Negotiating International Trade Agreements GATT (General Agreement on Tariffs and Trade) has successfully lowered tariffs but it has not removed other kinds of trade barriers such as government regulations and subsidies. The U.S. has threatened to restrict entry into the U.S. market in retaliation against nations that it perceives have unfairly closed their borders to U.S. firms if the offending barriers are not removed. What determines the success or failure of such aggressive bargaining tactics? International trade negotiators place a positive value on their nation's trade restrictions. So, setting up trade restrictions has a Prisoners' Dilemma character with both nations imposing high tariffs. • international agreements must be self-enforcing • repeated game nature of international agreements Retaliation can be used to enforce agreement in repeated games. If one country pursues its immediate interests, departing from a pre-existing agreement to maintain low tariffs, then the other country retaliates by increasing its own tariffs. This is allowed under GATT.
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This note was uploaded on 11/22/2011 for the course FIN FIN1100 taught by Professor Bradrifkin during the Fall '09 term at Broward College.