One of the rules-based principles of the GATT (General Agreement on Tariffs and Trade) – which established basic rules for international trade among the initial 23 GATT member countries and is now superseded by the WTO (World Trade Organization) and its 125+ member countries – is reciprocity (nations that cut tariffs can expect others to do the same).
The other principles are:
- nondiscrimination (a tariff applied to any should be applied to all; and domestic taxes and regulations should apply equally to imported as well as domestic goods);
- transparency (trade restrictions need to be written down and made public),
- flexibility (some exceptions to new tariffs are allowed) and
- consensus decision making (most GATT/ WTO decisions are arrived at by consensus).
The principle of reciprocity leads to a snowball effect:
- lower domestic tariffs let in more imports, leading to downsizing of import-competing industries
- lower foreign tariffs allow more exporters to grow (outputs, employment, profits)
“As political influence follows economic clout, the upsizing of export interests and downsizing of import-competing interests conspire to tilt future political calculations toward more tariff cutting.
…the reciprocal tarif cuts agreed at one GATT round alter national political-economy landscapes in a way that fosters continued liberalisation.”
Source: Robert Baldwin (2016) The Great Convergence: Information Technology and the New Globalization