STRATEGIC INTERACTION AMONG NATIONS - NEGOTIABLE AND NONNEGOTIABLE TRADE BARRIERS

Trade policy is modelled as a two-stage game between governments. Governments choose a negotiable trade barrier in the first stage of the game, which is co-operative. The level of this barrier is treated as a binding commitment in the second stage of the game where the non-negotiable trade barrier is chosen non-co-operatively. Hence governments choose trade barriers during negotiations with a view to influencing the equilibrium of the non-co-operative game to follow. This proves to be a convenient framework in which to analyse the idea that trade agreements contain loopholes which can be exploited by protectionist governments. -from Author