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International Coordination of Trade Policy

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  • J. David Richardson
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    Abstract

    The General Agreement on Tariffs and Trade (GATT) is a coordination compact. Tariff bindings illustrate a mechanism for making commitments credible. Reciprocity illustrates a means for redistributing cooperative gains. The Most-Favored-Nation (MFN) principle illustrates an attempt to keep coordination "virtuous" (cooperative) rather than "vicious" (collusive). Yet international trade policy coordination has clearly become more difficult. The postwar hegemonic environment has evolved into a more general strategic environment with several influential governments and blocs. Such coalitions are a natural evolutionary development, yet one that inexorably undermines MFN. Economic developments make a country's comparative advantage increasingly sensitive to sectoral predation by others, especially through subsidies and performance requirements aimed at mobile multinational firms, which are themselves internationally coordinated. Immobile workers and others correspondingly bear the burdens of sharper adjustments, and look to government to turn its trade policy narrowly inward in order to ease their load. Such "domestication" of trade policy is the antithesis of international coordination, and runs the risk of creating a strategic paralysis of recurring unproductivity. What changes might restore the liberalizing impetus of trade policy coordination? Several are considered in the paper. One is extension of the "Codes" approach to multilateral negotiations under the GATT, especially to Subsidies and Safeguards . Many reflections in the paper are framed in categories from recent economic thinking about policy coordination in "strategic" environments -- those with small numbers of self-consciously interdependent agents. The paper argues that these are the appropriate environments in which to analyze international coordination of trade policy.

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    File URL: http://www.nber.org/papers/w2293.pdf
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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2293.

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    Date of creation: Jun 1987
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    Publication status: published as International Coordination of Trade Policy. Martin Feldstein, ed., International Economic Cooperation, Chicago: University of Chicago Press, 1988.
    Handle: RePEc:nbr:nberwo:2293

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    References

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    1. Alan V. Deardorff & Robert M. Stern, 1984. "The Effects of the Tokyo Round on the Structure of Protection," NBER Chapters, in: The Structure and Evolution of Recent U.S. Trade Policy, pages 361-388 National Bureau of Economic Research, Inc.
    2. Feenstra, Robert C, 1987. " Incentive Compatible Trade Policies," Scandinavian Journal of Economics, Wiley Blackwell, vol. 89(3), pages 373-87.
    3. Nogues, Julio J & Olechowski, Andrzej & Winters, L Alan, 1986. "The Extent of Nontariff Barriers to Industrial Countries' Imports," World Bank Economic Review, World Bank Group, vol. 1(1), pages 181-99, September.
    4. Kala Krishna, 1989. "Trade Restrictions as Facilitating Practices," NBER Working Papers 1546, National Bureau of Economic Research, Inc.
    5. Gilles Oudiz & Jeffrey Sachs, 1984. "Macroeconomic Policy Coordination among the Industrial Economies," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 15(1), pages 1-76.
    6. Peter A. Diamond, 1982. "Protection, Trade Adjustment Assistance, and Income Distribution," NBER Chapters, in: Import Competition and Response, pages 123-150 National Bureau of Economic Research, Inc.
    7. Baldwin, Robert E. & Mutti, John H. & Richardson, J. David, 1980. "Welfare effects on the United States of a significant multilateral tariff reduction," Journal of International Economics, Elsevier, vol. 10(3), pages 405-423, August.
    8. Paul Krugman, 1986. "Strategic Trade Policy and the New International Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262610450, December.
    9. 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.
    10. Dixit, Avinash K & Kyle, Albert S, 1985. "The Use of Protection and Subsidies for Entry Promotion and Deterrence," American Economic Review, American Economic Association, vol. 75(1), pages 139-52, March.
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    Cited by:
    1. George Furstenberg, 1991. "Scoring the success of sanctions," Open Economies Review, Springer, vol. 2(3), pages 305-313, October.
    2. Guido Tabellini, 1988. "Domestic Politics and the International Coordination of Fiscal Policies," UCLA Economics Working Papers 529, UCLA Department of Economics.

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