Principal-Agent Model in Economics and Political Science

¶ … Principal-Agent Model in Economics and Political Science

The international political perspectives of free trade

A Global Analysis

International Trade Impact on Tunisia

The Export of agricultural products

International trade and development of Tunisia

Balance in the Trade Regime

Imports and exports of Tunisia

Exports

Imports

Coping With External and Internal Pressures

The Common External Tariff (CET)

Safeguard Measures

Anti-Dumping Duties (ADDs) and Countervailing Duties (CVDs)

Rules of origin

The New Commercial Policy Instrument

Sector Based Aspects

GATT/WTO's Main Principles

Non-discriminatory trade

Multilateral negotiation and free trade

The Trading Policies of European Union

Critical Political Economy

Tunisia

The Gross Domestic Product of Tunisia

The Real Data Analysis of Import Export Companies in Tunisia

The Smith Co Company

The Softkim and Lovers Limited

The Impact of Free Trade on Tunisia Trading 43

Findings 44

Conclusion 44

References 46

Abbreviations

ACP

Africa, the Caribbean, and the Pacific

AMC

Alternative Mediterranean Conference

APEC

Asia-Pacific Economic Cooperation Conference

ASEAN

Association of South-East Asian Nations

CBMs

Confidence-building measures

CEECs

Central and Eastern European countries

CFSP

Common Foreign and Security Policy

CSCE

Conference for Security and Co-operation in Europe

EC

European Community

EEB

European Environmental Bureau

EEC

European Economic Community

EIB

European Investment Bank

EMHRN

Euro-Mediterranean Human Rights Network

EMP

Euro-Mediterranean Partnership

EP

European Parliament

EPC

European Political Cooperation

EU

European Union

EuroMeSCo

Euro-Mediterranean Study Commission

FIS

Front Islamique du salut

FoE

Friends of the Earth

FYROM

Former Yuglosav Republic of Macedonia

ICJ

International Court of Justice

IMF

International Monetary Fund

Multicultural Agreement on Investment

MECUs

Million ECUs

MEDA

Measures d'ajustement

MEFTA

Mediterranean free trade area

MEPP

Middle East Peace Process

MIO

Mediterranean Information Office

MNCs

Mediterranean Non-member Countries

MPCs

Mediterranean Partner Countries

NAC

North Atlantic Council

NAFTA

North Atlantic Free Trade Agreement

NATO

North Atlantic Treaty Organization

NGO

Non-governmental organization

OECD

Organization for Economic Co-operation and Development

OSCE

Organization for Security and Co-operation in Europe

PBMs

Partnership-building measures

PHARE

Poland and Hungary Aid for the Reconstruction of the Economy

RAED

Arab Network for the Environment and Development

REDWG

Regional Economic Development Working Group

RMP

Renovated Mediterranean Policy

SAP

Structural adjustment programmers'

TRNC

Turkish Republic of Northern Cyprus

UMA

Union of the Arab Maghreb

UN

United Nations

UNESCO

United Nations Educational, Scientific, and Cultural Organization

WEU

Western European Union

WTO

World Trade Organization

WWF

World Wildlife Fund (Worldwide Fund for Nature)

Executive Summary

Political economy is concerned with the nature and interaction of the political and economic aspects of social reality. Different approaches to political economy can be distinguished and categorized along several dimensions or criteria. The most important of these is the conceptualization of the relationship between politics and economy, more specifically 'whether or not they claim to depict a systematic relationship between' the two. While one of the central tenets of mainstream approaches to political economy is an ontological (and largely unquestioned) assumption that the 'state' and the 'market' are essentially separate spheres of social reality, critical approaches argue that they are systematically related and that the apparent separation posited and observed by mainstream political economy is itself the product of historical development. This critical perspective on the relationship between 'state' and 'market' does not necessarily imply an economic reductionist understanding, where politics is simply reduced to the effects of economic forces, although that position was dominant within Marxist political economy for many years. But it does suggest that major political developments cannot be explained without reference to economic forces.

A closely related issue is the stance adopted with regard to 'social reality' and its analysis and conceptualization in the social sciences. The distinction made by Robert Cox between problem-solving and critical theories is useful here and it is worth quoting him at length: 'Problem-solving theory, takes the world as it finds it, with the prevailing social and power relationships and the institutions into which they are organized, as the given framework for action'. Taking this view of the world makes it difficult to study fundamental transformations, especially when the nature of institutions and the relationship between economics and politics may be changing. But it also tends to limit problem-solving theories to explaining the functioning of existing systems and makes them less useful in raising questions about how they came into existence and is maintained or changing. These differences are of central importance to the conceptualization of the relationship between politics and economy. While mainstream political economy takes the separation of the economic and political spheres for granted, critical political economy asks how this separation came about, how it has been (re-)produced and by whom, what role it plays in modern capitalist democracies, and why it has become so widely accepted in the social sciences. Critical political economy is, for example, helpful in the analysis of the 'new regionalism' in Europe, where efforts to redefine the relationship between politics and the economy and to 'insulate substantially the new economic institutions from popular scrutiny or democratic accountability' have been important aspects of the move towards economic and monetary union.

Introduction

Free trade has long been associated with the phenomenon of lassies faire and lassies passe. This implies to the liberal trading polices across the borders. The principal-agent model and the theory of delegation, which originated in the new economics of organization, have been increasingly applied in the study of the European Union (EU). This chapter critically examines these applications. It argues that the principal-agent model holds significant promise for understanding the complex relationships and interactions that characterize the Union, not least on account of its greater institutional sensitivity over traditional theories of integration. However, its potential has as yet not been fully realized. This is due partly to the prior theoretical commitments of the EU scholars, who have used these models, partly to misunderstandings of the complexity and implications of the approach.

