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Reciprocity, non-discrimination and preferential agreements in the multilateral trading system

Reciprocity, non-discrimination and preferential agreements in the multilateral trading system,10.1016/S0176-2680(01)00029-5,European Journal of Polit

Reciprocity, non-discrimination and preferential agreements in the multilateral trading system   (Citations: 47)
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We present a framework for understanding and interpreting reciprocity and non-discrimination, the two principles that are the pillars of the multilateral trading system as embodied in GATT and its successor, the WTO. We show that the 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 externalities 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 in concert 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 complicates the way in which externalities are transmitted across countries, and in this environment the principle of reciprocity can no longer deliver efficient multilateral outcomes for its member governments. We do find, however, 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 multilateral 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.
Journal: European Journal of Political Economy - EUR J POLIT ECON , vol. 17, no. 2, pp. 281-325, 2001
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    • ...A similar idea appears in trade theory as the principle of reciprocity ( [2])...

    Michael Peterset al. Definable and Contractible Contracts

    • ...These international policy externalities are identical to the termsof-trade externalities that arise in a competitive setting (see Bagwell and Staiger, 1999, 2001)...
    • ...To establish this, we again follow Bagwell and Staiger (2001) and de…ne tari¤ changes that conform to reciprocity as...
    • ...39 Once again the steps to derive (56) employ the balanced trade condition that must hold at the original and the new world prices, and are identical to those described in note 19 of Bagwell and Staiger (2001)...

    Kyle Bagwellet al. Delocation and Trade Agreements in Imperfectly Competitive Markets

    • ...economic preferences, see Bagwell and Staiger (1999, 2001, 2002) and Grossman and Helpman (1995)...

    Kyle Bagwell. Self-Enforcing Trade Agreements and Private Information

    • ...8 For further discussion of this case, see Bagwell and Staiger (1999, 2001)...
    • ...To determine the reason for the ine¢ ciency of the Nash tari¤ choices, we now follow Bagwell and Staiger (1999, 2001) and de…ne politically optimal tari¤s as those tari¤s that would hypothetically...
    • ...i¤s, there is an important distinction between the perfectly competitive environment considered in Bagwell and Staiger (1999, 2001) and the imperfectly competitive setting that we analyze here...
    • ...analyzed in Bagwell and Staiger (1999, 2001)...
    • ...To establish these implications, we again follow Bagwell and Staiger (1999, 2001) and de…ne tari¤ changes that conform to reciprocity as those that bring about equal changes in the volume of each country’s imports and exports when valued at existing world prices...
    • ...has been established in a competitive setting in Bagwell and Staiger (1999, 2001, 2005)...

    Kyle Bagwellet al. Profit Shifting and Trade Agreements in Imperfectly Competitive Market...

    • ...throughout the paper, which draws heavily on Bagwell and Staiger [9]...
    • ...5 See, for example, Bagwell and Staiger [9]...

    Alberto Martinet al. On the role of retaliation in trade agreements

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