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

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  • Limão, Nuno
  • Saggi, Kamal

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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Bibliographic 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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Cited by:
  1. Hoekman, Bernard, 2011. "Proposals for WTO reform : a synthesis and assessment," Policy Research Working Paper Series 5525, The World Bank.
  2. Nuno Limao & Kamal Saggi, 2011. "Size Inequality, Coordination Externalities and International Trade Agreements," NBER Working Papers 17603, National Bureau of Economic Research, Inc.
  3. Richard Chisik, 2010. "Limited Incremental Linking and Unlinked Trade Agreements," Working Papers 023, Ryerson University, Department of Economics.
  4. Beshkar, Mostafa, 2010. "Trade skirmishes safeguards: A theory of the WTO dispute settlement process," Journal of International Economics, Elsevier, vol. 82(1), pages 35-48, September.

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