Political Economy of the WTO Negotiations: A Game-Theoretic Explanation

Abstract

The 2013 WTO Bali package was to be discussed for adoption during the 2014 Geneva meeting. Members were particularly keen on the Trade Facilitation Agreement (TFA), which was supposed to boost world trade and benefit developing countries. However, India surprised all members by withholding its support for TFA and demanding further dialogue on the unrelated issue of food security, which was supposedly settled in Bali with a time-bound peace clause. This action posed an existential challenge to WTO. This article explores India’s position through a game-theoretic negotiation framework with rational and indicative payoffs. We assert that India adopted a ‘suicide-bomber’ strategy and succeeded in ‘hostage-taking’ to extract the desired ‘ransom.’ Since India exploited the first-mover advantage, the rest of the world had no better choice than to pay the ransom. This is a Nash equilibrium of dominant strategies but with unequal bargaining power between the two players.