2002 Reports

Multilateral trade negotiations, bilateral opportunism and the rules of GATT/WTO

Bagwell, Kyle; Staiger, Robert W.

Trade negotiations occur through time and between the governments of many countries. An important issue is thus whether the value of concessions that a government wins in a current negotiation may be eroded in a future bilateral negotiation to which it is not party. We identify rules of negotiation that serve to protect the welfare of governments that are not participating in the bilateral negotiation. Our main finding is that the two central principles of GATT/WTO - non-discrimination (MFN) and reciprocity - preserve the welfare of non-participating governments and therefore offer a "first-line of defense" against bilateral opportunism. We argue that the GATT/WTO nullification-or-impairment rule then constitutes an important "second-line of defense." Finally, we confirm that in the absence of rules, or under weaker rules (e.g., MFN alone), the potential for bilateral opportunism can be severe.