nep-int New Economics Papers
on International Trade
Issue of 2018‒01‒08
twenty-two papers chosen by
Luca Salvatici
Università degli studi Roma Tre

  1. Do Bilateral Investment Treaties Attract Foreign Direct Investment? The Role of International Dispute Settlement Provisions By Michael Frenkel; Benedikt Walter
  2. Preferential Trade Agreements and Rules of the Multilateral Trading System By Kamal Saggi; Woan Foong Wong; Halis Murat Yildiz;
  4. WTO Tariff Commitments and Temporary Protection: Complements or Substitutes? By David J. Kuenzel
  5. From Final Goods to Inputs: The Protectionist Effect of Rules of Origin By Paola Conconi; Manuel García-Santana; Laura Puccio; Roberto Venturini
  6. Implications of multilateral tariff bindings on the formation of preferential trade agreements and quest for global free trade By Moise Nken; Halis Murat Yildiz;
  7. A Simple Model of Brexit under Oligopoly By Collie, David R.
  8. Multimarket Linkages, Cartel Discipline and Trade Costs By Agnosteva, Delina; Syropoulos, Constantinos; Yotov, Yoto
  9. Do Emigrants Self-Select Along Cultural Traits? Evidence from the MENA Countries By Frédéric Docquier; Aysit Tansel; Riccardo Turati
  10. Non-discriminatory Trade Policies in Structural Gravity Models. Evidence from Monte Carlo Simulations By Sellner, Richard
  11. Intellectual Property Rights, Multinational Firms and Technology Transfers By Sara Biancini; Pamela Bombarda
  12. Modeling Fluctuations in the Global Demand for Commodities By Lutz Kilian; Xiaoqing Zhou
  13. Global Trade and the Dollar By Emine Boz; Gita Gopinath; Mikkel Plagborg-Møller
  14. Export Rivalry and Exchange Rate Pass-Through By Sun, Puyang; Hou, Xinyu; Tan, Yong
  15. Food and biosecurity: livestock production and towards a world free of foot-and-mouth disease By Tom Kompas; Hoa-Thi-Minh Nguyen; Pham Van Ha
  16. Trade and Income in the Long Run: Are There Really Gains, and Are They Widely Shared? By Diego A. Cerdeiro; Andras Komaromi
  17. Trade, competition and welfare in global online labour markets: A "gig economy" case study By Estrella Gomez-Herrera; Bertin Martens; Frank Muller-Langer
  18. The Slowdown in Global Trade: A Symptom of A Weak Recovery By Aqib Aslam; Emine Boz; Eugenio M Cerutti; Marcos Poplawski-Ribeiro; Petia Topalova
  19. A Study on Regime Type and Globalization in Simultaneous Equation Framework By Mishra, SK
  20. Export Performance, Innovation, and Productivity in Indian Manufacturing Firms By Santosh Kumar Sahu; Sunder Ramaswamy; Abishek Choutagunta
  21. What the TTIP Leaks Mean for the On-Going Negotiations and Future Agreement? Time to Overcome TTIP's Many Informational Asymmetries By Alemanno, Alberto
  22. Trade, Financial Flows and Stock Market Interdependence: Evidence from Asian Markets By Sowmya Dhanaraj; Arun Kumar Gopalaswamy; M. Suresh Babu

  1. By: Michael Frenkel; Benedikt Walter
    Abstract: This paper studies the effect of the strength of Bilateral Investment Treaties (BITs) on FDI activity. We develop an index for the strength of international dispute settlement provisions included in BITs in order to examine the role the content of BITs plays in attracting FDI. To this end we make use of data from the UNCTAD’s International Investment Agreement Mapping Project and measure the provision strength of 1,676 BITs. Using panel data of bilateral and total inward FDI flows and stocks we study the effect of BITs on FDI. Our main finding indicates that stronger international dispute settlement provisions in BITs are indeed associated with positive effects on FDI activity.
