Bilateral Fta Negotiations In The Economic Analysis Methods And Tools

In the current trend of regional economic integration, the most important task for all countries and areas is not to debate whether the world economy will benefit more from the globalization or from regional economic integration in the long run, but to work out how to make the most favorable decision to the sustainable development of domestic economy. In respect that whichever is the best option, it is reality that the global economy has taken the economic regionalization as its current development model and no country or region could change this, even if it may be a second best choice. In the process of regional economic integration, different trade policy arrangements have non-neutral influences on different interest group, both in domestic and international economy. Since this kind of arrangements are usually reached through negotiations, thus, how to define domestic strategies, anticipate strategies of negotiating partners and estimate the potential effects have become the core issue for all negotiating sides.Considering that regional economic integration organizations have different forms but share similar principles, strategies and estimation rules in negotiations, this paper take bilateral FTA negotiation, which is the most prevalent form of regional economic integration, as the analysis subject to study its process in details. Presently, domestic bilateral FTA negotiations studies have some limitations on subjects and methods. On the one hand, most researches on the bilateral FTA focus on how different trade policies affect the economic development, trade growth and the national welfare, but few of them explores how trade policies and international trade rules are defined. But in fact, once the trade policies and rules have been established, given the situations that other conditions remain unchanged, their potential scope and extent of impacts on the economy are also roughly defined. Therefore, this paper focuses on exploring how trade policies are established in the process of bilateral FTA negotiations. Expatiating, analyzing and understanding of this issue would be helpful for deepening analysis of trade policies.On the other hand, a lot of domestic studies of trade negotiations are limited in negotiating skills and case studies while few of them are conducted from the perspective of theories and methodologies. The paper found that there has not a single theory that could fully explain the whole process of bilateral FTA negotiations. Technically, up to the present, two-level game theory still does not have a rigorous mathematical framework, and an equilibrium solution of a game is still on the base of partial equilibrium theory. In additional, the application of GTAP model still remains in the one-way, from the exogenous policy shocks to the potential economic impacts. Therefore, by further applications of the above theories and models, the paper researches the mathematical framework for two-level game, deepens the application of GTAP model, and establishes the reverse analysis of equilibrium of games by using GTAP simulation results.On the basis of theories and practices, the paper analyzes the bilateral FTA negotiations with the combination of theory and technique, consisting of five chapters as follows:The first chapter reviews the rapid growth of FTAs and presents the problems and shortcomings during the process of China's active implementation of Free Trade Area Strategy. In order to provide quantitative methodology, the goal of this paper is to establish a bilateral FTA negotiation model by means of mathematical analysis methods and softwares, so that our country could choose, influence and participate in FTA negotiations and other trade rules formulations in a more efficient way. Thus, it could not only shorten the period of negotiations, but also improve the capacity of negotiating analysis and decision-making, also the efficiency, which is both of great theoretical significance and high application value in practices.The second chapter discusses the related theories of bilateral FTA negotiations, such as regional economic integration theories, two-level game theory, CGE theory and GTAP model. Along with these discussions, this paper will further studying the following parts: (1) Analyze the negotiating subjects with different indices and set a comprehensive classification for the subjects and conclude those corresponding strategies; (2) Extend two-level game theory from qualitative analysis to the establishment of its mathematical framework; (3) Transfer domestic game to partial equilibrium analysis and build a mathematical model framework according to the features of bilateral FTA negotiations. (4) Set up a dynamic game model in the international level based on bilateral FTA negotiations; (5) Further analysis on how trade policies affect different interest groups and sectors by following the development path of regional economic integration theories and combined with the Computable General Equilibrium Theory and application of GTAP model; (6) Establish and apply the reverse analysis of GTAP model solutions to perfect the game theory and partial equilibrium and conclude the optimal strategies. The third chapter establishes a bilateral FTA negotiation model based on the linkages and establishment of several independent models for different negotiation stages. (1) For the preparatory stage, this chapter sets a comprehensive classification of the subjects and concludes their corresponding strategies by means of studying main elements of bilateral FTA negotiations and their logical links, combined indices. (2) For the formal negotiation stages, with the establishment of domestic partial equilibrium model and international dynamic game model, this part builds a mathematical framework of two-level game theory. However, although the chapter applies the two-level game theory, neither the order of domestic and international levels'games, nor the means of concluding final strategies is the same as the original theories. (3) For the final stage of the negotiation, this chapter sets up a reverse strategy analysis model by further application of GTAP model's outputs.The fourth chapter, by empirically analyzing China-Korea FTA negotiation, applies and tests the model established in the previous chapter. (1) For the preparatory stage, the chapter classifies the negotiation subjects by industries and applies comprehensive analysis of indices. Thus, it concludes the negotiating significance and corresponding strategies of different industries. (2) For the domestic-level negotiation stage, the chapter establishes the partial equilibrium model on the basis of Armington assumption, and with the combination of coordinate strategies settings of South Korean, this part analyzes the corresponding percentage changes of China's tariff with every 1% change of the Korean side. (3) For the international-level negotiation stage, the chapter applies the bilateral dynamic game model, combines with the given pace of negotiating process and the domestic equilibrium results, this part finds a possible equilibrium solution of the international negotiation. (4) The chapter, by updating macro-economic and tariff data in GTAP model and applying both long-term and short-term closure, simulates the potential impacts on different sectors of both sides respectively with regard to the possible agreement. (5) By using GTAP solutions, the chapter applies reverse strategies analysis method in both domestic and international strategies and finds out the validity range of the model established in chapter 3 and perfects the strategy selection of the negotiation model.The fifth chapter combines the negotiation model with political factors and analyzes the impacts of related assumptions and parameters'changes on the outcome of the negotiation. It also obtains the qualitative changes and the validity of the strategy selection—when the government in the model has a political will of reaching agreement in bilateral FTA negotiation, its final strategy selection and the validity will be dually affected by both political and economic factor.Finally, the paper reviews the above parts and concludes the results on the basis of theoretical and empirical analysis. (1) It is effective and operable to establish a bilateral FTA negotiation system model by integration of theories. In addition, it can also make up for the deficiency of single theory and obtain the optimum negotiation strategy. (2) It is in favor of establishing the will of cooperation and reaching agreement in bilateral FTA negotiation by close communication. (3) It is helpful to make bilateral FTA negotiation more effective if the government seeks negotiation partner in accordance with the principal of its negotiation strategic wills or take its own comparative advantages. At the same time, this paper also reviews its own potential deficiency and discusses how to make the improvements and where to make further studies.By the above theoretical and empirical researches, this paper establishes a number of independent analytical methods and quantitative models regarding trade in goods bilateral FTA negotiations. Moreover, this paper builds a comprehensive and systematic model of bilateral FTA negotiations according to the input and output linkages between these independent models. At the same time, the empirical research confirms that this systematic model is significant in theoretical innovation and practical operation. However, due to the reason that some industry data are not available and the author does not know well in dynamic partial and general equilibrium theories and modeling techniques, this paper still left multi-subject partial equilibrium model untouched and doesn't find the variables to describe the subject factors accurately and objectively in the dynamic international negotiation. This paper yet can not effectively integrate the results of two models, overall trend analysis model and quantitative analysis model. In the future studies, researches can further the classification of negotiation subjects and build multi-subject dynamic partial equilibrium model also deepen applying the dynamic CGE analysis in the potential economic effects. It is also necessary to improve the effective integration of quantitative and qualitative data so as to study the optimum strategy and potential impacts on the economy more precisely.