NSF Program: ECONOMICS Principal Investigator: Staiger, Robert W.
With the WTO's decade-long Doha Round of multilateral trade negotiations on the ropes, understanding the nature of trade bargaining has never been more important for the world trading system. At the same time, the availability of large-scale field data from any real-world bargaining setting is highly unusual, and it creates an important opportunity for research that illuminates the practice of bargaining more generally. For both of these reasons, the WTO's recent release of tariff bargaining records for the first four GATT multilateral negotiating rounds presents a major research opportunity for economists. This research project will transform the GATT bargaining records into a form that is accessible for researchers, and begin the process of using the data in combination with institutional features of the GATT/WTO to develop and test theories of bargaining and evaluate alternative bargaining protocols for possible improvements.
GATT/WTO tariff negotiations display several notable features. First, these negotiations are a form of barter, whereby governments accept commitments on their own import tariffs in exchange for the reciprocal tariff commitments of their principal trading partners. Second, for each round a specific bargaining protocol is adopted, with explicit rules for the timing of events, the kinds of interactions expected and the exchange of information among participants. And finally, though it is a multilateral institution, for the most part the GATT/WTO has adopted a bilateral approach to multilateral bargaining according to which reciprocal negotiations (over tariffs) occur on a voluntary basis through time between pairs of countries, with the results of these bilateral negotiations then "multilateralized" to the full GATT/WTO membership by a non-discrimination requirement that tariffs abide by the most-favored nation (MFN) principle.
The first four GATT rounds spanned the years 1947-1956, involved more than 800 pairs of bargaining countries and resulted in over 65,000 agreed tariff cuts. In each of these rounds, the tariff negotiations took the form of simultaneous bilateral bargaining between pairs of countries over multiple tariff lines, all subject to the potential externality associated with the MFN principle. For each bilateral country pair, the bargaining records include the sequence of tariff requests, offers and counter-offers, and the eventual tariff commitments that were agreed (or a statement that agreement could not be reached). The writings of the time emphasize trade bargaining challenges in the early GATT rounds that have obvious counterparts in modern times: addressing the existence of preferential tariffs (as embodied in the commonwealth trade practices of the United Kingdom), dealing with asymmetries in the tariff levels across negotiating countries (stemming from newcomers to the bargaining table in a given round), approaching the potential bargaining externalities associated with MFN (with techniques such as the principal supplier rule and tariff concessions split across bargaining partners), and confronting the possibility of major bargaining failures (as for example the failure of the UK-U.S. bilateral in the Torquay Round). After converting these bargaining records into research-ready form, this project will use the data to begin to evaluate questions ranging from whether preferential trading arrangements create stumbling blocks or building blocks for multilateral trade liberalization, to whether tariff asymmetries pose difficulties for negotiations, to how countries deal with potential bargaining externalities, to what explains bargaining failure. The project will also show how, under certain conditions, the bargaining data can be used to recover the underlying political preferences of the participating governments and construct the complete-information efficiency frontier, against which the outcome of actual GATT rounds can be judged and the performance of counter-factual bargaining protocols can be assessed.
