is that industry bias in ownership patterns may encourage a government to manipulate local prices to bene...t industries with a relatively higher proportion of national ownership.

As Blanchard (2010) argues, consideration of cross-border ownership leads to interesting policy implications. An implication of the external e¤ect is that a country may welcome foreign investment into its export sector as a means of encouraging a unilateral tari¤ reduction from its trading partner.<sup>93</sup> Similarly, the internal e¤ect implies that foreign investment into an import-competing sector may encourage the host country to lower its import tari¤ as a means of extracting rent from foreign investors. Perhaps the most provocative implication of her analysis is that international ownership, by encouraging governments to liberalize their tari¤s unilaterally, may substitute partially (or even in some cases completely) for negotiated tari¤ reductions.<sup>94</sup> Indeed, with a su¢ cient degree of international cross-border ownership, unilateral tari¤s are lower than e¢ cient, and the role of an international agreement is then to facilitate reciprocal and e¢ ciency-enhancing restrictions in market access.<sup>95</sup> Finally, Blanchard argues that the principle of reciprocity continues to serve as an important guide to e¢ cient outcomes, once the de...nition of market access re‡ects ownership positions. More generally, the implications of cross-border ownership for the optimal design of GATT/WTO rules is an important subject that warrants further attention.

Services We brie‡y consider next the treatment of services in GATT/WTO. A variety of evidence con...rms that services play an increasingly important role in modern economies.<sup>96</sup> In a survey of research on services trade and policy, Francois and Hoekman (2010) indicate that the theoretical literature on services trade highlights the complementarity between international services trade and FDI, the implications of di¤erent market structures and national regulatory policies for services trade, and the way in which international service ...rms are organized. They also describe increasing evidence that services liberalization is a major potential source of economic performance gains.

Government policies that a¤ect international service ...rms are disciplined in the WTO General Agreement on Trade in Services (GATS). As Trebilcock, Howse and Eliason (2013, Chapter 13, p. 480) indicate, the GATS is a “highly complex accord.”This agreement recognizes that services may be supplied through various modes and provides a framework for market-access negotiations across these modes. While GATS contains a general MFN provision (subject to some exceptions), national treatment and market access commitments apply only where WTO members make speci...c commitments to such coverage in their schedules. The impact of GATS on services reform is

> 93 See also Blanchard (2007) and Krishna and Mitra (2005). Blanchard and Matschke (forthcoming) provide some evidence to this e¤ect through an assessment of the impact of US multinational ...rms’a¢ liate o¤shoring behavior on US tari¤ preferences.

> 94 While international ownership may lead in this way to lower tari¤s, Gulotty (2014) argues that greater international ownership does not similarly lead to reductions in regulatory barriers. He argues that regulatory barriers raise ...xed costs, and that the associated reduction in entry may lead to net gains for e¢ cient, globalized ...rms. See also Ethier (1998) for a di¤erent perspective under which regional agreements and associated foreign direct investment activity arise endogenously in response to multilateral liberalization.

> 95 In relation to the Bagwell-Staiger (1999a, 2002) model described above, a key di¤erence here is that international ownership operates via the external e¤ect to diminish the absolute value of Wpew and Wpe<sup>�wandmayevenreversethe</sup> sign of these terms.

> 96 For further discussion, see Francois and Hoekman (2010) and Jensen (2011).

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