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Limited Incremental Linking and Unlinked Trade Agreements

  • Richard Chisik

    ()

    (Department of Economics, Ryerson University, Toronto, Canada)

The broadened scope of the GATT/WTO through successive rounds of trade liberalization is explained as a result of trade-partner specificity, linked agreements, and cross retaliation. In more recent years, however, countries have pursued trade liberalization through sector specific zero-for-zero agreements and preferential trade agreements, both of which have a reduced chance of suffering cross retaliation. This increase in unlinked agreements is explained by imperfect observability of trade policies generating gratuitous trade disputes and unjustified cross retaliation. If the dispute generating noise is perfectly correlated across sectors, however, then it provides no reason not to link agreements in a static sense and in many cases incremental linking still produces more liberalization than static linking. It is only when the noise is imperfectly correlated that linking and cross retaliation are problematic so that some sectors can enforce more liberalization in an unlinked agreement. If the correlation drops, the noise increases, or the number of sectors already covered is large, then incremental linking of more sectors is inefficient and countries pursue unlinked agreements.

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Paper provided by Ryerson University, Department of Economics in its series Working Papers with number 023.

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Length: 42 pages
Date of creation: Aug 2010
Date of revision:
Handle: RePEc:rye:wpaper:wp023
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