"GATT-think" with Asymmetric Countries

We argue that a trade agreement which conforms to GATT's reciprocity rule benefits the (stronger) less trade-dependent country at the expense of the (weaker) more trade-dependent country. Reciprocity is so unfavorable to the weaker country that it may be worse off under reciprocity than under the Nash- bargaining solution, a "power-based" approach to trade negotiations that reflects power asymmetries among trading partners. Our results question <link rid="b2">Bagwell and Staiger's (1999</link>, <link rid="b3">2000</link>) view of reciprocity as a rule that "serves to mitigate the influence of power asymmetries on negotiated outcomes." Copyright © 2006 The Authors; Journal compilation © 2006 Blackwell Publishing Ltd.