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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. Robert C. Feenstra & Tracy R. Lewis, 1987. "Negotiated Trade Restrictions with Private Political Pressure," NBER Working Papers 2374, National Bureau of Economic Research, Inc.
  2. Baldwin, Richard, 1987. "Politically realistic objective functions and trade policy PROFs and tariffs," Economics Letters, Elsevier, vol. 24(3), pages 287-290.
  3. Maggi, G & Rodriguez-Clare, A, 1996. "The Value of Trade Agreements in the Presence of Political Pressures," Papers 180, Princeton, Woodrow Wilson School - Public and International Affairs.
  4. Gene M. Grossman & Elhanan Helpman, 1992. "Protection For Sale," NBER Working Papers 4149, National Bureau of Economic Research, Inc.
  5. Kyle Bagwell & Robert W. Staiger, 1989. "A Theory of Managed Trade," Discussion Papers 801, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  6. R. W. Staiger & G. Tabellini, 1999. "Do Gatt Rules Help Governments Make Domestic Commitments?," Economics and Politics, Wiley Blackwell, vol. 11(2), pages 109-144, 07.
  7. Rosendorff, B. Peter & Milner, Helen V., 2001. "The Optimal Design of International Trade Institutions: Uncertainty and Escape," International Organization, Cambridge University Press, vol. 55(04), pages 829-857, September.
  8. 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.
  9. Kyle Bagwell, 2004. "Collusion and Price Rigidity," Theory workshop papers 658612000000000081, UCLA Department of Economics.
  10. Kyle Bagwell & Robert W. Staiger, 1995. "Protection and the Business Cycle," Discussion Papers 1130, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  11. Susan Athey & Kyle Bagwell, 1999. "Optimal Collusion with Private Information," Working papers 99-17, Massachusetts Institute of Technology (MIT), Department of Economics.
  12. Staiger, Robert W & Tabellini, Guido, 1987. "Discretionary Trade Policy and Excessive Protection," American Economic Review, American Economic Association, vol. 77(5), pages 823-37, December.
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Cited by:
  1. Henrik Horn & Giovanni Maggi & Robert W. Staiger, 2006. "Trade Agreements as Endogenously Incomplete Contracts," NBER Working Papers 12745, National Bureau of Economic Research, Inc.
  2. Giovanni Maggi & Andres Rodriguez-Clare, 2005. "A Political-Economy Theory of Trade Agreements," NBER Working Papers 11716, National Bureau of Economic Research, Inc.
  3. Bown, Chad P., 2005. "Trade remedies and World Trade Organization dispute settlement : Why are so few challenged?," Policy Research Working Paper Series 3540, The World Bank.
  4. Martin, Alberto & Vergote, Wouter, 2008. "On the role of retaliation in trade agreements," Journal of International Economics, Elsevier, vol. 76(1), pages 61-77, September.

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