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Why are safeguards needed in a trade agreement?

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Author Info
Meredith Crowley

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Abstract

This paper reviews the theoretical and empirical literature on the use of safeguards in a trade agreement. It then analyzes the available data on the use of safeguards by WTO members to examine two hypotheses in the economics literature, that safeguards improve welfare by facilitating tariff reductions and that safeguards improve welfare by providing insurance against adverse economic shocks. I find that countries which undertook larger tariff reductions during the Uruguay Round conducted more safeguards investigations after the WTO was established. However, this result is not robust across all specifications of the model and should not be regarded as definitive. I find no evidence to support the hypothesis that safeguards improve welfare by providing insurance. The empirical analysis rejects the hypothesis of a relationship between safeguards and aggregate uncertainty.

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Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number WP-06-06.

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Date of creation: 2006
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Handle: RePEc:fip:fedhwp:wp-06-06

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Keywords: General Agreement on Tariffs and Trade (Organization) ; Trade;

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