The discussion below is divided into three parts. The first offers a brief overview of, and background to, the principal-agent model. The second discusses the promise that the model offers for understanding European integration and governance, then examines in detail its deployment by authors writing from four theoretical perspectives - liberal inter-governmentalism (LI), institutional inter- governmentalism (II), historical institutionalism supra-nationalism (HIS), and rational choice supra-nationalism (RCS). The final section discusses general weaknesses in how the principal-agent model has been applied to the EU and suggests future research possibilities (Posner, 1999, p. iii).

The Principal-Agent Model in Economics and Political Science

From its origins in the new economics of organization as a theoretical construct devised to examine relations within the firm the principal-agent model became the dominant framework for examining the difficulties that arise from contracting in any setting. Agency relationships are created when one party, the principal, enters into a contractual agreement with a second party, the agent, and delegates to the latter responsibility for carrying out a function or set of tasks on the principal's behalf. In the classic representation, the principal is the shareholder of a company that contracts an executive to manage the business on a day-to-day basis. However, the principal can be any individual or organization that delegates responsibility to another in order to economize on transactions costs, pursue goals that would otherwise be too costly, or secure expertise.

Difficulties arise on account of the asymmetric distribution of information that favors the agent, including adverse selection and moral hazard. The asymmetry of information can allow the agent to engage in opportunistic behavior - shirking - that is costly to the principal, but difficult to detect. The likelihood of shirking is increased by slippage, when the very structure of delegation 'provides incentives for the agent to behave in ways inimical to the preferences of the principal'. Assuring control and limiting shirking is the 'principal's problem'. The challenge is to find ways of ensuring perfect compliance, so that agents cannot exploit the costs of measuring their characteristics and performance to act contrary to the preferences of the principal. Economists have focused on incentive structures that discourage opportunistic behavior on the part of the agent. Contractual restrictions on the agent's operational purview or monitoring the agent are alternative possibilities, but can be costly. Their effectiveness is limited by the extent to which the agent's actions can be observed (Russell, 1967, p. 147).

The new economics of organization has been very influential in political science. Rational choice institutionalism, in particular, has drawn from its toolkit in its explanations of how institutions emerge and interact. Scholars of U.S. politics have used the principal-agent model to investigate the relationship between Congress and executive agencies, and the tasks performed by congressional committees. In international relations, delegation has been used to explain why sovereignty-conscious states create international organizations. The basic model has been used to assess the efficacy of mechanisms devised to ensure agent compliance, and extended, elaborated upon, and adapted to take account of cases where there are multiple principals.

Research Question

The objective of the research is to investigate various aspects of free trading policies in the global political economy, in particular the economic and industrial situation of Tunisia after the implementation of free trade area agreement in1995. The entire implementation procedure was accomplished in twelve sequential steps, staring mainly from the reduction and the removal of the customs and import quotas among the trading coalition. The Tunisia-EU free area trading agreement after affects and whereabouts are discussed in order to explore the findings about the research question that is the impact of the Tunisia-EU agreement on the trading patterns of Tunisia.

Literature Review

The international political perspectives of free trade

A Global Analysis

The growth of world trade has consistently outstripped rates of world output in post-war years, a trend that has continued to play a key role in the internationalization of economic activity and to deepen global inter-dependence of regions and nations. In 1994 world trade was valued at $5.14 trillion, an increase of 9 per cent on the previous year, and consisted of $4.06 trillion merchandise trade (manufactures and materials) while service trade amounted to $1.08 trillion.

The EU is the world's largest international trader, having consistently taken around 40 per cent of the world's per annum total during the 1990s. With progressive achievements made in European integration in recent years it perhaps comes as no surprise that intra-EU trade has flourished, rising from an 18.1 per cent share of total world trade in 1982 to a 24.7 per cent share by 1994. Even with this aspect of European trade removed, the EU remains the world's largest external trading entity. However, between 1987 and 1993 the EU has experienced a worsening of its trade balance equivalent to 0.7 per cent of its GDP owing to a 10.6 per Asian NICs accounted for 7.0 per cent of total world exports and imports. By 1994, this share had risen to 22.2 per cent for exports and 19.9 per cent for imports. Meanwhile, the U.S.A. has seen its traditional trade surpluses converted into considerable deficits, with a simultaneous downward trend in its share of world exports (15.8 per cent to 11.9 per cent) and upward trend in its share of world imports (10.3 per cent to 16.3 per cent) (Weintraub, 1984, p. 95).

The proportion of world trade taken by other developed countries (i.e. Canada, Australasia, and the EFTA group) has remained more or less stable over the period. However, there has been a general upward trend in the combined share of world trade of the developed countries that has been led by Japan and the EU. The growing marginalization of the developing countries is indicated by the falling shares for both Latin America and Africa. The almost consistent decline in these shares was broken in the mid-to-late 1970s and early 1980s by the effect of inflated oil prices on export and import values. For example, in 1980 Africa's three main oil producers, Algeria, Libya and Nigeria, were responsible for around 40 per cent of total exports. The burden of debt constrained growth in both regions during the 1980s, although Latin American countries have shown signs of recovery partly illustrated by the stabilization of world trade shares in the 1990s. Deeper rooted economic problems still beset the African countries (particularly in the sub-Saharan region) whose trade share has continued to slide during this decade.

