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Tariff retaliation versus financial compensation in the enforcement of international trade agreements

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Limão, Nuno
Saggi, Kamal

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Abstract

We analyze whether financial compensation is preferable to the WTO's current dispute settlement system that permits injured member countries to impose retaliatory tariffs. We show that, ex-post, monetary fines are more efficient than tariffs in terms of granting compensation to injured parties but fines suffer from an enforcement problem since they must be paid by the violating country. If fines must ultimately be supported by the threat of tariffs, they fail to yield a more cooperative outcome than the use of tariffs alone. Furthermore, the exchange of bonds between symmetric countries also does not improve enforcement relative to retaliatory tariffs.

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Publisher Info
Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 76 (2008)
Issue (Month): 1 (September)
Pages: 48-60
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Handle: RePEc:eee:inecon:v:76:y:2008:i:1:p:48-60

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Web page: http://www.elsevier.com/locate/inca/505552

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  1. Wilfred Ethier, 2004. "Intellectual Property Rights And Dispute Settlement In The World Trade Organization," Journal of International Economic Law, Oxford University Press, vol. 7(2), pages 449-457, June.
  2. Grossman, G.M. & Helpman, E., 1992. "Protection for Sale," Papers 21-92, Tel Aviv.
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  3. Petros C. Mavroidis & Kyle Bagwell & Robert W. Staiger, 2004. "The case for tradable remedies in WTO dispute settlement," Discussion Papers 0405-05, Columbia University, Department of Economics. [Downloadable!]
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  4. Bagwell, K. & Staiger, R.W., 1988. "A Theory Of Managed Trade," Papers e-88-39, Stanford - Hoover Institution.
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  5. Kyle Bagwell & Petros C. Mavroidis & Robert W. Staiger, 2003. "The Case for Auctioning Countermeasures in the WTO," NBER Working Papers 9920, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Limao, Nuno, 2005. "Trade policy, cross-border externalities and lobbies: do linked agreements enforce more cooperative outcomes?," Journal of International Economics, Elsevier, vol. 67(1), pages 175-199, September. [Downloadable!] (restricted)
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  7. Chad P. Bown, 2004. "On the Economic Success of GATT/WTO Dispute Settlement," The Review of Economics and Statistics, MIT Press, vol. 86(3), pages 811-823, 05. [Downloadable!] (restricted)
  8. Hoekman, Bernard & Saggi, Kamal, 2007. "Tariff bindings and bilateral cooperation on export cartels," Journal of Development Economics, Elsevier, vol. 83(1), pages 141-156, May. [Downloadable!] (restricted)
  9. Chad P. Bown, 2004. "Developing Countries as Plaintiffs and Defendants in GATT/WTO Trade Disputes," The World Economy, Blackwell Publishing, vol. 27(1), pages 59-80, 01. [Downloadable!] (restricted)
  10. repec:att:wimass:1920314 is not listed on IDEAS
  11. van Damme, Eric, 1989. "Renegotiation-proof equilibria in repeated prisoners' dilemma," Journal of Economic Theory, Elsevier, vol. 47(1), pages 206-217, February. [Downloadable!] (restricted)
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  12. Farrell, Joseph & Maskin, Eric, 1989. "Renegotiation in repeated games," Games and Economic Behavior, Elsevier, vol. 1(4), pages 327-360, December. [Downloadable!] (restricted)
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