International Trade Theory and Policy
by Steven M. Suranovic
Reciprocity fairness comes in two versions, positive reciprocity and negative reciprocity fairness. Negative reciprocity occurs when an action that has a negative effect upon someone else is reciprocated with an action that has approximately equal negative effect upon another. If the reaction is not approximately equal in negative value, or worse, the reaction has a much greater negative effect upon the first person, then the reaction will likely be judged unfair. Negative reciprocity fairness requires that negative actions be reciprocated in kind; a “quid pro quo” type of response.
A simple example of negative reciprocity in action is punishment under the law. A nation’s laws typically do more than simply proscribe what is allowable and what not. In addition, the laws state what kind of recourse may be taken by the state when an individual is found to have violated the law. Typically the punishments are proportional in size to the seriousness of the crime. Thus, the punishment for violating a parking regulation may consist of a small fine, whereas the punishment for rape or murder will involve many years in prison. The reciprocal actions in these cases, is designed to be approximately equal to the harm caused by violating the law.
In an international trade context, trade retaliations are generally designed to be fair according to the principle of negative reciprocity fairness. For example, in the US countervailing duty code - a law that allows the US to raise its trade barriers in response to a foreign government subsidy on an exported product - the retaliatory tariff must be set equal in value to the value of the foreign export subsidy. In this way the harm that is caused by the initial subsidy is reciprocated equally with the retaliatory tariff. Similarly, when the WTO Dispute Settlement Board allows a country that has won a judgment to remove some of its previously granted trade concessions, those concessions taken back must affect trade flows by approximately the same degree as the original illegal action. In both cases, fair responses involve retaliations that are equal in size to the original offense and thus represent cases in which negative reciprocity fairness is at work.
International Trade Theory and Policy - Chapter 125-8: Last Updated on 8/2/01