International Trade Impact on Tunisia

The Export of agricultural products

There are probably few areas in world trade where the proposition that international trade law is a matter of political economy -- as reflected in the theme of this book -- is so notoriously obvious as in agricultural products of Tunisia. And there are certainly few, if any, other papers that describe and analyze the political economy of international trade law for agricultural products of Tunisia assagaciously and convincingly as Bob Hudec's 1998 paper for the International Agricultural Trade Research Consortium (Hudec 1998). Whole generations of agricultural specialists, the present author included, have written hundreds of papers and books about the treatment of agricultural products of Tunisia in the General Agreement on Tariffs and Trade (GATT). Hudec, for whom agricultural trade law and policy is but one of the many areas he has covered in his research, needs no more than a few pages to explain in peerless clarity and profound technical competence the interplay between political economy and international law in the agricultural morass that plagued the GATT for a long time.

A few citations may suffice to highlight the way Hudec characterizes the situation of agricultural products of Tunisia in the GATT before the Uruguay Round. He starts by noting that "according to conventional wisdom, the original GATT agreement, which lasted from 1947 to the end of 1994, was highly successful in reducing barriers to international trade in industrial goods, but it was a conspicuous failure in reducing barriers and other distortions to trade in agricultural products. " Hudec then examines "the extent to which the GATT's weak performance in the area of agricultural trade was caused by weaknesses in its rules or weaknesses in its enforcement procedure." In a short discourse about the enforcement of international rules, Hudec states that "if governments lack the political will to obey the rules, the rules will not work, no matter how well they are crafted." "As we examine the relative strengths and weaknesses of GATT rules and procedures, the question that will always be before us will be how this particular strength or weakness affects the process of internal decision-making in the target government -- essentially, how will it affect the relative power of those participants in that decision-making process who favor the conduct called for by the rule. " In agricultural products of Tunisia, there was "a lack of political will on the part of the relevant governments. However much they may have declared their desire to liberalize agricultural trade, the large developed countries of North America and Europe that wielded ultimate power in GATT did not really want to liberalize agricultural trade. Each of these governments was committed to a program for supporting farm income. "

In analyzing the way the "old" GATT had dealt with agricultural products of Tunisia, Hudec notes that "it would seem to be difficult to make a case that the GATT's problems with agricultural trade are attributable to weaknesses in the general rules of GATT, because these are the same GATT rules that apply to trade in manufactures, where they seem to have been quite successful with regard to liberalizing trade in manufactured goods. " There were no more than "two important special rules that apply only to agricultural trade -- Article XI:2(c)(i) on quotas and Article XVI:3 on export subsidies "(Howe, 1997, p. 191).

International trade and development of Tunisia

Structural economic reforms that may be pursued at both the firm/industry and national levels in order to achieve and international competitiveness Ordinarily, most countries that operate free market economies have tended to pursue economic policy initiatives that bear upon carefully directed and controlled government intervention, albeit where the government might only play more of a monitoring role rather than a controlling role. But then, the extent to which the free market is left alone to determine the pace and direction of the economy is often limited by the tendency for the country's authorities to intervene and "set things right" because of the inherent market failure whose ramifications tend to cause economic distortions.

At the firm (or industry) level, companies recognize the need for occasional (if not constant) structural reforms designed to enhance the firm's competitiveness. The most common forms of restructuring are downsizing and reengineering, both of which almost always result in reduction of the number of workers employed.

Downsizing involves such measures as layoffs, early retirements, buyouts, or attrition -- designed to reduce labor cost. For most firms, labor cost constitutes the largest proportion of total cost of operation. Total labor cost is made up of the wage bill and non-wage costs known as quasi-fixed labor costs (including such costs as recruitment and training costs, employee benefits, payroll taxes, and worker-compensation premiums). Therefore, the firm's most effective way of cutting the level of its operational costs would be to reduce the size of its (Conti, 1998, p. 79). It was therefore essential for the Tunisian policies to adapt the international trading model and consequently adapting the international trading practices with the European Union was an ultimate opportunity for Tunisia to expand and grow economically.

Balance in the Trade Regime

The multilateral trade regime -- often referred to as the World Trade Organization -- is primarily composed of the various trade agreements that serve as the legal ground rules for much of international commerce today. It began in 1947 with twenty-three contracting parties for the Protocol of Provisional Application of the General Agreement on Tariffs and Trade (GATT). (4) If we consider GATT-1947 a club, then both club membership and club rules have changed dramatically since its inception. Eight successive rounds of trade negotiations have since increased both the scope of membership in the trade regime and the range of areas covered within its discipline. In particular, the last two rounds of negotiations, the Tokyo Round (1973-79) and the Uruguay Round (1986-94), signaled an unprecedented deepening of the integration and harmonization of rules in the multilateral trade regime, as opposed to the previous trade rounds, which focused mainly on lowering tariff barriers. Among the key areas covered in these two ro unds were safeguards and the dispute settlement mechanism (in the Tokyo Round) and investments, services, and intellectual property rights (in the Uruguay Round). Most important, the WTO was launched as a consequence of the Uruguay Round, with the intention of possibly fostering further trade integration among a growing number of member countries. Today the WTO has 144 member countries, with at least 30 more planning to accede.

