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Backward stealing and forward manipulation in the WTO

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  • Kyle Bagwell

    ()
    (Department of Economics, Columbia University)

  • Robert W. Staiger

    ()
    (University of Wisconsin - Madison - Department of Economics)

Abstract

Motivated by the structure of WTO negotiations, we analyze a bargaining environment in which negotiations proceed bilaterally and sequentially under the most-favored-nation (MFN) principle. We identify backward-stealing and forward-manipulation problems that arise when governments bargain under the MFN principle in a sequential fashion. We show that these problems impede governments from achieving the multilateral efficiency frontier unless further rules of negotiation are imposed. We identify the WTO nullification-or-impairment and renegotiation provisions and its reciprocity norm as rules that are capable of providing solutions to these problems. In this way, we suggest that WTO rules can facilitate the negotiation of efficient multilateral trade agreements in a world in which the addition of new and economically significant countries to the world trading system is an ongoing process.

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Bibliographic Info

Paper provided by Columbia University, Department of Economics in its series Discussion Papers with number 0405-06.

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Length: 56 pages
Date of creation: 2004
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Handle: RePEc:clu:wpaper:0405-06

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References

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  1. Ludema, Rodney D & Mayda, Anna Maria, 2005. "Do Countries Free Ride on MFN?," CEPR Discussion Papers 5160, C.E.P.R. Discussion Papers.
  2. Leslie M. Marx & Greg Shaffer, 1999. "Predatory Accommodation: Below-Cost Pricing without Exclusion in Intermediate Goods Markets," RAND Journal of Economics, The RAND Corporation, vol. 30(1), pages 22-43, Spring.
  3. 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.
  4. Aghion, Philippe & Bolton, Patrick, 1987. "Contracts as a Barrier to Entry," American Economic Review, American Economic Association, vol. 77(3), pages 388-401, June.
  5. Nuno Limão, 2002. "Are Preferential Trade Agreements with Non-trade Objectives a Stumbling Bloc for Multilateral Liberalization?," International Trade 0206001, EconWPA.
  6. Baybars Karacaovali & Nuno Limao, 2005. "The Clash Of Liberalizations: Preferential Vs. Multilateral Trade Liberalization In The European Union," International Trade and Finance Association Conference Papers 1037, International Trade and Finance Association.
  7. Horn, Henrik & Mavroidis, Petros C, 2001. "Economic and Legal Aspects of the Most Favoured Nation Clause," CEPR Discussion Papers 2859, C.E.P.R. Discussion Papers.
  8. Irwin, Douglas A., 2007. "Tariff Incidence in America's Gilded Age," The Journal of Economic History, Cambridge University Press, vol. 67(03), pages 582-607, September.
  9. Chad P. Bown, 2004. "On the Economic Success of GATT/WTO Dispute Settlement," The Review of Economics and Statistics, MIT Press, vol. 86(3), pages 811-823, August.
  10. Ilya Segal, 1999. "Contracting With Externalities," The Quarterly Journal of Economics, MIT Press, vol. 114(2), pages 337-388, May.
  11. 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.
  12. Subramanian, Arvind & Wei, Shang-Jin, 2005. "The WTO Promotes Trade, Strongly But Unevenly," CEPR Discussion Papers 5122, C.E.P.R. Discussion Papers.
  13. Kennan, John & Riezman, Raymond, 1988. "Do Big Countries Win Tariff Wars?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(1), pages 81-85, February.
  14. Kyle Bagwell & Robert W. Staiger, 2010. "The World Trade Organization: Theory and Practice," Annual Review of Economics, Annual Reviews, vol. 2(1), pages 223-256, 09.
