Whats the Point of Reciprocal Trade Negotiations?
Author InfoPaul Wonnacott Ronald Wonnacott Abstract This paper explains why trade-policy makers may prefer reciprocal trade negotiations (RTN) to unilateral tariff reductions (UTR) for economic reasons. It answers puzzles like “Why WTO reciprocity?” and strengthens the unncecessarily weak case made for the WTO by those who downplay or dismiss benefits from foreign tariff reductions (FTR). RTN is superior to UTR because it provides economic benefits that UTR cannot — namely, FTR benefits which are clearer than potentially important UTR benefits: Whereas each policy offers efficiency gains, any terms-of-trade effect of UTR generally detracts from these gains, while any terms-of-trade effect of FTR is typically beneficial (especially for a small price-taking country) with this benefit augmenting FTR’s efficiency gains. Moreover, benefits from reductions in foreign barriers may come from several sources; they are not solely the result of terms-of-trade improvement — or economies of scale
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