Trade Agreements in the Shadow of Lobbying

Abstract

This paper presents a model of international trade agreements in which the executive branches of each government negotiate agreements while the legislative branches, subject to political pressure from firms, can disrupt them. Lobbying is in the style of Grossman and Helpman (1994) with a new feature: all actors face uncertainty arising from the complexity of the legislative process. I demonstrate that the lower the executives set tariffs in a trade agreement, the more effort lobbies put forth to prevent its ratification. Thus trade agreements act as a domestic political commitment device: executives set relatively high tariffs to discourage lobbying and increase the chance that the agreement will be ratified. The model sheds light on the empirical puzzle surrounding governments' welfare weights in the Grossman and Helpman (1994) model and can speak to important trade policy-making events such as the four-year delay in the ratification of the U.S.-Korea Free Trade Agreement.