    Keywords: Bilateral Investment Treaties (BITs), State-State Dispute Settlement (SSDS), Investor-State Dispute Settlement (ISDS), Foreign Direct Investment (FDI)
    JEL: F02 F21 F23 F53 K33
    Date: 2017–12–21
  2. By: Kamal Saggi (Department of Economics, Vanderbilt University, Nashville, TN); Woan Foong Wong (Department of Economics, University of Oregon, Eugene, Oregon); Halis Murat Yildiz (Department of Economics, Ryerson University, Toronto, Canada);
    Abstract: In a three-country model of endogenous trade agreements, we study the effects of major WTO rules governing the conduct of free trade agreements (FTAs). We show that FTA members retain positive internal tariffs even if they seek to maximize their joint welfare. Requiring FTAs to eliminate internal tariffs — as stipulated by current WTO rules — makes the non-member better o§ although it simultaneously reduces the likelihood of achieving global free trade by encouraging free-riding on its part. While the WTO’s non-discrimination constraint is not necessarily conducive to reaching global free trade, it raises welfare in a tariff-ridden world.
    Keywords: Free Trade Agreements, Tariffs, Customs Unions, World Trade Organization, Coalition proof Nash equilibrium, Welfare
    Date: 2017–12
  3. By: Mathias Juust, Priit Vahter, Urmas Varblane
    Abstract: The EU-South Korea FTA, enforced in 2011, represents a significant case of a trade deal signed between two major developed economies that also belong among the largest car exporters in the world. This paper examines the effects of the EU-South Korea FTA on bilateral automotive industry trade, comparing them to the changes in total bilateral trade. The empirical analysis applies the gravity model framework with its contemporary methodological advancements and estimation techniques. The empirical results show that the trade-enhancing effects of the FTA in the auto trade are substantially higher than in total trade. Additionally, EU bilateral auto exports have increased more than South Korea’s exports. The dynamics of the post-FTA trade flows suggest that the removal of the automotive industry’s non-tariff barriers have played an important role in trade facilitation, especially for EU exports. The enforcement of the FTA has also been followed by notable changes in the structure of EU auto exports with the share of higher value final goods increasing and input goods decreasing.
    Keywords: trade agreements, gravity equation, auto industry trade, EU, South Korea
    JEL: F13 F14 F15 O52 O53
    Date: 2017
  4. By: David J. Kuenzel (Economics Department, Wesleyan University)
    Abstract: There is a long-held notion in the trade policy literature that traditional tariff instruments and temporary protection (TP) measures are substitutes. Despite this prediction, there is only mixed empirical evidence for a link between tariff reductions and the usage pattern of antidumping, safeguard and countervailing duties. Based on recent theoretical advances, I argue in this paper that the relevant trade policy margin for implementing TP measures is instead tariff overhangs, the difference between WTO bound and applied tariffs. Lower tariff overhangs constrain countries to raise their MFN applied rates without legal repercussions, independent of past tariff changes. Using detailed sectoral data for a sample of 30 WTO member countries during the period 1996-2014, I find strong evidence for an inverse link between tariff overhangs and TP activity. This result implies that tariff overhangs and TP measures are substitutes, vindicating the importance of existing tariff commitments as a key determinant of alternative protection instruments.
    Keywords: GATT/WTO, Temporary Protection, Tariff Overhang
    JEL: F13 F14 F53
    Date: 2018–01
  5. By: Paola Conconi; Manuel García-Santana; Laura Puccio; Roberto Venturini
    Abstract: Recent decades have witnessed a surge of trade in intermediate goods and a proliferation of free trade agreements (FTAs). FTAs use rules of origin (RoO) to distinguish goods originating from member countries from those originating from third countries. We focus on the North American Free Trade Agreement (NAFTA), the world's largest FTA, and construct a unique dataset that allows us to map the input-output linkages in its RoO. Exploiting cross-product and cross-country variation in treatment over time, we show that NAFTA RoO led to a sizeable reduction in imports of intermediate goods from third countries relative to NAFTA partners. Even if external tariffs are unchanged, FTAs may thus violate multilateral trade rules, by substantially increasing the level of protection faced by non-members.
