and non-discrimination, the two principles that are the pillars of the multi- lateral trading system as embodied in GATT and its successor, the WTO. We show that GATT's principle of reciprocity serves to neutralize the world-price effects of a country's trade policy decisions, and hence can deliver efficient trade-policy outcomes for its member governments provided that the externa- lities associated with trade intervention travel through world prices. We then establish that externalities indeed travel in this way if and only if tariffs also conform to the principle of non-discrimination (MFN). In this way, the principles of reciprocity and non-discrimination can work together to deliver efficient outcomes for the multilateral trading system. We also consider within our framework the implications of preferential agreements for the multilateral trading system. The introduction of free trade agreements com- plicates the way in which externalities are transmitted across countries, and in this environment the principle of reciprocity can not longer deliver efficient multilateral outcomes for its member governments. We do find a limited place for customs unions in the multilateral trading system, provided that the member countries of the union have similar political preferences. As these conditions are quite stringent, we offer little support for the hypothesis that the principle of reciprocity can deliver an efficient multi- lateral trade agreement in the presence of preferential agreements. Instead, our results offer support for the view that preferential agreements pose a threat to the existing multilateral system.
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5932.
Length: Date of creation: Feb 1997 Date of revision: Handle: RePEc:nbr:nberwo:5932
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Find related papers by JEL classification: F02 - International Economics - - General - - - International Economic Order; Noneconomic International Organizations;; Economic Integration and Globalization: General F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
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Kyle Bagwell & Robert W. Staiger, 1996.
"Reciprocal Trade Liberalization,"
Discussion Papers
1150, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)
Paolo Epifani & Juliette Vitaloni, 2003.
"‘GATT-Think’ with Asymmetric Countries,"
CESPRI Working Papers
141, CESPRI, Centre for Research on Innovation and Internationalisation, Universita' Bocconi, Milano, Italy, revised Mar 2003.
[Downloadable!]
Other versions:
Kyle Bagwell & Robert W. Staiger, 2002.
"GATT-think,"
Discussion Papers
0102-39, Columbia University, Department of Economics.
[Downloadable!]
Other versions:
Kyle Bagwell & Robert W. Staiger, 2000.
"GATT-Think,"
NBER Working Papers
8005, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Bagwell,K. & Staiger,R.W., 2000.
"GATT-think,"
Working papers
19, Wisconsin Madison - Social Systems.
[Downloadable!]