  15. Bagwell, Kyle & Staiger, Robert W., 2005. "Erratum to "Multilateral trade negotiations, bilateral opportunism and the rules of GATT/WTO" [J. Int. Econ. 63 (1) (2004) 1-29]," Journal of International Economics, Elsevier, vol. 67(2), pages 267-267, December.
  16. Saggi, Kamal, 2004. "Tariffs and the most favored nation clause," Journal of International Economics, Elsevier, vol. 63(2), pages 341-368, July.
  17. Bagwell,K. & Staiger,R.W., 1999. "Multilateral trade negotiations, bilateral opportunism and the rules of GATT," Working papers 6, Wisconsin Madison - Social Systems.
  18. Hart, O. & Tirole, J., 1990. "Vertical Integration And Market Foreclosure," Working papers 548, Massachusetts Institute of Technology (MIT), Department of Economics.
  19. Kyle Bagwell & Robert W. Staiger, 2004. "The Economics of the World Trading System," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262524341.
  20. Robert W. Staiger & Kyle Bagwell, 1999. "An Economic Theory of GATT," American Economic Review, American Economic Association, vol. 89(1), pages 215-248, March.
  21. Leslie M. Marx & Greg Shaffer, 2004. "Opportunism in Multilateral Vertical Contracting: Nondiscrimination, Exclusivity, and Uniformity: Comment," American Economic Review, American Economic Association, vol. 94(3), pages 796-801, June.
  22. Choi, J.P., 1992. "Optimal Tariffs and the Choice of Technology Discriminatory Tariffs vs. the "Most Favored Nation" Clause," Discussion Papers 1992_46, Columbia University, Department of Economics.
  23. McCalman, Phillip, 2002. "Multi-lateral trade negotiations and the Most Favored Nation clause," Journal of International Economics, Elsevier, vol. 57(1), pages 151-176, June.
  24. Daniel P. O'Brien & Greg Shaffer, 1992. "Vertical Control with Bilateral Contracts," RAND Journal of Economics, The RAND Corporation, vol. 23(3), pages 299-308, Autumn.
  25. Kyle Bagwell & Robert W. Staiger, 1997. "Regionalism and Multilateral Tariff Cooperation," NBER Working Papers 5921, National Bureau of Economic Research, Inc.
  26. Eric Bond & Stephen Ching & Edwin L. C. Lai, 2000. "Accession Rules and Trade Agreements: The Case of the WTO," Econometric Society World Congress 2000 Contributed Papers 1626, Econometric Society.
  27. Michael Tomz & Judith L. Goldstein & Douglas Rivers, 2007. "Do We Really Know That the WTO Increases Trade? Comment," American Economic Review, American Economic Association, vol. 97(5), pages 2005-2018, December.
  28. Carsten Kowalczyk & Tomas Sjostrom, 1993. "Bringing GATT into the Core," NBER Working Papers 4343, National Bureau of Economic Research, Inc.
  29. Hoekman, Bernard M. & Kostecki, Michel M., 2009. "The Political Economy of the World Trading System," OUP Catalogue, Oxford University Press, edition 3, number 9780199553778.
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Citations

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Cited by:
  1. Ludema, Rodney D & Mayda, Anna Maria, 2005. "Do Countries Free Ride on MFN?," CEPR Discussion Papers 5160, C.E.P.R. Discussion Papers.
  2. Philippe Aghion & Pol Antràs & Elhanan Helpman, 2004. "Negotiating Free Trade," NBER Working Papers 10721, National Bureau of Economic Research, Inc.
  3. James Lake & Halis M. Yildiz, 2014. "On the different geographic characteristics of Free Trade Agreements and Customs Unions," Departmental Working Papers 1403, Southern Methodist University, Department of Economics.
  4. Elsayyad, May & Konrad, Kai A., 2012. "Fighting Multiple Tax Havens," Munich Reprints in Economics 13964, University of Munich, Department of Economics.
  5. Chad Bown & Meredith Crowley, 2004. "China's export growth and U.S. trade policy," Working Paper Series WP-04-28, Federal Reserve Bank of Chicago.
  6. Nuno Limao, 2006. "Preferential Trade Agreements as Stumbling Blocks for Multilateral Trade Liberalization: Evidence for the United States," American Economic Review, American Economic Association, vol. 96(3), pages 896-914, June.

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