Working Paper: CEPR ID: DP2821
Authors: Aaditya Mattoo; Marcelo Olarreaga
Abstract: As each new round of multilateral trade negotiations approaches, there is a demand for a negotiating rule that would give credit for autonomous liberalization. This Paper shows that the desirability and feasibility of such a rule depends on when it is instituted. A credit rule established at the beginning of a round of negotiations has primarily a distributional effect, favouring those who have already undertaken liberalization. The implementation of such a rule relies on the generosity of those who have not liberalized. We propose instead the establishment of a credit rule at the end of a round of negotiations, which creates an ex ante assurance that any unilateral liberalization will receive credit in the next round. Such a rule would help induce and/or enhance liberalization between negotiating rounds by reducing the gains from retaining protection as negotiating currency. Moreover, it leads to lower intertemporal average protection in all countries under plausible conditions. Most importantly, such an ex ante rule does not rely on altruism to be generally acceptable.
Keywords: credit; unilateral liberalization; WTO
JEL Codes: F02; F13; F15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| credit rule established at the beginning of negotiations (F34) | distributional effect favoring those who have already liberalized (D39) |
| credit rule established at the beginning of negotiations (F34) | discouragement of further liberalization from non-liberalizing countries (F13) |
| implementing an ex ante credit rule at the end of negotiations (F34) | greater unilateral liberalization between rounds (F13) |
| implementing an ex ante credit rule at the end of negotiations (F34) | reduction of incentives to retain protection as negotiating currency (F13) |
| ex ante credit rule (G21) | future assurances of credit for unilateral actions (H81) |
| future assurances of credit for unilateral actions (H81) | encouragement for countries to liberalize more aggressively (F68) |
| ex ante credit rule (G21) | lower intertemporal average protection across all countries (F14) |