The balance of concessions in trade agreements

• Main Authors: BESHKAR, Mostafa, CHANG, Pao-li, SONG, Shenxi
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2024
• Subjects: WTO; reciprocity; trade concessions; terms-of-trade; bilateral tariffs; multilateral balance; trade imbalances; US-China trade; economic fundamentals; development economics; Asian Studies; International Economics
• Online Access: https://ink.library.smu.edu.sg/soe_research/2753; https://ink.library.smu.edu.sg/context/soe_research/article/3752/viewcontent/2024_05_The_Balance_of_Concessions_in_Trade_Agreement.pdf
• Institution: Singapore Management University

This paper introduces a quantitative framework to analyze the WTO’s reciprocity principle. Utilizing two polar bargaining environments, we measure terms-of-trade concessions among WTO members and examine how shifts in applied tariffs and economic fundamentals affect bilateral and multilateral balance of concessions. We find significant disparities in concessions, largely driven by the rise in trade imbalances since the early 1990s. Notably, although US-China bilateral tariffs suggest considerable terms-of-trade benefits for China, under a hypothetical balanced trade scenario, their relationship evolves towards near reciprocity following China’s accession to the WTO. Furthermore, in contrast to the significant gains in its relationship with the US, China experiences a terms-of-trade loss in its bilateral relationships with other WTO members. Lastly, we offer insights into the magnitude of concessions exchanged by countries at different levels of development.