Economic Theory and the Interpretation of GATT/WTO

doi:10.1017/CBO9780511754357.010

7 - Economic Theory and the Interpretation of GATT/WTO

Published online by Cambridge University Press: 06 July 2010

Kyle Bagwell and

Robert W. Staiger

Edited by

Michael Szenberg and

Lall Ramrattan

Foreword by

Paul A. Samuelson

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Kyle Bagwell: Affiliation:
Professor of Economics, Columbia University
Robert W. Staiger: Affiliation:
Professor of Economics, University of Wisconsin
Michael Szenberg: Affiliation:
Pace University, New York
Lall Ramrattan: Affiliation:
University of California, Berkeley

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Summary

INTRODUCTION

Over the postwar period, the General Agreement on Tariffs and Trade (GATT) has sponsored eight rounds of trade-policy negotiations. The most recent round of negotiations, which was completed in 1994, resulted in the creation of the World Trade Organization (WTO). The WTO includes the text of GATT, but it also goes further and embodies a set of agreements that build on and extend GATT principles to new areas. The central role played in the world economy by GATT/WTO is widely accepted. Indeed, through the eight rounds of GATT negotiations, the average ad valorem tariff on industrial goods has fallen from over 40 percent to below 4 percent. Over this period, GATT/WTO membership has also grown in number from twenty-three to now over 140 countries.

Given the significant influence of GATT/WTO on the world economy, it is of special importance to assess the progress that economists have made in providing a theoretical interpretation of GATT/WTO. This is the focus of the present essay. Our discussion proceeds in three broad steps. First, we consider the theory of trade agreements. We organize our discussion here around a simple but fundamental question: What is the problem that a trade agreement might solve? Second, we briefly describe the history and institutional design of GATT/WTO. Finally, we draw on the recent theoretical literature and interpret the design of GATT/WTO. Our discussion examines two key features of GATT/WTO: reciprocity and enforcement.

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Type: Chapter
Information: New Frontiers in Economics , pp. 205 - 234

DOI: https://doi.org/10.1017/CBO9780511754357.010 [Opens in a new window]

Publisher: Cambridge University Press

Print publication year: 2004

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