حضور در بازار، رقابت، و مقررات تجاری ادغام منطقه ای

This paper examines the impact of market presence and contestability on the price behavior of US exporters in Brazil’s market when MERCOSUR and MFN trade liberalization take place. Using detailed panel data on trade and tariff rates, we find that both the preferred supplier’s market presence and threat of entry lower (raise) the US price reaction to MFN (preferential) trade liberalization, with similar quantitative effects. Thus, presence in, or threat of entry into, partners’ markets implies lower optimal MFN tariffs, and regional agreements can have pro-competitive effects in contestable markets. We also examine the ‘symmetry’ hypothesis between the effect of tariffs and exchange rates.

The number of regional integration agreements (RIAs) has increased dramatically in the last decade. In fact, nearly all members of the WTO belong now to one or more RIAs. The recent proliferation of RIAs has created renewed interest in their impact on both member and non-member countries. One of the major concerns is the effect on the terms of trade faced by non-member countries. As discussed in Winters (1997), this effect should be a major focus when assessing the effect on non-member countries’ welfare. Terms-of-trade effects associated with Spain’s accession to the EEC have been estimated by Winters and Chang (2000). And in their forthcoming paper, Chang and Winters (henceforth CW) show in the case of MERCOSUR that non-member countries suffer a decline in their terms of trade and that this decline is due to their reaction to the improved market access by preferred rival competitors within the integrating market. CW have also shown that Brazil’s MFN trade liberalization results in a terms-of-trade loss for Brazil and a gain for exporters to Brazil.1 This paper extends CW’s work in several ways. First, CW only include the Argentine product categories that are present in Brazil’s market, and these merely cover 38% of all Argentine product categories in 1991 and 55% in 1995. We extend the empirical analysis by examining how the price response of non-member countries is affected by the presence or absence of Argentine product categories in Brazil’s market. Second, the mere threat of entry by preferred suppliers may be sufficient to discipline non-member incumbents within a ‘contestable’ market. It may be reasonable to expect that when conditions facing potential Argentine entrants into Brazil’s market improve, i.e. when Brazil’s market becomes more contestable for Argentine suppliers (as with RIA formation), incumbents will attempt to deter entry by reducing prices. Third, in a paper on the ‘pass-through’ to domestic prices of changes in tariffs and exchange rates, Feenstra (1989) has shown that the two effects should be equal. We provide an empirical test of this ‘symmetry’ hypothesis as a check on the model. Though contestability and issues concerning ‘limit pricing’ have been examined as far back as Bain, 1949 and Bain, 1954 and Hines (1957), they have not been studied empirically in an international setting, and certainly not in the context of regional integration.2 This paper shows that trade policy changes affect incumbent suppliers, and that this effect depends on market presence and contestability. As mentioned above, the extent to which a change in tariff or exchange rate is reflected in a change in domestic prices has been examined in Feenstra (1989).3 He assumes a foreign and a domestic firm producing a differentiated product and acting as Bertrand competitors in the US market and shows that these ‘pass-throughs’ should be equal to each other. He finds empirical support for this ‘symmetry’ hypothesis.4 The approach in this paper differs from Feenstra’s in the sense that we assume two foreign firms acting as Bertrand competitors in a third market,5 we estimate the impact of both preferential and MFN tariff changes, and we use the entire tariff structure rather than examining selected products in detail. By using the entire tariff structure, we impose an equal price reaction across products, except for differences due to market presence and contestability. The empirical analysis focuses on MERCOSUR where both preferential and MFN trade liberalization have taken place. As the largest economy in MERCOSUR, Brazil is chosen as the home market. The suppliers included in the analysis are Argentina, Brazil’s main trading partner in MERCOSUR, and the US, Brazil’s largest non-member supplier.6 The paper is organized as follows. Section 2 discusses the data and Brazil’s trade pattern and policies. Section 3 provides an empirical model specification. Section 4 estimates the terms-of-trade effects of MFN and preferential trade liberalization. Sub-section 4.1. examines how terms-of-trade effects are affected by market presence, Sub-section 4.2. examines how they are affected by contestability, and Sub-section 4.3. deals with tariff and exchange rate ‘pass-through’. Section 5 concludes. Appendix A shows the effect of market presence and exchange rates, abstracting from contestability effects.

Using detailed price and tariff panel data, this paper examines the impact of market presence and contestability on US price response to Brazil’s MFN and preferential trade liberalization. Our analysis provides evidence to support the idea that presence by a member country does make a difference in non-member pricing behavior. We show that Argentina’s presence in Brazil’s market results in a smaller US price response to Brazil’s MFN tariff change and in a larger response to a preferential tariff change. As for contestability, we find that it plays no significant role when Argentina is present in Brazil’s market. When Argentina is absent from Brazil’s market, contestability lowers the US price response to changes in the MFN tariff and raises it with respect to changes in the preferential tariff. And the effect of market presence on the US price response to both MFN and preferential liberalization is not statistically different from the effect of contestability when there is no market presence. Thus, presence matters, whether actual or potential. In the case of no market presence, regional integration is likely to have pro-competitive effects. Our results on the ‘symmetry’ hypothesis between the price effect of exchange rates and tariff rates in the case of Brazil tend to support Feenstra’s results for the US both for MFN tariffs and for the sum of MFN and preferential tariffs, but not for preferential tariffs alone. From the above, it follows that: (i) in the absence of contestability, presence of member countries in each others’ markets implies a lower optimal MFN tariff because it reduces the terms-of-trade loss from lowering MFN trade barriers; (ii) it raises the terms-of-trade gain from forming a trade bloc but has an ambiguous impact on the welfare effect of bloc formation because, though the terms-of-trade gains are larger, the trade volume on which these gains are obtained is smaller; and (iii) contestability and absence in the partner’s market has a positive impact on the welfare effect of bloc formation and has general pro-competitive effects.