Working Paper: NBER ID: w10420
Authors: Kyle Bagwell; Robert W. Staiger
Abstract: Motivated by the structure of WTO negotiations, we analyze a bargaining environment in which negotiations proceed bilaterally and sequentially under the most-favored-nation (MFN) principle. We identify backward-stealing and forward-manipulation problems that arise when governments bargain under the MFN principle in a sequential fashion. We show that these problems impede governments from achieving the multilateral efficiency frontier unless further rules of negotiation are imposed. We identify the WTO nullification-or-impairment and renegotiation provisions and its reciprocity norm as rules that are capable of providing solutions to these problems. In this way, we suggest that WTO rules can facilitate the negotiation of efficient multilateral trade agreements in a world in which the addition of new and economically significant countries to the world trading system is an ongoing process.
Keywords: WTO; trade negotiations; backward stealing; forward manipulation
JEL Codes: F1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Backward stealing problem (C69) | inefficiencies in achieving multilateral outcomes (F12) |
| Forward manipulation (C69) | hindered efficiency of negotiations (D74) |
| absence of regulatory frameworks (L59) | suboptimal trade agreements (F13) |
| WTO rules (F13) | efficiency of outcomes (D61) |
| WTO provisions (nullification or impairment and reciprocity norm) (F13) | mitigate backward stealing and forward manipulation (Y20) |