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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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  1. 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.
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  4. van Damme,Eric, 1986. "Renegotiation-proof equilibria in repeated Prisoner`s dilemma," Discussion Paper Serie A 84, University of Bonn, Germany.
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  9. Robert Z. Lawrence, 2003. "Crimes and Punishments?: Retaliation under the WTO," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 372.
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Citations

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Cited by:
  1. Barbara Dluhosch & Daniel Horgos, 2013. "(When) Does Tit-for-tat Diplomacy in Trade Policy Pay Off?," The World Economy, Wiley Blackwell, vol. 36(2), pages 155-179, 02.
  2. 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.
  3. Hoekman, Bernard, 2011. "Proposals for WTO reform : a synthesis and assessment," Policy Research Working Paper Series 5525, The World Bank.
  4. Kamal Saggi & Nuno Limao, 2011. "Size Inequality, Coordination Externalities and International Trade Agreements," Vanderbilt University Department of Economics Working Papers 1115, Vanderbilt University Department of Economics.
  5. Bernard M. Hoekman & Petros C. Mavroidis, 2013. "Bite the Bullet: Trade Retaliation, EU Jurisprudence and the Law and Economics of 'Taking One for the Team'," RSCAS Working Papers 2013/32, European University Institute.
  6. Richard Chisik, 2010. "Limited Incremental Linking and Unlinked Trade Agreements," Working Papers 023, Ryerson University, Department of Economics.
  7. Kilolo, Jean-Marc Malambwe, 2013. "Country size, trade liberalization and transfers," MPRA Paper 47996, University Library of Munich, Germany.

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