One of the ways corporations trade transnationally in the face of local restrictions on market access is to set up subsidiary companies or regional offices from which trade is conducted.

If such subsidiaries bypass the restrictions, what is the remaining purpose of FTAs?

Is it that the subsidiary model is itself inefficient, or that it distorts the market to favour larger market incumbents who can afford such subsidiary creation, or that there are additional restrictions that this model does not mollify? Or something else?

  • $\begingroup$ Are you talking about goods or services? $\endgroup$ – Henry Feb 20 '19 at 23:57
  • 1
    $\begingroup$ For goods, customs tariffs are paid when they cross the border. Change of ownership or not is irrelevant $\endgroup$ – Henry Feb 21 '19 at 8:06
  • 1
    $\begingroup$ @Henry is right, although transfer pricing can be used to skirt this. More generally, the right to set up a subsidiary is not automatic, and may be granted by an FTA. $\endgroup$ – Dan Feb 22 '19 at 10:36

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Browse other questions tagged or ask your own question.