This expansion in membership, as well as the increased coverage and depth of rules, makes the trade regime a de facto global public good. That is, it has been made available to the global public through agreement among sovereign nations. To clarify, services provided by government(s) or public institutions can be considered public goods insofar as "they facilitate the conveniences of daily living and provide a measure of order and predictability to daily life" (Mendez 1992, 58). The trade regime certainly fits this description, by lessening the probability of costly "trade wars" through mutually binding codes in the conduct of much of international trade. Seen as a system that builds on deeper integration within a shared rule-based framework, the trade regime also provides benefits across nations by restraining costly and inefficient protectionism, fostering cost-reducing scale economies in production and distribution of goods and services, and helping prevent races to the bottom (i.e., investment policy) that would otherwise have occurred from competitive pressures (Birdsall and Lawrence 1999).

As with most regimes, the trade regime is no rival in nature and made no excludable by policy choice. Countries increase the value of the rules that constitute this regime with more usage. By facilitating mutually beneficial trade, the regime manifests as a non-rival public good to any that choose to trade. As regards the concept of non-excludability, exclusion from the regime is undesirable because of increased gains due to more participants. Ultimately, more consumers and producers enhance the functioning of the international market system, as positive network externalities abound with more traders. Furthermore, it has also explicitly been a policy to expand membership in the multilateral trade regime -- making it non-exclusive -- given the significant emphasis that trade has been given in development policies among most, if not all, the developing countries as well as by international organizations like the World Bank and the International Monetary Fund (IMF). (5) It is therefore appropriate to view the trade regime through the GPG lens to properly evaluate the adequacy and nature of its provision. More free trade under an expanding trade regime is ideal because it would increase global output when more countries specialize. Yet the benefits created from increased trade are often heavily concentrated within the developed countries that already enjoy a wide lead both in the firm-level capacity to compete in world markets and in the national capacity to implement trade-related reforms and comply with WTO discipline. We argue that more fair trade is also necessary since all countries should benefit from this global public good. (6) Fair trade is even more important given the emphasis on trade in development policy. These issues are clarified further by distinguishing the notions of "free trade" and "fair trade." Free Trade (Magnusson, 2004, p. 46).

Imports and exports of Tunisia

Exports

1. Mineral fuels, oils, distillation products, etc. (17.3%)

2. Electrical and electronic equipment (15.7%)

3. Articles of apparel and accessories not made of neither knit nor crochet (14.4%)

4. Fertilizers (7.9%)

5. Inorganic chemicals, precious metal compound, and isotopes (5.7%)

Imports

1. Mineral fuels, oils, distillation products, etc. (16.9%)

2. Boilers, machinery, nuclear reactors, etc. (11.1%)

3. Electrical and electronic equipment (9.5%)

4. Vehicles other than railway (6.1%)

5. Cereals (4.9%)

Coping With External and Internal Pressures

It was not until 1968, when the community's common external tariff (CET) established a full customs union between the EEC6, that the CCP was officially inaugurated. However, this was a relatively simple accomplishment in comparison with handling the internal and external pressures imposed on the CCP in subsequent years. The inability of European industry to undertake the necessary restructuring from the stagflation period onwards subsequently led to more vocal pleas from industry lobby groups for a more pliable and protectionist CCP regime. Rising unemployment and accompanying social costs gave additional vindication for such positions of policy, as did new competitive threats emerging from the NICs, especially in 'sensitive' industrial sectors. The 1970s macroeconomic 'shocks'-the collapse of the Breton Woods exchange rate system and two oil crises-brought their own demands upon the CCP to perform a compensatory role. A more stable and neo-liberal global economic environment in the 1980s brought new challenges to the CCP, as did the most ambitious agenda ever set for a GATT Round in 1986 at Punta del Este, Uruguay.

Other pressures have been of the Community's making. First, the enlargement of the EEC6 to the EU15 has brought considerable complexity to formulating trade policy. The inclusion of new member states has increased the probability of compromise decisions being made in internal negotiations, although the recent introduction of qualified majority voting (QMV) has partly solved this. While new member states have brought with them valuable trade relationships with third countries based on past colonial or other ties, the CCP's architecture has become further complicated by extending similar preferential terms to these countries where the EU has obliged. The UK and the British Commonwealth countries and the Iberian countries and Latin America present cases in point here (Campbell, 1993, p. 61).

The same effect can be observed with respect to the dispensing of preferential treatments to peripheral regions of the EU. For example, the accession of the Iberian countries in 1986 shifted the political balance within the Community's membership towards the Mediterranean Basin countries, while German reunification in 1990 has had some influence over the orientation of EU trade policy towards central and Eastern Europe. Another pressure from within has been the expansive development of preferential trading arrangements granted by the EU, which in 1993 covered around two-thirds of all external trade. Some difficulties have originated from sustaining a trade regime of this nature alongside the EU's stated commitment to supporting the multilateral 'free trade' structure of GATT and the WTO.

Furthermore, some member states have bilaterally negotiated or imposed their own NTBs with third countries. The most common of these have been voluntary export restraints (VERs) which are a type of quota that is negotiated between the parties in the importing and exporting countries. They have become one of the most common forms of NTBs to be deployed in recent years playing a central role in the 'new protectionism'. VERs may be contracted between national governments or on an industry-to-industry basis such as the arrangement made in 1975 between UK and Japanese car producers to limit Japanese car imports to 11 per cent of the UK market. A VER agreement is usually established as an alternative to retaliatory measures that could potentially occur. Variations on VERs are the orderly marketing arrangements (OMAs) which are multilateral voluntary restraints on exports. However, all bilateral VERs and most other bilateral trade arrangements have either been replaced with EU-level equivalents or are intended to be phased out altogether (Rosenberg, 1995, p. 53).