    Keywords: trade agreements, rules of origin, input-output linkages
    JEL: F23 F53
    Date: 2017–12
  6. By: Moise Nken (Department of Economics, Ryerson University, Toronto, Canada); Halis Murat Yildiz (Department of Economics, Ryerson University, Toronto, Canada);
    Abstract: Using an endogenous preferential trade agreement (PTA) formation model under all possible multilaterally negotiated bound tariff rates, we examine the effects of multilateral trade liberalization on the role of PTAs in achieving global free trade. We first show that, when countries are completely symmetric, no country has an incentive to unilaterally deviate (free ride) from free trade network while exclusion incentives arise when bound tariffs are sufficiently low. Due to the relatively flexible nature of the FTA formation, such exclusion incentives go unexercised and free trade always obtains as the coalition-proof Nash equilibrium (CPNE) of the FTA game. However, such flexibility does not exist under the CU game and thus countries are able to exercise the exclusion incentive and free trade fails to be CPNE when the bound tariff rates are sufficiently low. We then consider a scenario where countries are asymmetric with respect to their comparative advantage. The country with a weaker comparative advantage has an incentive to free ride on trade liberalization of the other two countries and lower bound tariff rates disciplines this incentive via limiting the ability to set optimal tariffs. As a result, multilateral free trade is more likely to be a CPNE as the multilateral negotiated bound tariff rates decline. This result provides support for the idea that multilateral trade liberalization acts as a complement to the FTA formation in achieving global free trade.
    Keywords: Bound Tariff Rates, Coalition proof Nash equilibrium, Free Trade Agreement, Customs Union, Exclusion Incentive, Free Riding Incentive
    Date: 2017–12
  7. By: Collie, David R. (Cardiff Business School)
    Abstract: The welfare effects of Brexit on the UK, the EU27 and the rest of the world are analysed in a model of international trade under oligopoly. A hard Brexit where the UK trades according to WTO rules is shown to decrease total UK welfare, to have an ambiguous effect on total EU27 welfare, and to increase total welfare in the rest of the world. Unilateral free trade for the UK is shown to decrease total UK welfare, to increase total EU27 welfare, and to increase total welfare in the rest of the world. A free trade agreement with the rest of the world rather than the EU27 will be beneficial, ceteris paribus, if the rest of the world market is larger than the EU27 market; if the rest of the world tariff is larger than the EU27 tariff; and if firms in the rest of the world have higher costs than EU27 firms. It will not be beneficial if trade between the UK and the rest of the world is more costly than trade between the UK and the EU27 as is likely to be the case since the EU27 is close to the UK.
    Keywords: Brexit; Oligopoly; International Trade; Tariffs; EU
    JEL: F12 F13 L13
    Date: 2017–12
  8. By: Agnosteva, Delina (Towson University); Syropoulos, Constantinos (Drexel University); Yotov, Yoto (Drexel University)
    Abstract: We build a model of tacit collusion between firms that operate in multiple markets to study the effects of trade costs. A key feature of the model is that cartel discipline is endogenous. Thus, markets that appear segmented are strategically linked via the incentive compatibility constraint. Importantly, trade costs affect cartel shipments and welfare not only directly but also indirectly through discipline. Using extensive data on international cartels, we find that trade costs exert a negative and significant effect on cartel discipline. In turn, cartel discipline has a negative and significant impact on trade flows, in line with the model.
    Keywords: endogenous cartel discipline; competitiveness; multimarket contact; welfare; trade costs; trade policy; gravity
    JEL: D43 F10 F12 F13 F15 F42 L12 L13 L41
    Date: 2017–12–05
  9. By: Frédéric Docquier; Aysit Tansel; Riccardo Turati
    Abstract: This paper empirically investigates whether emigrants from MENA countries self-select on cultural traits such as religiosity and gender-egalitarian attitudes. To do so, we use Gallup World Poll data on individual opinions and beliefs, migration aspirations, short-run migration plans, and preferred destination choices. We find that individuals who intend to emigrate to OECD, high-income countries exhibit significantly lower levels of religiosity than the rest of the population. They also share more gender-egalitarian views, although the effect only holds among the young (aged 15 to 30), among single women, and in countries with a Sunni minority. For countries mostly affected by Arab Spring, since 2011 the degree of cultural selection has decreased. Nevertheless, the aggregate effects of cultural selection should not be overestimated. Overall, self-selection along cultural traits has limited (albeit non negligible) effects on the average characteristics of the population left behind, and on the cultural distance between natives and immigrants in the OECD countries.
