On Small Countries' Options for Trading with Regional Blocs

By:

“Huge” market surpluses with sensitive agricultural products determine a serious gap in trade negotiations between regional blocs and small acceding or third countries of small market potential while market asymmetries are continuously expanding through the integration of new members. When bargaining is about a preferential trade agreement, negotiation strategies are most of the time expressed in terms of ‘opting in’ or ‘opting out’ while the economic reasoning behind them is in most cases protection for welfare improvement or not. At the same time, rational choices are complicated by endogenous factors that have an impact upon the choice of a particular negotiation strategy. I examine the above arguments within a two level game framework where two states contemplate the effects of protectionism to decide possible deals (quota levels) and to decide whether to cooperate or to start a trade war. The states are assumed to have conflicting interests. For reaching agreement, states value the payoffs of two aspects of the deals, in particular the effects on the bilateral trade flows and the national welfare. Once the states have reached an agreement, the win – set is further refined with the competition effects given by the increasing market size. As in Grossman and Helpman (1995), Cadot, de Melo, Olarreaga (2002), the states are dealing with the internal political pressure to enforce a particular bargaining deal. The main result of the paper is that even in the presence of a market disequilibrium the dominant strategy of the international trade negotiations is cooperation. The asymmetries in the market size are favoring trade and the reaching up of a trade agreement.

Stream: Economic Sustainability

Paper: On Small Countries' Options for Trading with Regional Blocks

I am working as Risk Manager within E.ON Romania that is one of the worldwide leading energy producers. Previously, I have been a Postdoctoral Researcher at the Technical University of Iasi, Romania working in areas of International Trade and Finance, Industrial Organization and European Integration. In 2006, I have obtained my PhD degree from University of Iasi and University of Bonn, Germany with a PhD thesis presenting the economic priorities of the Romanian economy for the EU accession. I have also experience in applied economic research and policy advising covering subjects as commercial integration and commercial negotiations, economic growth and inflation as well as business oriented research in project management, knowledge based project management and project risk management.