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Enforcement, Private Political Pressure and the GATT/WTO Escape Clause

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  • Kyle Bagwell
  • Robert W. Staiger

Abstract

We consider the design and implementation of international trade agreements when: (i) negotiations are undertaken and commitments made in the presence of uncertainty about future political pressures; (ii) governments possess private information about political pressures at the time that the agreement is actually implemented; and (iii) negotiated commitments can be implemented only if they are self-enforcing. We thus consider the design of self-enforcing trade agreements among governments that acquire private information over time. In this context, we provide equilibrium interpretations of GATT/WTO negotiations regarding upper bounds on applied tariffs and GATT/WTO escape clauses. We find that governments achieve greater welfare when they negotiate the optimal upper bound on tariffs rather than precise tariff levels; furthermore, when governments negotiate the optimal upper bound on tariffs, the observed applied tariffs often fall strictly below the bound. Our analysis also provides a novel interpretation of a feature of the WTO Safeguard Agreement, under which escape clause actions cannot be re-imposed in the same industry for a time period equal to the duration of the most recent escape clause action. We find that a dynamic usage constraint of this kind can raise the expected welfare of negotiating governments.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10987.

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Date of creation: Dec 2004
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Publication status: published as Bagwell, Kyle and Robert Staiger. “Enforcement, Private Political Pressure and the GATT/WTO Escape Clause.” The Journal of Legal Studies 34, 2 (June 2005): 471-513.
Handle: RePEc:nbr:nberwo:10987

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  1. Bagwell, Kyle & Staiger, Robert W., 2001. "Reciprocity, non-discrimination and preferential agreements in the multilateral trading system," European Journal of Political Economy, Elsevier, vol. 17(2), pages 281-325, June.
  2. Robert C. Feenstra & Tracy R. Lewis, 1987. "Negotiated Trade Restrictions with Private Political Pressure," NBER Working Papers 2374, National Bureau of Economic Research, Inc.
  3. Bagwell, Kyle & Staiger, Robert W, 1990. "A Theory of Managed Trade," American Economic Review, American Economic Association, American Economic Association, vol. 80(4), pages 779-95, September.
  4. Baldwin, Richard, 1987. "Politically realistic objective functions and trade policy PROFs and tariffs," Economics Letters, Elsevier, Elsevier, vol. 24(3), pages 287-290.
  5. Susan Athey & Kyle Bagwell & Chris Sanchirico, 2002. "Collusion and price rigidity," Discussion Papers, Columbia University, Department of Economics 0102-38, Columbia University, Department of Economics.
  6. Gene M. Grossman & Elhanan Helpman, 1992. "Protection For Sale," NBER Working Papers 4149, National Bureau of Economic Research, Inc.
  7. Giovanni Maggi & Andres Rodriguez-Clare, 1998. "The Value of Trade Agreements in the Presence of Political Pressures," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 106(3), pages 574-601, June.
  8. Staiger, Robert W & Tabellini, Guido, 1987. "Discretionary Trade Policy and Excessive Protection," American Economic Review, American Economic Association, American Economic Association, vol. 77(5), pages 823-37, December.
  9. Athey, Susan & Bagwell, Kyle, 2001. "Optimal Collusion with Private Information," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 428-65, Autumn.
  10. R. W. Staiger & G. Tabellini, 1999. "Do Gatt Rules Help Governments Make Domestic Commitments?," Economics and Politics, Wiley Blackwell, Wiley Blackwell, vol. 11(2), pages 109-144, 07.
  11. Bagwell Kyle & Staiger Robert W., 2003. "Protection and the Business Cycle," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(1), pages 1-45, September.
  12. Rosendorff, B. Peter & Milner, Helen V., 2001. "The Optimal Design of International Trade Institutions: Uncertainty and Escape," International Organization, Cambridge University Press, Cambridge University Press, vol. 55(04), pages 829-857, September.
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Cited by:
  1. MARTIN, Alberto & VERGOTE, Wouter, . "On the role of retaliation in trade agreements," CORE Discussion Papers RP -2037, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Horn, Henrik & Maggi, Giovanni & Staiger, Rikard W., 2007. "Trade Agreements as Endogenously Incomplete Contracts," Working Paper Series, Research Institute of Industrial Economics 689, Research Institute of Industrial Economics.
  3. Giovanni Maggi & Andres Rodriguez-Clare, 2005. "A Political-Economy Theory of Trade Agreements," NBER Working Papers 11716, National Bureau of Economic Research, Inc.
  4. Chad P. Bown, 2005. "Trade Remedies and World Trade Organization Dispute Settlement: Why Are So Few Challenged?," The Journal of Legal Studies, University of Chicago Press, University of Chicago Press, vol. 34(2), pages 515-555, 06.

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