38 THE POLITICAL ECONOMY OF THE WORLD TRADING SYSTEM

protection because this raises the incomes of the groups from which they derive
political support. If foreign governments could be induced to liberalize, however,
that provides a direct gain for existing exporters. This in turn changes the
govern-
ment’s incentives as it affects the balance of political support. A more liberal
stance
becomes optimal as the government will benefit from reducing import tariffs on a
quid pro quo basis (see also Grossman and Helpman, 2002).

An interesting distinct feature of Ethier’s analysis is that it provides an explan-

ation for gradual liberalization: trade reforms generate higher levels of political
support if spread out over time. Gradualism is a standard feature of virtually all
trade agreements, in that they tend to be implemented in stages. Usually this is
explained on the basis of adjustment costs. Ethier (2004) offers another motivation
for gradualism: it has a political support rationale.

Although the formal theoretical frameworks that have been developed by

economists in recent years have helped clarify the possible rationales for trade
agreements, the economic literature can only offer a partial perspective. Com-
plementary explanations for the formation of trade agreements have been offered
in the international relations and political science literature. These disciplines
place more emphasis on the role of power, on domestic political considerations
and the structure of institutions, and on ‘noneconomic’ objectives and values
such as the avoidance of war and ideology. The stress on power and foreign
policy considerations is clearly historically relevant given the impact of the
exercise of power on trade flows (Findlay and O'Rourke, 2007). In practice, as
stressed by the WTO (2007), the huge differences between countries and their
underlying interests imply that there can be no single, formal ‘grand theory’ of
he GATT/WTO.

In our view, although the terms-of-trade (market access-cum-cost shifting)

framework is elegant and generates important insights into the factors that will
support trade agreements, it is too abstract to help understand the actual process
of
multilateral cooperation on trade. The genesis of the GATT reveals rather unam-
biguously that terms-of-trade considerations did not drive negotiations or deter-
mine the final outcome (Curzon, 1965; Jackson, 1969; Dam, 1970). In practice, the
political economy-based frameworks provide greater insights into the design and
mechanics of cooperation in the GATT/WTO.

Reciprocity

For a nation to negotiate, it is necessary that the expected gain from doing so is
greater than the gain available from unilateral liberalization. By obtaining recip-
rocal concessions, these gains are ensured (Box 1.4). More technically, what reci-
procity in trade negotiations does is to help to offset the externalities (economic
inefficiencies) that are imposed by countries as they implement trade policies,