DP2821 Should Credit be Given for Autonomous Liberalization in Multilateral Trade Negotiations?

Author(s): Aaditya Mattoo , Marcelo Olarreaga

Publication Date: April 2001

Keyword(s): Credit , Unilateral Liberalization , WTO

JEL(s): F02 , F13 , F15

Programme Areas: International Trade and Regional Economics

Link to this Page: www.cepr.org/pubs/dps/DP2821.asp

As each new round of multilateral trade negotiations approaches, there is a demand for a negotiating rule that would give credit for autonomous liberalization. This Paper shows that the desirability and feasibility of such a rule depends on when it is instituted. A credit rule established at the beginning of a round of negotiations has primarily a distributional effect, favouring those who have already undertaken liberalization. The implementation of such a rule relies on the generosity of those who have not liberalized. We propose instead the establishment of a credit rule at the end of a round of negotiations, which creates an ex ante assurance that any unilateral liberalization will receive credit in the next round. Such a rule would help induce and/or enhance liberalization between negotiating rounds by reducing the gains from retaining protection as negotiating currency. Moreover, it leads to lower intertemporal average protection in all countries under plausible conditions. Most importantly, such an ex ante rule does not rely on altruism to be generally acceptable.