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Multilateral Trade Negotiations, Bilateral Opportunism and the Rules of GATT

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  • Kyle Bagwell
  • Robert W. Staiger

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. In the absence of rules that govern the bilateral negotiation, we first show that the potential for opportunistic bilateral agreements is indeed severe. We next identify rules of negotiation that serve to protect the welfare of governments that are not participating in the bilateral negotiation. The reciprocal market access' rule ensures that the market access of a non-participating country is unaltered, and we show that this rule eliminates the potential for opportunistic bilateral negotiations. This rule, however, has practical limitations, and so we next consider the negotiation rules that are prominent in GATT practice and discussion. Our main finding is that the two central rules of GATT -- non-discrimination (MFN) and reciprocity -- effectively mimic the reciprocal market access rule, and therefore offer a practical means through which to protect non-participant welfare and thereby eliminate the potential for opportunistic bilateral negotiations.

Suggested Citation

  • Kyle Bagwell & Robert W. Staiger, 1999. "Multilateral Trade Negotiations, Bilateral Opportunism and the Rules of GATT," NBER Working Papers 7071, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:7071
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    Cited by:

    1. Mohammad Amin, 2004. "Time Inconsistency of Trade Policy and Multilateralism," International Trade 0402002, University Library of Munich, Germany.
    2. Aghion, Philippe & Antras, Pol & Helpman, Elhanan, 2007. "Negotiating free trade," Journal of International Economics, Elsevier, vol. 73(1), pages 1-30, September.
    3. Kamal Saggi & Halis Murat Yildiz, 2018. "An analysis of the MFN clause under asymmetries of cost and market structure," World Scientific Book Chapters, in: Kamal Saggi (ed.), Economic Analysis of the Rules and Regulations of the World Trade Organization, chapter 2, pages 33-45, World Scientific Publishing Co. Pte. Ltd..
    4. Meredith A. Crowley, 2003. "An introduction to the WTO and GATT," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 27(Q IV), pages 42-57.
    5. Cebi, Pinar & Ludema, Rodney, 2002. "The Rise and Fall of the Most-Favored-Nation Clause," Working Papers 15853, United States International Trade Commission, Office of Economics.
    6. Bagwell, Kyle & Staiger, Robert W., 2010. "Backward stealing and forward manipulation in the WTO," Journal of International Economics, Elsevier, vol. 82(1), pages 49-62, September.
    7. Bown, Chad P. & Crowley, Meredith A., 2007. "Trade deflection and trade depression," Journal of International Economics, Elsevier, vol. 72(1), pages 176-201, May.
    8. Wilfred J. Ethier, 2002. "Unilateralism in a Multilateral World," Economic Journal, Royal Economic Society, vol. 112(479), pages 266-292, April.
    9. G. Schwartz, 2000. "Non-Enforceability of Trade Treaties and the Most-Favored Nation Clause: A Game Theoretic Analysis of Investment Distortions," Princeton Economic Theory Papers 00s17, Economics Department, Princeton University.
    10. 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.
    11. Ethier, Wilfred J., 2001. "Theoretical problems in negotiating trade liberalization," European Journal of Political Economy, Elsevier, vol. 17(2), pages 209-232, June.
    12. Ronald Fischer & Martín Osorio, 2002. "Why Do We Need Antidumping Rules?," Documentos de Trabajo 134, Centro de Economía Aplicada, Universidad de Chile.
    13. Kyle Bagwell & Robert W. Staiger, 2012. "Profit Shifting And Trade Agreements In Imperfectly Competitive Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(4), pages 1067-1104, November.
    14. Kyle Bagwell & Robert W. Staiger, 2000. "GATT-Think," NBER Working Papers 8005, National Bureau of Economic Research, Inc.
    15. Chad P. Bown & Meredith A. Crowley, 2004. "China's export growth and U.S. trade policy," Working Paper Series WP-04-28, Federal Reserve Bank of Chicago.
    16. 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.

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    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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