While these pressures have no doubt been significant, Woolcock (1995) has criticised the CCP as being 'excessively reactive', which has led to an undermining of its ability to fulfil the EU's responsibilities to the GATT / WTO system and uphold unified European interests abroad. Moreover, winters (1994) believe that the technocratic management structure of the CCP has produced complexities which have induced a more protectionist approach being adopted.

The Common External Tariff (CET)

On joining the EU, new member states have to adopt its CET on all third country imports over a negotiated transitional period. Most of the EU tariff rates are ad valorem in character. Under the GATT Rounds these have been lowered to levels where the EU's average rate on industrial products now lies at around 3 per cent. This compares to a CET of 5.7 per cent on the eve of the Uruguay Round. The concessions granted by the EU at GATT talks on mainstream tariff rates have been roughly similar to those conceded by its main trading partners, and there is currently very little variance between these rates. Agricultural and other 'sensitive' industry products have attracted much higher tariffs as part of a systematic protectionist position that has been adopted.

The formulas for CET rates are provided in Article 19, although variations to the uniform CET regime apply in a number of circumstances. If the domestic price of the imported product is found to be higher than its actual import price then the CET valuation is set to the former. In situations of strategic emergency tariffs may be suspended, for example on food and high-tech products. Intermediate products of EU firms engaged in outsourced production in low factor cost locations may re-enter the EU for further processing at zero or reduced tariff rates. Similar provisions exist for inward processing for re-export from the EU.

Tariff quotas allow certain countries to export up to threshold, or 'ceiling' levels before tariffs are imposed, but tariff impositions are not usually automatic. Such devices have been deployed within the EU's preferential trade arrangements. Finally, imports from non-GATT countries attract 'conventional' duties that are normally higher than GATT member imports. Where these are lower, GATT members must also benefit from them (Chavez & Whiteford, 1996, p. 15).

Safeguard Measures

Article XIX of the GATT serves its members with a 'safeguard clause' whereby protectionist measures may be applied in cases where a sudden surge of imports is found to have caused material injury to domestic producers and other adversely affected groups. Under such circumstances, the EU has normally employed quantitative restrictions (QRs) to diminish these injurious effects from competitive external producers. These have sometimes taken the form of 'grey area' measures such as VERs and OMAs, so called because their informal character has made encompassing them within the competence of trade policy somewhat difficult.

Products from 'sensitive' industries tend to attract the vast majority of QRs which have also been the most popular type of NTB used by the EU in recent decades. The employment of surveillance measures, such as import license requirements, may be the initial step taken by those gathering evidence which the Commission requires before any action on safeguard measures can be qualified. The GATT's Article XIX states that all contracting parties affected by the safeguard measure must be consulted and compensation granted to exporting countries in other product areas. Retaliation is permitted if this procedure is not followed.

Throughout the 1960s, all EEC6 member states had a series of bilateral QRs on Japanese textile and clothing products. In 1969, the first collectively negotiated VER on cotton textiles was achieved, replacing the equivalent bilateral arrangement. By 1994, the Commission had abolished all member state QRs as part of removing distortions which bilateral agreements can cause to a fully functional single market. EU-level QRs were introduced to replace these, establishing the administrative procedure as well as a uniform import license valid throughout the EU. The Commission also intends to eliminate all VERs and OMAs as soon as possible (Kowalski, 2008, p. 55).

Anti-Dumping Duties (ADDs) and Countervailing Duties (CVDs)

The use of these measures is normally defended on the grounds that 'fair trade' is of tantamount importance to free trade. Dumping occurs when the price of incoming imports is deliberately set at very low levels in an attempt by the exporting producer to knock other producers out of the market and hence establish a dominant market position. Anti-dumping duties (ADDs) are employed to counter such tactics and their application must comply to international obligations laid down in Article VI of the GATT and the 1979 Anti-Dumping Code. These state that the ADD imposed is to be no greater than the difference between the lower export market price and the average price found in the exporter's domestic market. Under CCP regulations, a full factual investigation is required by the Commission before ADDs can be applied.

Similar codes of conduct apply to countervailing duties (CVDs) which impose punitive tariff rates on those imports found to have gained an 'unfair' competitive advantage through subsidies granted by the government of the exporting country concerned. Thus, CVDs must be no higher than the incidence of the subsidy enjoyed by the exporting producer.

The introduction of the EU's regulations for ADDs coincided with the timing of the CET's introduction in July 1968, but it was not until 1976 that ADDs were actually utilised, the first case being on Taiwanese bicycle chains. By 1994, the EU had 150 ADD and CVD measures in force, with 58 of these imposed against state trading countries. China had the most with 23; other prominent countries included Turkey and Japan with 18 each and South Korea with 12 (CEC 1995k). However, the general trend for resorting to ADD and CVD measures is downwards and covers a mere fraction of EU external trade. In 1987, only 0.9 per cent of EU imports were affected by ADDs and CVDs, but even this had fallen to 0.6 per cent by 1994. There are, though, signs that the Commission plans to deploy CVDs on a more regular basis in the future. This comes from taking a looser definition of third country subsidies to producers along the lines of a U.S.-style interpretation of them (Financial Times, 27 October 1994).