    Keywords: international migration, self-selection, cultural traits, gender-egalitarian attitudes, religiosity, MENA region
    JEL: F22 O15 J61 Z10
    Date: 2017
  10. By: Sellner, Richard (Institute for Advanced Studies (IHS), Vienna)
    Abstract: This paper provides Monte Carlo simulation evidence on the performance of methods used for identifying the effects of non-discriminatory trade policy (NDTP) variables in structural gravity models (SGM). The benchmarked methods include the identification strategy of Heid, Larch & Yotov (2015) that utilizes data on intra-national trade flows and three other methods that do not rely on this data. Results indicate that under the assumption of a data generating process that conforms with SGM theory, data on intra-national trade flows is required for identification. The bias of the three methods that do not utilize this data, is a result of the correlation between the NDTP variable and the collinear fixed effects. The MC results and an empirical application demonstrate the severity of this bias in methods that have been applied in previous empirical research.
    Keywords: Structural Gravity Model, Non-discriminatory Trade Policies, Monte Carlo Simulation
    JEL: C31 F10 F13
    Date: 2017–12
  11. By: Sara Biancini; Pamela Bombarda
    Abstract: Intellectual Property Rights (IPR) protect firms from imitation and are considered crucial to promote innovation and technological diffusion. This paper examines the impact of IPR on import sourcing decisions of multinationals. We consider a framework in which firms offshore production of an intermediate good in a developing country. Firms can either decide to import the intermediate from vertically integrated producers, or from independent suppliers. In both cases, offshoring part of the production process embodies a risk of imitation. The model predicts that, under reasonable assumptions, stronger IPR encourage by a larger extent the imports of intermediates through vertical integration. Using U.S. Related-Party Trade database, we find empirical evidence supportive of the positive link between level of IPR and the relative share of imports from vertically integrated manufacturers.
    Keywords: intellectual property rights, MNF, FDI, outsourcing, international trade
    JEL: F12 F23 O34
    Date: 2017
  12. By: Lutz Kilian; Xiaoqing Zhou
    Abstract: It is widely understood that the real price of globally traded commodities is determined by the forces of demand and supply. One of the main determinants of the real price of commodities is shifts in the demand for commodities associated with unexpected fluctuations in global real economic activity. There have been numerous proposals for quantifying global real economic activity. We discuss which criteria a measure of global real activity must satisfy to be useful for modeling industrial commodity prices, we examine which of the many alternative measures in the literature are most suitable for applied work, and we explain why some popular measures are inappropriate for modeling commodity prices. Given these insights, we reexamine in detail the question of whether global real economic activity has declined since 2011 and by how much. Drawing on a range of new evidence, we show that the global commodity price boom of the 2000s appears to have been largely transitory. Our analysis has important implications for the design of structural models of commodity markets, for the analysis of the transmission of commodity price shocks to commodity-importing and exporting economies, and for commodity price forecasting.
    Keywords: commodity market, demand, real economic activity, global economy, oil price, international business, cycle, leading indicators
    JEL: F44 Q11 Q31 Q41 Q43
    Date: 2017
  13. By: Emine Boz; Gita Gopinath; Mikkel Plagborg-Møller
    Abstract: We document that the U.S. dollar exchange rate drives global trade prices and volumes. Using a newly constructed data set of bilateral price and volume indices for more than 2,500 country pairs, we establish the following facts: 1) The dollar exchange rate quantitatively dominates the bilateral exchange rate in price pass-through and trade elasticity regressions. U.S. monetary policy induced dollar fluctuations have high pass-through into bilateral import prices. 2) Bilateral non-commodities terms of trade are essentially uncorrelated with bilateral exchange rates. 3) The strength of the U.S. dollar is a key predictor of rest-of-world aggregate trade volume and consumer/producer price inflation. A 1 percent U.S. dollar appreciation against all other currencies in the world predicts a 0.6–0.8 percent decline within a year in the volume of total trade between countries in the rest of the world, controlling for the global business cycle. 4) Using a novel Bayesian semiparametric hierarchical panel data model, we estimate that the importing country’s share of imports invoiced in dollars explains 15 percent of the variance of dollar pass-through/elasticity across country pairs. Our findings strongly support the dominant currency paradigm as opposed to the traditional Mundell-Fleming pricing paradigms.
