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Backward Stealing and Forward Manipulation in the WTO

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  • Kyle Bagwell
  • Robert W. Staiger

Abstract

Motivated by the structure of WTO negotiations, we analyze a bargaining environment in which negotiations proceed bilaterally and sequentially under the most-favored-nation (MFN) principle. We identify backward-stealing and forward-manipulation problems that arise when governments bargain under the MFN principle in a sequential fashion. We show that these problems impede governments from achieving the multilateral efficiency frontier unless further rules of negotiation are imposed. We identify the WTO nullification-or-impairment and renegotiation provisions and its reciprocity norm as rules that are capable of providing solutions to these problems. In this way, we suggest that WTO rules can facilitate the negotiation of efficient multilateral trade agreements in a world in which the addition of new and economically significant countries to the world trading system is an ongoing process.

Suggested Citation

  • Kyle Bagwell & Robert W. Staiger, 2004. "Backward Stealing and Forward Manipulation in the WTO," NBER Working Papers 10420, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:10420
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    Cited by:

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    2. Aghion, Philippe & Antras, Pol & Helpman, Elhanan, 2007. "Negotiating free trade," Journal of International Economics, Elsevier, vol. 73(1), pages 1-30, September.
    3. Saggi, Kamal & Wong, Woan Foong & Yildiz, Halis Murat, 2017. "Preferential Trade Agreements and Rules of the Multilateral Trading System," MPRA Paper 76330, University Library of Munich, Germany.
    4. Jeongmeen Suh & Sihoon Nahm & Seung-Gyu Sim, 2016. "The Most Favored Nation Principle: Passive Constraint or Active Commitment?," Korean Economic Review, Korean Economic Association, vol. 32, pages 77-99.
    5. Lake, James & Yildiz, Halis M., 2016. "On the different geographic characteristics of Free Trade Agreements and Customs Unions," Journal of International Economics, Elsevier, vol. 103(C), pages 213-233.
    6. Kyle Bagwell & Chad P. Bown & Robert W. Staiger, 2016. "Is the WTO Passé?," Journal of Economic Literature, American Economic Association, vol. 54(4), pages 1125-1231, December.
    7. Aaditya Mattoo & Robert W Staiger, 2020. "Trade wars: What do they mean? Why are they happening now? What are the costs?," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 35(103), pages 561-584.
    8. Johannes Münster & Markus Reisinger, 2021. "Sequencing Bilateral Negotiations with Externalities," ECONtribute Discussion Papers Series 096, University of Bonn and University of Cologne, Germany.
    9. Kamal Saggi & Woan Foong Wong & Halis Murat Yildiz, 2022. "The role of non‐discrimination in a world of discriminatory preferential trade agreements," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 55(1), pages 174-212, February.
    10. James Lake, 2016. "Why don't more countries form Customs Unions instead of Free Trade Agreements? The role of flexibility," Departmental Working Papers 1601, Southern Methodist University, Department of Economics.
    11. Ralph Ossa & Robert W. Staiger & Alan O. Sykes, 2020. "Disputes in International Investment and Trade," NBER Working Papers 27012, National Bureau of Economic Research, Inc.
    12. Kangsik Choi & Seonyoung Lim, 2023. "Sequential tariffs with increasing marginal costs," Manchester School, University of Manchester, vol. 91(4), pages 336-360, July.
    13. repec:smu:ecowpa:1403 is not listed on IDEAS
    14. Robert W. Staiger & Alan O. Sykes, 2017. "How Important Can the Non-violation Clause Be for the GATT/WTO?," American Economic Journal: Microeconomics, American Economic Association, vol. 9(2), pages 149-187, May.
    15. James Lake, 2017. "Free Trade Agreements As Dynamic Farsighted Networks," Economic Inquiry, Western Economic Association International, vol. 55(1), pages 31-50, January.
    16. Ludema, Rodney D. & Mayda, Anna Maria, 2009. "Do countries free ride on MFN?," Journal of International Economics, Elsevier, vol. 77(2), pages 137-150, April.
    17. Nuno Limão, 2018. "Preferential Trade Agreements as Stumbling Blocks for Multilateral Trade Liberalization: Evidence for the United States," World Scientific Book Chapters, in: Policy Externalities and International Trade Agreements, chapter 13, pages 353-371, World Scientific Publishing Co. Pte. Ltd..
    18. Kyle Bagwell & Robert W. Staiger & Ali Yurukoglu, 2017. ""Nash-in-Nash" Tariff Bargaining with and without MFN," NBER Working Papers 23894, National Bureau of Economic Research, Inc.
    19. Staiger, Robert & Bagwell, Kyle & Bown, Chad, 2015. "Is the WTO Passé?," CEPR Discussion Papers 10672, C.E.P.R. Discussion Papers.
    20. Euan MacMillan, 2014. "Explaining rising regionalism and failing multilateralism: consensus decision-making and expanding WTO membership," International Economics and Economic Policy, Springer, vol. 11(4), pages 599-617, December.
    21. Lee, Ki-Dong & Choi, Kangsik, 2023. "Optimal tariffs with endogenous vertical structure: Uniform versus discriminatory tariffs," Mathematical Social Sciences, Elsevier, vol. 124(C), pages 35-50.
    22. Chad P. Bown & Meredith A. Crowley, 2004. "China's export growth and U.S. trade policy," Working Paper Series WP-04-28, Federal Reserve Bank of Chicago.
    23. Maggi, Giovanni, 2014. "International Trade Agreements," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 317-390, Elsevier.
    24. Kyle Bagwell & Robert W. Staiger, 2016. "The Design of Trade Agreements," NBER Working Papers 22087, National Bureau of Economic Research, Inc.
    25. Bagwell, Kyle & Staiger, Robert W. & Yurukoglu, Ali, 2020. "“Nash-in-Nash” tariff bargaining," Journal of International Economics, Elsevier, vol. 122(C).

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