A 'New Trade' Theory of GATT/WTO Negotiations

Abstract

I develop a novel theory of GATT/WTO negotiations. This theory provides new answers to two prominent questions in the trade policy literature: first, what is the purpose of trade negotiations‘ And second, what is the role played by the fundamental GATT/WTO principles of reciprocity and non-discrimination‘ Relative to the standard terms-of-trade theory of GATT/WTO negotiations, my theory makes two main contributions: first, it builds on a ."new trade" model rather than the neoclassical trade model and therefore sheds new light on GATT/WTO negotiations between similar countries. Second, it relies on a production relocation externality rather than the terms-of-trade externality and therefore demonstrates that the terms-of-trade externality is not the only trade policy externality, which can be internalized in GATT/WTO negotiations.

Keywords: Trade negotiations, GATT/WTO, New trade theory

JEL Classification: F12, F13