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CEP discussion paper
A 'New Trade' Theory of GATT/WTO Negotiations
Ralph Ossa
June 2008
Paper No' CEPDP0877:
Full Paper (pdf)

JEL Classification: F12; F13

Tags: trade negotiations; gatt; wto; new trade theory

I develop a novel theory of GATT/WTO negotiations. This theory provides new answers to two prominent questions in the trade policy literature: first, what is the purpose of trade negotiations? And second, what is the role played by the fundamental GATT/WTO principles of reciprocity and nondiscrimination? Relative to the standard terms-of-trade theory of GATT/WTO negotiations, my theory makes two main contributions: first, it builds on a ‘new trade’ model rather than the neoclassical trade model and therefore sheds new light on GATT/WTO negotiations between similar countries. Second, it relies on a production relocation externality rather than the terms-of-trade externality and therefore demonstrates that the terms-of-trade externality is not the only trade policy externality which can be internalized in GATT/WTO negotiations.