Products from the EU's main trading partners which currently attract these duties are characterized by their high-tech content (e.g. Japanese television cameras and U.S. ethanolamine), thus their imposition is motivated by strategic reasoning. This is in contrast to products originating from low factor cost countries (e.g. Chinese bicycles and photo albums, Polish seamless steel) which mainly affect the EU's 'sensitive' sectors. Pressures have come from EU industrial lobby groups for the compensatory effects that ADDs and CVDs are able to generate. However, policy-makers have been reluctant completely to insulate business from these pressures, knowing that restructuring these industries is essential (Taussig, 1920, p. 95).

Rules of origin

The main functions performed by rules of origin are to establish an import's identity and thus avoid trade deflection from occurring. This is determined from the EU's customs nomenclature which abides by either the process or value-added rule. The process rule is concerned with where the product was processed and substantial transformation took place. The basis of the value-added rule is founded on the proportion of the import's ex-factory price represented by value-added criteria. Rules of origin are obviously required to determine which aspect of the CCP should apply to any EU import.

They are also used to manage disputes in trade-related investment issues owing to disagreements arising over the local content of EU-based foreign production plants targeting EU markets. Under the EU's 1988 'screwdriver plant' legislation (Regulation 2423/88), ADDs were imposed on foreign multinationals deemed guilty of circumventing these duties by establishing low local content production and service facilities within the EU. However, in 1990 a GATT panel upheld a formal complaint by Japan against this legislation on account of its market distorting effects.

The New Commercial Policy Instrument

Becoming operational in 1985, the New Commercial Policy Instrument (NCPI) was modeled on the U.S.A.'s Section 301 provisions on unfair trade. The main aim of the NCPI was to streamline procedures which improved the EU's ability to exercise its international rights against third country illicit commercial practices. It can also be applied where export interests are threatened by like actions. A range of retaliatory measures may be applied under the NCPI's provisions including suspension or withdrawal of trade concessions and increased tariff rates. These were revised as part of implementing the outcomes of the Uruguay Round. However, the NCPI has rarely been invoked and lacks the same degree of potency possessed by its U.S. equivalent. In compliance to the WTO's rules and codes, the EU may take cases of illicit commercial practice through its dispute settlement procedures (Taussig, 1920, p. 95).

Sector Based Aspects

In an attempt to protect producers in certain sectors of EU industry, the CCP has developed a series of NTB measures alongside its CET system. Most of the measures outlined in the section above have been introduced to perform this purpose, while in some cases the CCP complies with wider international agreements such as the Multi-Fiber Agreement (MFA). We have already noted that the CCP is not directly responsible for all aspects of EU trade policy. Therefore, in accordance with its permitted competence, it has played only an indirect role in shaping some areas of the external trade policy regime.

GATT/WTO's Main Principles

GATT and its successor, the World Trade Organization (WTO), have been guided by a number of principles that are embodied in 38 Articles. These main principles of the GATT/WTO framework are outlined below.

Non-discriminatory trade

This is often referred to as the cornerstone principle of the GATT/WTO framework and is encoded in two key provisions: the 'Most-Favored-Nation' (MFN) clause and the 'national treatment' clause. The MFN clause is based on a reciprocity rule which implies that tariff concessions granted by one CP to another must be returned in kind. Furthermore, Article I of GATT states that any advantage, favor, privilege or immunity affecting tariffs or other trade regulation instruments, which are granted to one of the GATT members, must immediately be granted to all other members as well. The principle of 'national treatment' involves upholding parity between domestic and foreign producers in respect to all laws, regulations and other administrative purposes that affect internal sales.

Multilateral negotiation and free trade

The ultimate objective of GATT/WTO is to establish free trade between all participating CPs. This can only be achieved through the multilateral negotiation of tariff reductions, trading disputes and other trade-related issues between members. Thus, in principle, GATT/WTO attempts to deter settlement by unilateral, bilateral, or pluri-lateral means but in reality derogations of this nature have been conceded as part of a compromise solution. The most significant achievements of GATT Rounds have been in the multilateral reductions of tariff rates and more recently the inclusion of an expanding number of trade-related issues concerning impediments to free trade.

3: The Trading Policies of European Union

The study of the European Union (EU) seems doomed to fall between two stools. As an intergovernmental organization, the EU originally belonged to the field of international relations. However, more than half of all legislation in domestic parliaments now stems from EU politics in one way or another, making the EU a central part of domestic politics best studied in comparative politics. Making the choice to deepen European integration is often grounded in domestic political economy, but at the same time deeper integration reshapes that domestic political economy, thereby transforming domestic politics in Europe.

The EU also sprawls across disciplinary divides. Its centerpiece has been political economy, with a customs union, common agricultural policy, and competition policy as the longest-standing elements of union. Understanding these policies requires study of political economy, an interdisciplinary hybrid that - whatever its challenges - at least has the advantage of being familiar (1995, p. 39).

More recently EU studies have also been buffeted by inter-paradigmatic divides. Though political economy provides its policy foundations, much of the motor force for integration can be traced to idealistic proponents of the European idea. These dual forces produce tensions between the largely rationalist paradigms dominating political economy, such as Marxism and public choice, and non-rationalist paradigms such as constructivism or post-structuralism.

Given these persistent divisions, it is natural for scholars to be sensitive to the methodological pluralism of the field and to argue for greater communication across these divisions. In this volume, for example, Jones and Cowles both argue for convergence of approaches and for bridging gaps between paradigms. Many other contributors agree that scholars should work to synthesize apparently incompatible research traditions. Since any research tradition must be incomplete, it is always tempting to take two such traditions and try to merge them, filling in some of the holes left by each.

