Publication:
Reciprocity in Free Trade Agreements

dc.contributor.author Freund, Caroline
dc.date.accessioned 2014-05-09T19:12:24Z
dc.date.available 2014-05-09T19:12:24Z
dc.date.issued 2003-05
dc.description.abstract The author uses detailed trade, tariff, and income data for countries involved in 91 trade agreements negotiated since 1980 to test for reciprocity in free trade agreements. The results offer strong evidence of reciprocity in North-North and South-South free trade agreements, but there is little empirical support for reciprocity in North-South trade agreements. In particular, after controlling for other determinants of trade preferences, the results suggest that a one percent increase in preferences offered leads to about a one-half of a percent increase in preferences received in North-North and South-South trade agreements. Freund also finds evidence that large countries extract greater trade concessions from small countries. This leads to a modified form of reciprocity in North-South agreements. A large increase in access to a developing country market leads to only a small increase in access to a rich country market. The results imply that there are incentives for countries to maintain protection in order to extract more concessions from trade partners. But in general, such perverse incentives should be less of a concern in developing countries involved in North-South agreements because the value of a developing country tariff preference in terms of its effect on trade preferences from a rich country is quite small. The gains from unilateral liberalization are likely to far outweigh potential gains from using protection as a bargaining chip in trade negotiations. The evidence is consistent with a repeated game model of trade liberalization. The model presented shows that trade preferences granted are increasing in trade preferences received. This implies that countries can extract greater concessions from trade agreement members if they have higher external trade barriers. However, if a country's trade barriers are very large then the gains from reneging on the agreement in the short run will be high, making the agreement unenforceable despite offering long-term gains. So, there is a reciprocity-credibility tradeoff. High tariffs may allow countries to extract more concessions from potential trade agreement partners, but they also make the country less credible in actually implementing agreed tariff concessions. If a country's external tariff is very high relative to other countries, then it will not be able to commit credibly to any free trade agreement. en
dc.identifier http://documents.worldbank.org/curated/en/2003/05/2414871/reciprocity-free-trade-agreements
dc.identifier.uri http://hdl.handle.net/10986/18221
dc.language English
dc.language.iso en_US
dc.publisher World Bank, Washington, DC
dc.relation.ispartofseries Policy Research Working Paper;No. 3061
dc.rights CC BY 3.0 IGO
dc.rights.uri http://creativecommons.org/licenses/by/3.0/igo/
dc.subject FREE TRADE AGREEMENTS
dc.subject INCOME DATA
dc.subject RECIPROCITY
dc.subject TARIFFS
dc.subject TRADE NEGOTIATIONS
dc.subject TRADE PREFERENCES
dc.subject UNILATERAL LIBERALIZATION
dc.title Reciprocity in Free Trade Agreements en
dspace.entity.type Publication
okr.crosscuttingsolutionarea Jobs
okr.doctype Publications & Research :: Policy Research Working Paper
okr.doctype Publications & Research
okr.docurl http://documents.worldbank.org/curated/en/2003/05/2414871/reciprocity-free-trade-agreements
okr.globalpractice Trade and Competitiveness
okr.identifier.doi 10.1596/1813-9450-3061
okr.identifier.externaldocumentum 000094946_03070804204789
okr.identifier.internaldocumentum 2414871
okr.identifier.report WPS3061
okr.language.supported en
okr.pdfurl http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2003/07/22/000094946_03070804204789/Rendered/PDF/multi0page.pdf en
okr.sector Industry and trade :: Other domestic and international trade
okr.topic International Economics and Trade :: Trade and Regional Integration
okr.topic International Economics and Trade :: Free Trade
okr.topic International Economics and Trade :: Trade Policy
okr.topic Economic Theory and Research
okr.topic Industry :: Common Carriers Industry
okr.topic Environmental Economics and Policies
okr.topic International Economics and Trade :: Rules of Origin
okr.unit Trade, Development Research Group
okr.volume 1
relation.isAuthorOfPublication 65ba4a02-ba22-5c96-8e04-6b9356d619e0
relation.isSeriesOfPublication 26e071dc-b0bf-409c-b982-df2970295c87
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