Issue Linking in Trade Negotiations: Ricardo Revisited or No Pain No Gain

The Review of International Economics, Vol. 13, pp. 195-204, 2005

Posted: 27 Jan 2010

See all articles by Ignatius J. Horstmann

Ignatius J. Horstmann

University of Toronto - Rotman School of Management; University of Toronto - Institute for Policy Analysis

James R. Markusen

University of Colorado at Boulder - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Jack Robles

Victoria University of Wellington - School of Economics & Finance

Multiple version iconThere are 2 versions of this paper

Date Written: 2005

Abstract

There has been much discussion about what issues should be included in international "trade" negotiations. Different countries, firms, and activist groups have quite different views regarding which items should (or should not) be negotiated together. Proposals run the gamut from no linking to linking trade with investment, the environment, labour, and human rights codes. This paper provides a formal framework for analyzing this question. It employs a two-country, two-issue bargaining model and contrasts outcomes when issues are negotiated separately and when they are linked in some form. A key concept is "comparative interest," analogous to Ricardian comparative advantage. We provide general results and note, in particular, where a country can benefit by agreeing to include an agenda item for which, when viewed by itself, the country does not receive a positive payoff. We also provide an application of our analysis to negotiations on trade liberalization and environmental protection.

Keywords: Trade negotiations, Firms, Activist groups, Investment, Environment, Labour, Human rights, Comparative interest, Ricardian

JEL Classification: F13, F18, C78

Suggested Citation

Horstmann, Ignatius J. and Markusen, James R. and Robles, Jack, Issue Linking in Trade Negotiations: Ricardo Revisited or No Pain No Gain (2005). The Review of International Economics, Vol. 13, pp. 195-204, 2005. Available at SSRN: https://ssrn.com/abstract=1542911

Ignatius J. Horstmann

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

HOME PAGE: http://www.rotman.utoronto.ca/ihorstmann

University of Toronto - Institute for Policy Analysis ( email )

140 St. George Street
Toronto, Ontario M5S 3G6
Canada

James R. Markusen

University of Colorado at Boulder - Department of Economics ( email )

Campus Box 256
Boulder, CO 80309
United States
303-492-0748 (Phone)
303-492-8960 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jack Robles (Contact Author)

Victoria University of Wellington - School of Economics & Finance ( email )

P.O. Box 600
Wellington 6001
New Zealand

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