The most obvious problem with this approach is that the resulting synthetic tradition will also be incomplete, as any logical system must be. By trying to combine statements from two distinct traditions, this synthesis will also face the challenge of identifying and then resolving inconsistencies between the two traditions. Synthesizing neoliberal institutionalism and constructivist explanations, for example, may appear attractive at the surface for explaining creation of the euro, but it leaves unresolved deep conflicts about ontology and epistemology, among others. Even if the inter-paradigmatic synthesis seems plausible and consistent in its surface claims, it is very hard to verify that all the assumptions underlying each paradigm are consistent with each other. The resulting study is likely to be superficial and to abandon the analytic power available within either well-developed tradition.

This is not to say that synthesis is impossible. However, synthesis is most likely to succeed not at the level of meta-theory or even a full paradigm, but in narrow subfields whose very concreteness allows scholars to set aside many larger questions. These narrow areas need not be related, as the application of Newton's law of gravity to international trade theory illustrates. The advantages of specialization apply not only to a single field but also to synthesis across boundaries. Narrowness, not inter-paradigmatic meta-synthesis, is key for scientific advance.

In this chapter, I argue for such a narrow synthesis and then develop the synthesis that I advocate. My objects are two distinct traditions within rational choice theory, endogenous policy theory (EPT) and spatial theory. To outsiders these probably seem very similar to one another. Their origins are very different, however, as is their use by scholars today. Endogenous policy theory is a product of economics, found especially among international economists who examine the politics of tariffs (endogenous tariff theory). EPT has not really been used to study the EU. Spatial theory has been developed by Americanisms in political science, though it dates to the economist Anthony Downs's application of the Hotel ling problem to party competition.

Spatial models of policy have become an increasingly common way to examine politics of the EU. These models treat policy as the choice of a point in space, with the point usually defined by its coordinates in a small number of dimensions. For example, one might treat the Left-Right policy dimension in Europe as a line, with social democratic positions to the left of the origin and Christian democratic positions to the right, and other party positions arrayed around and between these points. A second common policy dimension in EU studies is European integration, with policies and parties arrayed on a dimension from Euro-skepticism to enthusiastic integrationists. Interestingly, parties' positions on integration are not monotonically related to their Left-Right position, since it is generally true that centrists favor more integration than more extreme parties on either the Left or Right (. Specific policy areas, such as strict / relaxed environmental protection or tight/lose money, could also be modeled in this way.

Strongly discontinuous policies fit this framework less easily. However, many seemingly discontinuous policies may be less discontinuous than they seem. For example, legal sovereignty seems dichotomous and therefore discontinuous: a state is either sovereign or it is not. Sometimes people mobilize against any diminution of their country's sovereignty. Such views may be found among Euro-skeptics. Yet every state has its effective sovereignty diminished to a greater or lesser degree: some decisions about the polity are effectively made outside it. Euro-skeptics who appreciate this point argue that the cost of further reductions of sovereignty may be more than they are willing to pay. This kind of reasoning acknowledges that sovereignty is effectively a continuous policy dimension (1997, p. iii).

Spatial theories of politics are largely rationalist. Every actor has an ideal policy and evaluates other policies in terms of the distance from this point. Each actor prefers policies closer to its ideal point over policies farther away. In such a model, actors must decide whether to change policy away from the status quo (or reversion point). With some simplifying assumptions, applying the model can be a matter of basic geometry.

The field of EU studies has seen two major uses of the spatial model idea. The first is largely empirical. For example, scholars have tried to uncover the major policy dimensions over which members of the European Parliament or other decision-makers struggle. The emerging consensus seems to be that both Left-Right and integrationist dimensions play a significant role, with other dimensions important only idiosyncratically for certain countries, parties, or periods. This contrasts with similar analyses of U.S. politics over two centuries, where a single dimension dominates, supplemented only occasionally by a second dimension.

Other empirical studies in the spatial tradition have examined the policy positions of national parties and/or publics in order to understand the ratification of certain EU treaties or decisions in national legislatures or referenda. These studies have demonstrated the usefulness of spatial theory for explaining decisions and could easily (and confidently) be used for predicting referenda results.

The second major use of spatial theory has been theoretical, especially in the study of 'two-level games' Two-level theory views governments as positioned between domestic society and the international system, and interacting with other actors in both of these realms. The major application of two-level theory to the EU has been the study of how governments obtain domestic ratification of their agreements with other governments. As one would expect, there has been significant overlap with the empiricists discussed above who are also interested in the ratification problem. Research has now begun to move into other areas, such as domestic implementation of European commitments, or the formation of governing coalitions that anticipate negotiations over EU affairs (Kroll, 1995, p. 121).

A second area of theoretical research has been the interaction between national level governments and supranational actors such as the European Commission. These theories have elaborated the conditions under which actors such as the European Parliament or the European Commission may affect policy outcomes.

These more theoretical works face a challenge in that models become indeterminate very quickly when there are several policy dimensions, and become complicated very quickly when there are more than a few actors. One debate, between 'inter govern mentalists' represented by Madeleine Hosli (1993, 1995, 1996), and 'supra-nationalists' led by Geoffrey Garrett and George Tsebelis 1996, Tsebelis 1994, Tsebelis and Garrett 2001, hinges in part on whether any given distribution of preferences is as likely as any other. The agenda-setting powers of the European Parliament are also highly contingent and depend on how frequently we find particular constellations of preferences in the real world. It would be helpful to show theoretically that actors and their preferences tend to be constrained in some way.

