Dissertation: Principal-Agent Model in Economics

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[. . .] 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… [END OF PREVIEW]

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Principal-Agent Model in Economics.  (2011, August 17).  Retrieved June 19, 2019, from https://www.essaytown.com/subjects/paper/principal-agent-model-economics/7476167

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"Principal-Agent Model in Economics."  Essaytown.com.  August 17, 2011.  Accessed June 19, 2019.