An Economic Theory of GATT

The authors propose a unified theoretical framework within which to interpret and evaluate the foundational principles of GATT. Working within a general equilibrium trade model, they represent government preferences in a way that is consistent with national income maximization but also allows for the possibility of distributional concerns as emphasized in leading political-economy models. Using this general framework, the authors establish that GATT's principles of reciprocity and nondiscrimination can be viewed as simple rules that assist governments in their effort to implement efficient trade agreements. From this perspective, the authors argue that preferential agreements undermine GATT's ability to deliver efficient multilateral outcomes.