    Date: 2017–11–13
  14. By: Sun, Puyang; Hou, Xinyu; Tan, Yong
    Abstract: In this paper we investigate the influence of market rivalry on firm-level exchange rate pass-through. Similar to Bloom et al. (2013), we define market rivalry as product market proximity, and expect the cross market spillovers, i.e., through leaked information or reputation, to affect firm-level export price. Using a dataset from comprehensive Chinese exporters during 2000-2007, we find supporting evidence of this influence. Firms that face a high degree of market rivalry are less responsive to exchange rate fluctuations, which suggests a higher exchange rate pass-through. The influence of market rivalry is stronger on firms that export consumption and heterogeneous products, and to developed countries. Our results are robust to different measures of market rivalry and specifications.
    Keywords: Market Rivalry, Exchange Rate Pass-through, Cross Markets Spillovers
    JEL: F14 F31 F33 O19
    Date: 2017–12–20
  15. By: Tom Kompas; Hoa-Thi-Minh Nguyen; Pham Van Ha
    Abstract: A key challenge for global livestock production is the prevalence of infectious animal diseases. These diseases result in low productivity in meat and dairy production, culled animals, and significant barriers to trade and lost income from meat and meat products. Foot-and-mouth disease (FMD) affects both developing countries, where it is often endemic and very costly, and developed countries where incursions result in considerable economic losses in the order of billions of dollars per year. In some cases, production levels of pork meat in developed countries have still not recovered to levels prior to past disease incursions, more than a decade ago. In developing countries, the export of animal products has exhibited sluggish growth for decades, constrained by ongoing animal disease problems.We make three contributions. First, we provide an overview of worldwide meat production, consumption and trade in the context of FMD. Second, we provide insights into the economics of biosecurity measures and how these activities should be optimally designed to enhance livestock production. Third, we analyse a case study of an FMDendemic country, Vietnam, which has been trying to achieve FMD-free status for some time. Lessons learnt from this case study shed light on the challenges in achieving FMD-free status in developing countries, which is useful for a global FMD control strategy and the promotion of world food security.
    Keywords: Livestock production, Trade, Biosecurity, Foot-and-mouth disease, Vietnam
    Date: 2017–09
  16. By: Diego A. Cerdeiro; Andras Komaromi
    Abstract: In the cross section of countries, there is a strong positive correlation between trade and income, and a negative relationship between trade and inequality. Does this reflect a causal relationship? We adopt the Frankel and Romer (1999) identification strategy, and exploit countries' exogenous geographic characteristics to estimate the causal effect of trade on income and inequality. Our cross-country estimates for trade's impact on real income are consistently positive and significant over time. At the same time, we do not find any statistical evidence that more trade increases aggregate measures of income inequality. Heeding previous concerns in the literature (e.g. Rodriguez and Rodrik, 2001; Rodrik, Subramanian and Trebbi, 2004), we carefully analyze the validity of our geography-based instrument, and confirm that the IV estimates for the impact of trade are not driven by other direct or indirect effects of geography through non-trade channels.
    Keywords: Income;Trade;Growth, Inequality, Gravity model, General
    Date: 2017–11–07
  17. By: Estrella Gomez-Herrera (European Commission – JRC); Bertin Martens (European Commission – JRC); Frank Muller-Langer (European Commission – JRC)
    Keywords: digital single market, collaborative economy, online labour markets, gig economy
    JEL: D23 K11
    Date: 2017–12
  18. By: Aqib Aslam; Emine Boz; Eugenio M Cerutti; Marcos Poplawski-Ribeiro; Petia Topalova
    Abstract: Global trade growth has slowed since 2012 relative both to its strong historical performance and to overall economic growth. This paper aims to quantify the role of weak economic growth and changes in its decomposition in accounting for the slowdown in trade using a reduced form and a structural approach. Both analytical investigations suggest that the overall weakness in economic activity, particularly investment, has been the primary restraint on trade growth, accounting for over 80 percent of the decline in the growth of the volume of goods trade between 2012–16 and 2003–07. However, other factors are also weighing on trade in recent years, especially in emerging market and developing economies, as evidenced by the non-negligible role attributed to trade costs by the structural approach.
