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Price undertakings, VERs, and foreign direct investment: the case of foreign rivalry

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Antidumping (AD) petitions are often withdrawn in favour of voluntary export restraints (VERs) and price undertakings. This paper compares these policy options in the presence of protection-jumping foreign direct investment (FDI), with special emphasis on rivalry between foreign firms. We show that a VER is less likely to induce FDI than a price undertaking or AD. As a result, by settling AD cases with VER agreements, the importing country can pursue a more protectionist policy without triggering FDI. In this sense the GATT ban on VERs following the proliferation of AD uses was a sensible decision.
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Keywords: F1

Document Type: Research Article

Affiliations: 1: Faculty of Economics, Hitotsubashi University 2: Department of Economics, Emory University, and ISER, Osaka University

Publication date: 01 August 2008

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