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(When) Does Tit-for-Tat Diplomacy in Trade Policy Pay Off?

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  • Barbara Dluhosch
  • Daniel Horgos

Abstract

In international relations, short-run incentives for non-cooperation often dominate. Yet, (external) institutions for enforcing cooperation are hampered by national sovereignty, supposedly strengthening the role of selfenforcing mechanisms. This paper examines their scope with a focus on contingent protection aka tit-for-tat in trade policy. By highlighting various strategies in a (linear) partial-equilibrium framework, we show that retaliation of non- cooperative behavior by limiting market access works as a disciplining device independently of supply and demand parameters. Our theoretical results are backed by empirical evidence that countries more frequently involved in WTO-mediated disputes entailing tit-for-tat strategies pursue on average more liberal trade regimes.

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Bibliographic Info

Paper provided by FIW in its series FIW Working Paper series with number 085.

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Length: 45
Date of creation: May 2012
Date of revision:
Handle: RePEc:wsr:wpaper:y:2012:i:085

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Keywords: Int. Political Economy; Trade Policy Conflicts; Tit-for-Tat; WTO Dispute Settlement;

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  9. Pelc, Krzysztof J., 2010. "Constraining Coercion? Legitimacy and Its Role in U.S. Trade Policy, 1975–2000," International Organization, Cambridge University Press, vol. 64(01), pages 65-96, January.
  10. Keohane, Robert O., 1986. "Reciprocity in international relations," International Organization, Cambridge University Press, vol. 40(01), pages 1-27, December.
  11. Schwartz, Warren F & Sykes, Alan O, 2002. "The Economic Structure of Renegotiation and Dispute Resolution in the World Trade Organization," The Journal of Legal Studies, University of Chicago Press, vol. 31(1), pages S179-204, January.
  12. Ludema, Rodney D & Mayda, Anna Maria, 2010. "Do terms-of-trade effects matter for trade agreements? Evidence from WTO countries," CEPR Discussion Papers 7695, C.E.P.R. Discussion Papers.
  13. Rhodes, Carolyn, 1989. "Reciprocity in trade: the utility of a bargaining strategy," International Organization, Cambridge University Press, vol. 43(02), pages 273-299, March.
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