GATT-think

We describe recent work on the theory of trade agreements that speaks to the purpose and design of GATT. Our discussion proceeds in three steps. First, we examine the purpose of a trade agreement. In both the traditional economic and the political-economy approaches to the study of trade agreements, the problem for a trade agreement to solve is the excessive protection that arises in the absence of an agreement as a consequence of the terms-of-trade externality. Second, we consider the origin and design of GATT. We note that GATT is a rules-based institution whose origin can be traced to the disastrous economic performance that accompanied the high tariffs of the 1920's and 1930's. Finally, we review the theoretical literature that interprets and evaluates the institutional features found in GATT. We consider in particular whether GATT articles can be interpreted as offering negotiation rules that help governments undo the inefficient restrictions in trade that are caused by the terms-of-trade externality. On the whole, our review suggests that the core principles of GATT indeed may be interpreted in this manner. Specifically, we report findings that indicate that the principles of