Type of Issue 1.2089 .5070 2.384
  0.017
• Use or Explicit Threat of Retaliation -1.9875
  .5804 -3.424 0.001
• Misery Index -.1305 .0692 -1.887
  0.059
• Trade Balance -.0545 .0174 -3.129
  0.002
• Value of Contested Goods -1.1546 .4967
  -2.325 0.020
• American Institutional Constraint 1.3255
  .569 2.330 0.020
• --------------------------------------------------
  --------------------------------------------------
  -----------------
• _cut1 -7.542412 2.10054
  (Ancillary parameters)
• _cut2 -4.928822 1.966353

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TABLE 3GOODNESS OF FIT
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Marginal Impact of Trade Balance On Predicted
Level of Success
Predicted Probability
Predicted Success
Predicted Failure
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Marginal Impact of Target Institutional
Constraint On Predicted Level of Success
Predicted Success
Predicted Success
Predicted Probability
Predicted Failure
Predicted Failure
Predicted Success
Predicted Failure
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Assessment of US Bargaining Success vs. European
Community/Union

• Toughest opponent
• Actual Average Success 1.25 (Slightly better
  than nominal success)
• Predicted Success by Model 1.2
• Why?
• High Level of Institutional Constraint
• Most Issues are Non-tariff/Quota
• Balance Of Trade is an Important Variable
• When US has a surplus (1975-86, 1991-93) Success
  1.14
• When US has a deficit (1987-90) Success 1.67
• Including only two cases of Full Success Corn,
  Sorghum and Oilseeds in 1987, and Fabricated
  Copper in 1990.

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Assessment of US Bargaining Success vs. Japan

• Trade with Japan is always hotly debated,
  publicized, and politicized.
• Huge bilateral US trade deficit (Up to 52
  Billions)
• Despite Japan Bashing, highest level of success
  vs. Japan Actual (2.08) and Predicted (2.27).
  Better than Partial Success.
• Besides trade deficit, why?
• Moderate level of institutional constraint (11)
• But many non-border issues and large cases
  Should favor Japan.
• So, most discriminating factor IS trade balance
• Was Japan Bashing Uncalled For?

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Assessment of US Bargaining Success vs. Canada

• Most intriguing case
• Trade with Canada is not controversial in the US
• US bilateral deficit is never very large (always
  lt13 billions)
• Moderate level of institutional constraint (11)
• Conclusion US should do very well versus Canada
  according to my model (Predicts 1.8)
• But it doesnt (Actual 1.2). Why?
• US/Canada Trade
• International? Domestic? Intermestic/Special
  Relationship?
• Should account for investments? 40 of Canadian
  companies owned by Americans.
• Yet, many Canadians complain of bad negotiating
  performance vs. US.

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CONCLUSION

• This study establishes a theoretical relationship
  between process of bargaining and structure of
  negotiation. Applicable to several studies (Case
  and statistical)
• Uses of statistical technique that goes beyond
  significance analysis.
• Offers possibility of disaggregating results by
  targets.
• Points to a political model of negotiation
  Acknowledges the importance of domestic AND
  systemic factors.
• Results suggest that model could be used to
  forecast negotiation outcomes.
• Model may help us better understand current
  issues (E.g. Softwood dispute vs. steel dispute)

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Further Research

• Account for selection effects Current research
  with Bill Reed and Bill Clark
• Case studies Published work with Bill Clark and
  Sophie Meunier (USA/Europe) and current work with
  Bill Clark (Canada/USA)
• Forecasting Current work on softwood dispute.
• Account for substitutability Next ISA Paper
• Add sophistication to model
• New data soon available import/export elasticity.
• Level of Target Success.