Template-Type: ReDIF-Paper 1.0
Author-Name: Richard Chisik
Author-X-Name-First: Richard
Author-X-Name-Last: Chisik
Author-Email: rchisik@economics.ryerson.ca 
Author-Workplace-Name: Department of Economics, Ryerson University, Toronto, Canada
Title: Limited Incremental Linking and Unlinked Trade Agreements
Abstract: The broadened scope of the GATT/WTO through successive rounds of trade liberalization is
explained as a result of trade-partner specificity, linked agreements, and cross retaliation. In more recent
years, however, countries have pursued trade liberalization through sector specific zero-for-zero
agreements and preferential trade agreements, both of which have a reduced chance of suffering cross
retaliation. This increase in unlinked agreements is explained by imperfect observability of trade policies
generating gratuitous trade disputes and unjustified cross retaliation. If the dispute generating noise is
perfectly correlated across sectors, however, then it provides no reason not to link agreements in a static
sense and in many cases incremental linking still produces more liberalization than static linking. It is
only when the noise is imperfectly correlated that linking and cross retaliation are problematic so that
some sectors can enforce more liberalization in an unlinked agreement. If the correlation drops, the noise
increases, or the number of sectors already covered is large, then incremental linking of more sectors is
inefficient and countries pursue unlinked agreements.
Classification-JEL: F13, F15, C73, F51, F53, K33.
Keywords: Trade Disputes, WTO, Dispute Settlement, Dynamic Games.
Length: 42 pages
Creation-Date: 2010-08
Number: 023
File-URL: http://economics.ryerson.ca/workingpapers/wp023.pdf
File-Format: Application/pdf
Handle: RePEc:rye:wpaper:wp023