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GATT-Think

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  • Kyle Bagwell
  • Robert W. Staiger

Abstract

We describe recent work on the theory of trade agreements that speaks to the purpose and design of GATT. Our discussion proceeds in three steps. First, we examine the purpose of a trade agreement. In both the traditional economic and the political-economy approaches to the study of trade agreements, the problem for a trade agreement to solve is the excessive protection that arises in the absence of an agreement as a consequence of the terms-of-trade externality. Second, we consider the origin and design of GATT. We note that GATT is a rules-based institution whose origin can be traced to the disastrous economic performance that accompanied the high tariffs of the 1920's and 1930's. Finally, we review the theoretical literature that interprets and evaluates the institutional features found in GATT. We consider in particular whether GATT articles can be interpreted as offering negotiation rules that help governments undo the inefficient restrictions in trade that are caused by the terms-of-trade externality. On the whole, our review suggests that the core principles of GATT indeed may be interpreted in this manner. Specifically, we report findings that indicate that the principles of reciprocity and non-discrimination work in concert to remedy the inefficiency created by the terms-of-trade externality. We also extract a variety of predictions from the literature on enforcement and trade policy, and we argue that these predictions are broadly compatible with both the design of GATT and certain historical experiences in trade-policy conduct. We thus interpret the literature reviewed here as providing a strong presumption for the view that GATT can be understood as an institution whose central principles are well-designed to assist governments in their attempt to escape from a terms-of-trade-driven Prisoners' Dilemma. Our review therefore offers support for the (politically-augmented) terms-of-trade theory as an appropriate framework within which to interpret and evaluate GATT.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8005.

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Date of creation: Nov 2000
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Handle: RePEc:nbr:nberwo:8005

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Cited by:
  1. Michiel Kok & Richard Nahuis & Albert de Vaal, 2004. "On labour standards and free trade," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 13(2), pages 137-158.
  2. Rolf J. Langhammer, 2009. "Unordnung in der Internationalen Handelsordnung. Befunde, Gründe, Auswirkungen und Therapien," Kiel Working Papers 1533, Kiel Institute for the World Economy.
  3. Paolo Epifani & Juliette Vitaloni, 2006. ""GATT-think" with Asymmetric Countries," Review of International Economics, Wiley Blackwell, vol. 14(3), pages 427-444, 08.
  4. Michael A. Clemens & Jeffrey G. Williamson, 2001. "A Tariff-Growth Paradox? Protection's Impact the World Around 1875-1997," NBER Working Papers 8459, National Bureau of Economic Research, Inc.
  5. Rose, Andrew K., 2004. "Do WTO members have more liberal trade policy?," Journal of International Economics, Elsevier, vol. 63(2), pages 209-235, July.
  6. Freund, Caroline, 2003. "Reciprocity in free trade agreements," Policy Research Working Paper Series 3061, The World Bank.
  7. Nuno Limão, 2002. "Trade policy, cross-border externalities and lobbies: do linked agreements enforce more cooperative outcomes?," International Trade 0206002, EconWPA, revised 28 Jul 2002.
  8. Michael A. Clemens & Jeffrey G. Williamson, 2002. "Closed Jaguar, Open Dragon: Comparing Tariffs in Latin America and Asia before World War II," NBER Working Papers 9401, National Bureau of Economic Research, Inc.

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