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The views expressed in this paper do not necessarily represent those of the International Monetary Fund or its member countries. When this paper was written, Douglas Irwin, Assistant Professor of Business Economics in the Graduate School of Business of the University of Chicago, was a consultant in the World Economic Studies Division of the Research Department.
Preferential trading arrangements originated partly with the lagging pace of the GATT in extending rules to trade in services and international investments. Such arrangements are most overtly protectionist in their stringent rules of origin, which tend to ensure that trade and investment remains within the confines of the trading area. See de Melo and Panagariya (1993) for a recent discussion of regional arrangements and Krueger (1993b) on how rules of origins can act as protectionist barriers.
The most egregious use of quotas is the system of global quotas on textiles and apparel known as the Multifiber Arrangement, which operates outside of the GATT.
Krueger (1993) examines the impact of these and other trade restrictions on exports from developing countries.
See Tyers and Anderson (1992). In Japan, agricultural trade liberalization has occurred in several sectors, notably beef and citrus fruits.
However, the EC implicitly imposes local content requirements on direct investments, thereby raising the costs of production in Europe.
On the distortions that use of public funds to promote technology entail, see Cohen and Noll (1991).
Irwin (1993) shows in a simple Cournot duopoly model that “voluntary import expansions”--such as the 20 percent market share guaranteed foreign semiconductor producers in the Japanese market as a result of the U.S.-Japan semiconductor agreements--are a “facilitating practice” that foster collusion rather than competition.