Critical Political Economy

Very generally, political economy is concerned with the nature and interaction of the political and economic aspects of social reality. Different approaches to political economy can be distinguished and categorized along several dimensions or criteria. The most important of these is the conceptualization of the relationship between politics and economy, more specifically 'whether or not they claim to depict a systematic relationship between' the two. While one of the central tenets of mainstream approaches to political economy is an ontological (and largely unquestioned) assumption that the 'state' and the 'market' are essentially separate spheres of social reality, critical approaches argue that they are systematically related and that the apparent separation posited and observed by mainstream political economy is itself the product of historical development. This critical perspective on the relationship between 'state' and 'market' does not necessarily imply an economic reductionist understanding, where politics is simply reduced to the effects of economic forces, although that position was dominant within Marxist political economy for many years. But it does suggest that major political developments cannot be explained without reference to economic forces (Neilson, 2004, p. 102).

A closely related issue is the stance adopted with regard to 'social reality' and its analysis and conceptualization in the social sciences. The distinction made by Robert Cox between problem-solving and critical theories is useful here and it is worth quoting him at length: 'Problem-solving theory, takes the world as it finds it, with the prevailing social and power relationships and the institutions into which they are organized, as the given framework for action'. Taking this view of the world makes it difficult to study fundamental transformations, especially when the nature of institutions and the relationship between economics and politics may be changing. But it also tends to limit problem-solving theories to explaining the functioning of existing systems and makes them less useful in raising questions about how they came into existence and is maintained or changing. These differences are of central importance to the conceptualization of the relationship between politics and economy. While mainstream political economy takes the separation of the economic and political spheres for granted, critical political economy asks how this separation came about, how it has been (re-)produced and by whom, what role it plays in modern capitalist democracies, and why it has become so widely accepted in the social sciences. Critical political economy is, for example, helpful in the analysis of the 'new regionalism' in Europe, where efforts to redefine the relationship between politics and the economy and to 'insulate substantially the new economic institutions from popular scrutiny or democratic accountability' have been important aspects of the move towards economic and monetary union.

The conceptual separation of politics and economy, together with the related empiricist definition of power employed in mainstream political economy; also results in an inability to achieve what should be fundamental objectives of a political (economy) of the European Union (EU): to understand the nature of power in the EU, including its organization and distribution.

With this in mind, CPE can be defined broadly as a research program that is based on the following arguments. First, that politics and economy are systematically related. Second, that, while socio-economic power structures and conflict are central to understanding social reality - they represent the traditional domain of Marxist political economy - we should be concerned with social relations of power more generally. Third, that concrete events or phenomena are the outcome of the interaction of different social structures and concrete agency. Explaining events which have been the focus of traditional Marxist analysis - such as class politics or class-based agency and strategies - then, involves examining the interaction of socio-economic with other structures and institutions, as well as discourse or ideology, through agency, that is itself shaped by the interaction of different social structures. Political economic agency and strategy must, therefore, be understood as being (potentially) determined by and (re-)producing several parallel, interacting, and/or contradictory structures. Finally, political economy needs to be critical in the sense of scrutinizing existing institutional and other social arrangements, but also in the sense of critiquing the social and discursive parameters within which academic research and theory development takes place (Neilson, 2004, p. 102).

4: Tunisia

In the early 1970s, the over-all economic performance of the 41 independent developing African countries as measured by the output of goods and services continues to give cause for concern. Subject to the usual reservations about these statistical aggregates, the information available to the ECA secretariat indicates that in 1972 these 41 countries achieved an over-all growth rate of 5.4 per cent which is below the 6 per cent target set for the United Nations Second Development Decade. The rate of growth of about 4 per cent in 1973 was even poorer. All told, these countries have achieved on average less than 5 per cent growth rate in the first three years of the Decade. This result has been due, among other things, to the bad performance of the agricultural sector which was severely hit by drought conditions in 1972 and 1973.

The poor performance was not shared equally by all the subregions and countries. Thus the rates of growth for the North, West, East and Central sub-regions were 6.5, 5.6, 3.9, and 3.1 per cent respectively in 1972. Unfortunately, the breakdown for 1973 is not yet available.

In terms of the target of the International Development Strategy, only 10 countries, namely, Algeria, Libyan Arab Republic, Tunisia, Ivory Coast, Nigeria, Gabon, Botswana, Malawi, Mauritius and Swaziland achieved the 6 per cent growth rate of gross product in 1972.

The International Development Strategy also sets a target for per capita growth rate of gross product. With the population of the 41 African countries growing at an average of 2.8 per cent per annum in the early 1970s, the average per capita growth rate of gross product was a mere 2.6 per cent in 1972 as against the target of 3.5 per cent.

An increasing share of capital formation in the gross domestic product has been a notable feature of the African economic scene in recent years. Gross capital formation in real terms as a percentage of GDP increased from 17 per cent in 1960 to over 19 per cent in 1972.

The increasing share of capital formation is a reflection of the rising level of savings which increased from about 13 per cent in 1960 to 20 per cent in 1972 when the savings target of the International Development Strategy was achieved in the region as a whole. However, it should be noted that this rise in the region's savings ratio has been due mainly to the increasing earnings by countries which produce and export petroleum and other minerals.