Reciprocity in WTO (WTO reciprocity)

Abstract:

The WTO works on two underlining principles; reciprocity and non-discrimination. Bagwell and Staiger (1999) show that negotiation on implementiation of customs barriers based on these principles increase welfare. The mechanism supporting their result is that reciprocity-based customs reforms keep world market prices unchanged. This project investigates two things: (i) what is the effect of reciprocity under general presumptions, and (ii) which alterntive definitions of reciprocty can lead to greater welfare.Our existing work sheds light on (i). We can, in a more general model, show that reciprocity does not lead to higher world market prices. Even so, our preliminary simulations show that welfare increases as reciprocity-based customs reforms are implemented. If this is a generally applicable result is unknown and should be thoroughly investigated. We wish to diverge from the special definition of reciprocity used by Bagwell and Staiger and investigate other possible definitions. An understanding of reciprocity in trade negotiations is important when mkaing out how the WTO negotiations work and how they can be improved. The current situation concerning the Doha round shows that the guidelines set forward in negotiations by the WTO are no longer as effective as they used to be. As WTO has a broader agenda and less homogenous group of countries than earlier a renewed interest in the governing principles of the WTO a necessity.