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Multilateral trade negotiations, bilateral opportunism and the rules of GATT/WTO

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  • Bagwell, Kyle
  • Staiger, Robert W.

Abstract

Trade negotiations occur through time and between the governments of many countries. An important issue is thus whether the value of concessions that a government wins in a current negotiation may be eroded in a future bilateral negotiation to which it is not party. We identify rules of negotiation that serve to protect the welfare of governments that are not participating in the bilateral negotiation. Our main finding is that the two central principles of GATT/WTO - non-discrimination (MFN) and reciprocity - preserve the welfare of non-participating governments and therefore offer a "first-line of defense" against bilateral opportunism. We argue that the GATT/WTO nullification-or-impairment rule then constitutes an important "second-line of defense." Finally, we confirm that in the absence of rules, or under weaker rules (e.g., MFN alone), the potential for bilateral opportunism can be severe.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 63 (2004)
Issue (Month): 1 (May)
Pages: 1-29

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Handle: RePEc:eee:inecon:v:63:y:2004:i:1:p:1-29

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Web page: http://www.elsevier.com/locate/inca/505552

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References

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  1. Kyle Bagwell & Robert W. Staiger, 1999. "Domestic Policies, National Sovereignty and International Economic Institutions," NBER Working Papers 7293, National Bureau of Economic Research, Inc.
  2. Kemp, Murray C. & Wan, Henry Jr., 1976. "An elementary proposition concerning the formation of customs unions," Journal of International Economics, Elsevier, vol. 6(1), pages 95-97, February.
  3. Rodney D. Ludema, 1991. "International Trade Bargaining And The Most-Favored-Nation Clause," Economics and Politics, Wiley Blackwell, vol. 3(1), pages 1-20, 03.
  4. Horn, Henrik & Mavroidis, Petros C., 2001. "Economic and legal aspects of the Most-Favored-Nation clause," European Journal of Political Economy, Elsevier, vol. 17(2), pages 233-279, June.
  5. Bagwell, Kyle & Staiger, Robert W., 2001. "Reciprocity, non-discrimination and preferential agreements in the multilateral trading system," European Journal of Political Economy, Elsevier, vol. 17(2), pages 281-325, June.
  6. Bagwell,K. & Staiger,R.W., 1998. "An economic theory of GATT," Working papers 15, Wisconsin Madison - Social Systems.
  7. Ilya Segal, 1999. "Contracting With Externalities," The Quarterly Journal of Economics, MIT Press, vol. 114(2), pages 337-388, May.
  8. McAfee, R Preston & Schwartz, Marius, 1994. "Opportunism in Multilateral Vertical Contracting: Nondiscrimination, Exclusivity, and Uniformity," American Economic Review, American Economic Association, vol. 84(1), pages 210-30, March.
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