The political economy of protection after the Uruguay Round

This paper discusses the interplay between domestic policies and foreign interests under the institutional framework to be administered by' the World Trade Organization (WTO);. It presents a theoretical model that treats the WTO as the forum for an overlapping game which provides the rules for the maintenance of an open trading system among economies that are periodically submitted to protectionist pressures. Overlapping games occur when a particular player is engaged at the same time in games against distinct opponents, and when the strategy pursued in one game limits strategies available in the other. The basic rule provided by the model is that protection costs should be kept entirely within national borders, and the proper instrument to enforce this rule is the Agreement on Safeguards. Two main points are argued here. First, the effort to keep protection costs inside national borders improves the consistency of domestic policies. Second, although developing economies are expected to play an active part in the new trading system, most Latin American countries are not yet prepared for playing that role.