    Date: 2017–11–15
  19. By: Mishra, SK
    Abstract: In this study we build a simultaneous equation model in which the measures of different aspects of globalization (attributable to KOF) and different aspects of democracy (attributable to EIU) are related in seven structural equations. A bi-directional relationship between democracy and globalization is visualized. The model is estimated by the conventional 2-SLS as well as a modified 2-SLS in which Shapley value regression is used at the second stage of 2-SLS. On the basis of our analysis we conclude the following: (1). Overall, democracy and globalization promote each other and hence there is a bi-directional causality with positive relationships running both ways between democracy and globalization. At a national level, there may be various intermediary conditions that modify the relationship as well as set in motion a complex of positive and/or negative feedbacks to accelerate or retard the pace of globalization and democratization in a country-specific manner. However, when a large number of countries are studied a clear relationship emerges out. (2). There is a need to estimate the structural coefficients of the model cautiously since the regression equations may be suffering from collinearity among the predictor variables. The Shapley value regression based 2-SLS has performed better than the conventional regression in estimating the structural parameters of the model. (3). It is expected that the system methods of estimation of the model would give better results than what are obtained by the single equation methods of estimation of structural parameters of the model.
    Keywords: Simultaneous equations model; Two-Stage Least Squares; Instrumental Variables; Collinearity; Shapley Value Regression; Democracy Index; Globalization Index
    JEL: C30 C36 C51 C61 C71
    Date: 2018–01–02
  20. By: Santosh Kumar Sahu (Assistant Professor, Madras School of Economics); Sunder Ramaswamy (Visiting Distinguished Professor of Economics, Madras School of Economics); Abishek Choutagunta (Institute of Law and Economics, Universität Hamburg)
    Abstract: This study re-examines the relationship between export performance and productivity in manufacturing firms in India for the period 2003-2015, using firm level information. Departing from the earlier studies on India economy, we argue that product innovations boost export performance of the economy. The hypothesis being that, in the post-economic-reforms era competitive export market scenario, productivity alone, without product innovation and participation in R and D cannot drive export performance. We observe that the argument of highly productive firms entering the export market without reallocating resources towards innovation and R and D seems to be invalid in our sample. Nevertheless, we find in our sample, that productivity as a selection criterion coupled with advertising and marketing strategies explains participation in R and D in boosting exports.
    Keywords: Export Performance, Innovation, Productivity, Manufacturing firms, India
    JEL: D20 D24 L16 L6 L60
  21. By: Alemanno, Alberto
    Abstract: One of the major merits of the TTIP leaks has been to highlight the underlying information asymmetry characterising the on-going TTIP negotiations. By systematically releasing its position papers before each negotiation, the EU actual disclosure policy contributes to a permanent yet overlooked information imbalance between the EU and its trading partner(s). The ensuing asymmetry does not only alter the overall negotiating environment, but also how the media, academics, and, in turn, the public actually perceive it. Moreover, it generates many other information asymmetries within the EU itself: that between the negotiators and the elected representatives, that between corporate and civil society interest groups, and eventually between the ‘TTIP circus’ and the general public. If the negotiators themselves have hijacked the rhetoric of fact-checking, academics have not yet had their chance to contribute to the discussion. As a result, only the EU positions have been studied, criticized and closely debated, with the US negotiating positions remaining largely a mystery. After briefly presenting the how’s of the TTIP leaks, this opening piece examines the what’s and why’s behind this unprecedented revelation of negotiating texts. It is against this backdrop that the other contributors to this symposium explore which are the most immediate consequences of the TTIP leaks on the on-going negotiations and future agreement.
    Keywords: TTIP; international trade; FTA; EU; US; regulatory convergence; regulatory coherence; mutual recognition; equivalence; regulatory compatibility; risk regulation
    Date: 2016–06–16
  22. By: Sowmya Dhanaraj (Lecturer, Madras School of Economics); Arun Kumar Gopalaswamy (IIT Madras, India); M. Suresh Babu (IIT Madras, India)
    Abstract: Liberalization and globalization of Newly Industrialized Economies have contributed to increased integration of capital markets. This study tests whether convergence of macroeconomic variables and enhanced bilateral trade and financial flows causes greater interdependence of markets. Daily closing indices and quarterly differentials in interest, inflation, growth rates, exchange rates, trade of goods and services, direct and portfolio investment were used. Results revealed that markets of Asia are not immune to shocks originating in US although co-movements of macroeconomic variables do not help in explaining level of interdependence. Portfolio flows were found to be important than trade flows in explaining market interdependence.
    Keywords: Dynamic market interdependence, US and Asian Newly Industrialized Economies (NIEs), Emerging Market Economies (EMEs), FEVD, Trade and Financial Flows
    JEL: F4 G1

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