Pub. Date:
MIT Press
The Economics of the World Trading System

The Economics of the World Trading System


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World trade is governed by the rules of the World Trade Organization (WTO), the successor to the General Agreement on Tariffs and Trade (GATT). The WTO sets rules of conduct for the international trade of goods and services and for intellectual property rights, provides a forum for multinational negotiations to resolve trade problems, and has a formal mechanism for dispute settlement. It is the primary institution working, through rule-based bargaining, at freeing trade. sIn this book Kyle Bagwell and Robert Staiger provide an economic analysis and justification for the purpose and design of the GATT/WTO. They summarize their own research, discuss the major features of the GATT agreement, and survey the literature on trade agreements. Their focus on the terms-of-trade externality is particularly original and ties the book together. Topics include the theory of trade agreements, the origin and design of the GATT and the WTO, the principles of reciprocity, the most-favored-nation principle, terms-of-trade theory, enforcement, preferential trade agreements, labor and environmental standards, competition policy, and agricultural export subsidies.

Product Details

ISBN-13: 9780262025294
Publisher: MIT Press
Publication date: 01/24/2003
Pages: 238
Product dimensions: 6.00(w) x 9.00(h) x 0.43(d)
Age Range: 18 Years

About the Author

Kyle Bagwell is Professor of Economics and Senior Fellow at the Stanford Institute for Economic Policy Research. He is also Research Associate at the National Bureau of Economic Research.

Table of Contents

2The Theory of Trade Agreements13
2.1The Purpose of Trade Agreements13
2.1.1The General Equilibrium Model14
2.1.2The Traditional Economic Approach15
2.1.3The Political-Economy Approach18
2.1.4The Commitment Approach32
2.1.5Comparison of Approaches35
2.2Rules versus Power36
3The History and Design of GATT and the WTO43
3.1The Origin of GATT and the WTO43
3.2The Rules of GATT48
3.2.1Substantive Obligations48
3.2.3Dispute Settlement Procedures51
3.3Reciprocity, Nondiscrimination, and Enforcement under GATT54
4.1Reciprocity in GATT57
4.2Reciprocity and Trade Negotiations59
4.3Reciprocity and Renegotiation64
4.4Reciprocity and Participation: Rules versus Power68
5.1MFN in GATT71
5.2The Multicountry Model73
5.2.1The General Equilibrium Model73
5.2.2Government Preferences77
5.3MFN, Reciprocity, and Trade Negotiations79
5.3.2MFN and Reciprocity81
5.3.3Nonviolation Nullification-or-Impairment Complaints84
5.3.4The Free-Rider Problem86
5.4MFN, Reciprocity and Renegotiation89
5.5MFN and the Terms-of-Trade Theory: A Summary92
5.6MFN and Political Externalities94
6.1GATT Enforcement and the Theory of Repeated Games95
6.2.1Rebalancing the Agreement: The GATT Escape Clause104
6.2.2Gradualism: Rounds of Trade Liberalization106
6.3The Exchange and Aggregation of Enforcement Power108
7Preferential Trading Agreements111
7.1Preferential Trading Agreements in GATT111
7.2Preferential Trading Agreements and Reciprocity112
7.2.1PTAs and Trade Negotiations113
7.2.2PTAs and Renegotiation114
7.3Preferential Trading Agreements and Multilateral Enforcement115
7.4Other Approaches121
8Labor and Environmental Standards125
8.1Labor and Environmental Standards in GATT125
8.2The Model with Domestic Standards131
8.2.1The General Equilibrium Model131
8.2.2Government Preferences133
8.3The Purpose of a Trade Agreement133
8.3.1Efficient Policies134
8.3.2Noncooperative Policies135
8.3.3Identifying the Inefficiency136
8.4Trade Agreements and National Sovereignty137
8.5Enforcement of Labor and Environmental Standards142
9Competition Policy147
9.1Competition Policy in GATT148
9.2The Model with Competition Policy152
9.2.1The General Equilibrium Model152
9.2.2Government Preferences155
9.3The Purpose of a Trade Agreement158
9.4Trade Agreements and National Sovereignty160
10Agricultural Export Subsidies163
10.1Agricultural Export Subsidies in GATT163
10.2Features of the Agricultural Disputes165
10.3Theoretical Approaches167
10.4The Model of Agricultural Export Subsidies169
10.4.1The Partial Equilibrium Model169
10.4.2Government Preferences171
10.5The Purpose of Subsidy Agreements172
10.5.1Nash Subsidies172
10.5.2Cooperative Subsidies174
10.5.3Efficient Subsidies174
10.6The Treatment of Export Subsidies179
11The Practical Relevance of Terms-of-Trade Considerations181
AAppendix to Chapter 2191
BAppendix to Chapter 5195
B.1The General Equilibrium Model: Further Details195
B.2The Efficiency Frontier: Characterizations195
B.3Many Goods200

What People are Saying About This

L. Alan Winters

This excellent book develops an elegant and powerful rationale for international trade agreements: to resolve terms of trade externalities. This insight explains many of the features of GATT and the WTO and allows us to understand many of the issues on today's trade agenda. Even if you think there is more to the WTO than just the terms of trade, this is a fundamental contribution — a 'must-read' for all serious trade scholars.

Giovanni Maggi

Bagwell and Staiger have developed an elegant theoretical framework for understanding the reality of multilateral trade agreements. This book is a key source for anyone interested in GATT and the WTO, not only economists but also political scientists and international law scholars.

Patrick Low

We are fortunate that economists of the caliber of Bagwell and Staiger have been drawn to work on the trading system. By applying analytical rigor to the key features of the GATT/WTO system, the authors offer us refreshing and useful insights into what lies behind the design of trading rules. They also point out key areas where we need more research. This is a valuable book.

From the Publisher

"This excellent book develops an elegant and powerful rationale for international trade agreements: to resolve terms of trade externalities. This insight explains many of the features of GATT and the WTO and allows us to understand many of the issues on today's trade agenda. Even if you think there is more to the WTO than just the terms of trade, this is a fundamentalcontribution ­ a
'must-read' for all serious trade scholars."--L. Alan Winters, Professor of
Economics, University of Sussex

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