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On the role of retaliation in trade agreements

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Author Info

  • MARTIN, Alberto
  • VERGOTE, Wouter

    (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))

Abstract

This paper analyzes the role of retaliation in trade agreements. It shows that, in the presence of private information, retaliation can always be used to increase the welfare derived from such agreements by the participating governments. In particular, it is shown that retaliation is a necessary feature of any efficient equilibrium. We argue that retaliation would not be necessary if governments could resort to international transfers or export subsidies to compensate for terms-of-trade externalities. Within the current world trading system, though, in which transfers are seldom observed whereas export subsidies are prohibited, the use of the remaining trade instruments in a retaliatory fashion might be optimal. The model is used to interpret the retaliatoy use of antidumping observed in the last decades, and the proliferation of these measures relative to other trade remedies.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2007089.

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Date of creation: 01 Nov 2007
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Handle: RePEc:cor:louvco:2007089

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Keywords: cooperation; retaliation; private information; tariffs; trade agreements;

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References

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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. Ana Espinola-Arredondo & Felix Munoz-Garcia, . "When does Disinformation Promote Successful Treaties," Working Papers 2011-11, School of Economic Sciences, Washington State University.
  3. Maggi, Giovanni & Staiger, Robert, 2009. "Breach, Remedies and Dispute Settlement in Trade Agreements," CEPR Discussion Papers 7527, C.E.P.R. Discussion Papers.
  4. MIYAGIWA, Kaz & SONG, Huasheng & VANDENBUSSCHE, Hylke, 2010. "Innovation, antidumping and retaliation," CORE Discussion Papers 2010064, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Gea Myoung Lee, 2011. "Optimal International Agreement and Treatment of Domestic Subsidy," Working Papers 01-2011, Singapore Management University, School of Economics.
  6. Richard Chisik, 2010. "Trade Disputes, Quality Choice, and Economic Integration," Working Papers 022, Ryerson University, Department of Economics.
  7. Elie Appelbaum & Mark Melatos, 2012. "How Does Uncertainty Affect the Choice of Trade AgreementsF," Working Papers 2012_1, York University, Department of Economics.
  8. Hylke VANDENBUSSCHE & Christian VIEGELAHN, 2011. "No Protectionist Surprises: EU Antidumping Policy Before and During the Great Recession," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2011021, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  9. Lee, Gea M., 2010. "Optimal collusion with internal contracting," Games and Economic Behavior, Elsevier, vol. 68(2), pages 646-669, March.
  10. Richard Chisik, 2010. "Limited Incremental Linking and Unlinked Trade Agreements," Working Papers 023, Ryerson University, Department of Economics.
  11. Kyle Bagwell, 2009. "Self-Enforcing Trade Agreements and Private Information," NBER Working Papers 14812, National Bureau of Economic Research, Inc.
  12. 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.
  13. Horn, Henrik, 2011. "The burden of proof in trade disputes and the environment," Journal of Environmental Economics and Management, Elsevier, vol. 62(1), pages 15-29, July.

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