Reciprocity and the Hidden Constitution of World Trade

Abstract

In common descriptions of the world trading system, MFN and national treatment embody the principle of non-discrimination. Reciprocity is mostly regarded as a remnant of mercantilist trade policy. This paper argues that reciprocity is the more fundamental constitutional rule, because it reflects the unanimity principle enabling countries to identify Pareto-improving changes of trade policy. I reconstruct the implicit constitution of world trade by applying some methodology of positive constitutional economics. A major result is that in the Uruguay round a fundamental constitutional change took place from general reciprocity to "status quo reciprocity", which entails the possibility of Pareto-deteriorating institutional changes.

Keywords: positiveconstitutional economics, WTO / GATT, reciprocity, regionalism, MFN

JEL Classification: F02, F13