Fast-Track Authority: A Hold-Up Interpretation

Levent Celik, Bilgehan Karabay and John McLaren

No 24427, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: F13 F15 (search for similar items in EconPapers)
Date: 2018-03
New Economics Papers: this item is included in nep-int
Note: ITI
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Citations: View citations in EconPapers (1)

Published as Levent Celik & Bilgehan Karabay & John McLaren, 2020. "Fast-track authority: A hold-up interpretation," Journal of International Economics, .

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