Currently more and more international trade agreements constrain the ability of domestic governments using trade policies,while fewer international constraints are applied to the use of investment policies.Since firms compete in foreign markets via both exports and foreign direct investment (FDI),the following question arises:can constraints on the use of only one type of policy (trade or FDI) induce firms to adopt inefficient modes of supply when serving foreign markets?We address this question in a model in which a local,a foreign firm and host country's government compete in the domestic market.In the model,the host government's trade and/or FDI policies as well as the foreign firm's choice between exports and FDI are endogenous.We show that even if the host government is constrained only in its ability to use trade (FDI) policy,and is free to set its FDI (trade) policy,the foreign firm chooses the efficient mode of supply. Furthermore,our analysis suggests that the primary benefit of constraining FDI policy given that free trade is primarily distributional:such a constraint would limit the ability of governments to extract rents from foreign investors.