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Smoke in the water : the use of tariff policy flexibility in crises

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  • Foletti, Liliana
  • Fugazza, Marco
  • Nicita, Alessandro
  • Olarreaga, Marcelo

Abstract

As the economic crisis deepens and widens, fears of a return to the protectionist spiral of the 1930s become more common. However, an important difference between the 1930s and today is the existence of the World Trade Organization and the legal limits it imposes on the protectionist responses members can pursue. The objective of this paper is threefold. First, to assess the extent to which applied tariff can legally be raised without violating tariff-bound obligations, and compare it with what is economically possible. Second, to examine what has been the protectionist response of individual countries when facing an economic crisis since the creation of the WTO. Finally, to predict how far the protectionist responses will go during the current crisis. Results suggest that the policy space left when looking at what is economically possible is indeed quite large. However, in the recent past very little of the available policy space has been used by countries suffering from an economic crisis. Our predictions for the current crisis are modest tariff hikes in the order of 8 percent.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 5050.

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Date of creation: 01 Sep 2009
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Handle: RePEc:wbk:wbrwps:5050

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Keywords: International Trade and Trade Rules; Trade Policy; Free Trade; Debt Markets; Access to Finance;

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