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The case for auctioning countermeasures in the WTO

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  • Bagwell,K.
  • Mavroidis,P.C.
  • Staiger,R.W.

    (University of Wisconsin-Madison, Social Systems Research Institute)

Abstract

A prominent problem with the WTO dispute settlement procedures is the practical difficulty faced by small and developing countries in finding the capacity to effectively retaliate against trading partners that are in violation of their WTO commitments. In light of this problem, Mexico has proposed that retaliation rights be made tradeable.' We offer a first formal analysis of the possibility that retaliation rights within the WTO system be allocated through auctions. We show that the auctions exhibit externalities among bidders, and we characterize equilibrium bidder behavior under alternative auction formats. A key feature of auction format is whether the country in violation of its WTO commitments is prevented from bidding to retire the right of retaliation: if so, then the possibility of auction failure' arises, in which no bids are made despite positive valuation by the bidders; if not, then auction failure is precluded, and indeed the right of retaliation is always retired. We also evaluate these different auction formats from normative (revenue, efficiency) standpoints.
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Suggested Citation

  • Bagwell,K. & Mavroidis,P.C. & Staiger,R.W., 2003. "The case for auctioning countermeasures in the WTO," Working papers 14, Wisconsin Madison - Social Systems.
  • Handle: RePEc:att:wimass:200314
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    File URL: http://www.ssc.wisc.edu/econ/archive/wp2003-14.pdf
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    References listed on IDEAS

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    1. Bagwell, Kyle & Staiger, Robert W., 1997. "Multilateral tariff cooperation during the formation of customs unions," Journal of International Economics, Elsevier, vol. 42(1-2), pages 91-123, February.
    2. Jehiel, Philippe & Moldovanu, Benny, 2001. "Efficient Design with Interdependent Valuations," Econometrica, Econometric Society, vol. 69(5), pages 1237-1259, September.
    3. Robert W. Staiger & Kyle Bagwell, 1999. "An Economic Theory of GATT," American Economic Review, American Economic Association, vol. 89(1), pages 215-248, March.
    4. Limao, Nuno, 2005. "Trade policy, cross-border externalities and lobbies: do linked agreements enforce more cooperative outcomes?," Journal of International Economics, Elsevier, vol. 67(1), pages 175-199, September.
    5. Haile, Philip A., 2000. "Partial Pooling at the Reserve Price in Auctions with Resale Opportunities," Games and Economic Behavior, Elsevier, vol. 33(2), pages 231-248, November.
    6. Philippe Jehiel & Benny Moldovanu, 2000. "Auctions with Downstream Interaction Among Buyers," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 768-791, Winter.
    7. David Ettinger, 2008. "Auctions and Shareholdings," Annals of Economics and Statistics, GENES, issue 90, pages 233-257.
    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. Baldwin, Richard, 1987. "Politically realistic objective functions and trade policy PROFs and tariffs," Economics Letters, Elsevier, vol. 24(3), pages 287-290.
    10. Bagwell, Kyle & Staiger, Robert W, 1990. "A Theory of Managed Trade," American Economic Review, American Economic Association, vol. 80(4), pages 779-795, September.
    11. Kyle Bagwell & Robert W. Staiger, 2004. "The Economics of the World Trading System," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262524341, January.
    12. Josh Ederington, 2001. "International Coordination of Trade and Domestic Policies," American Economic Review, American Economic Association, vol. 91(5), pages 1580-1593, December.
    13. Giovanni Maggi, 1999. "The Role of Multilateral Institutions in International Trade Cooperation," American Economic Review, American Economic Association, vol. 89(1), pages 190-214, March.
    14. repec:adr:anecst:y:2008:i:90:p:09 is not listed on IDEAS
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    Citations

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    Cited by:

    1. Bown, Chad P. & Crowley, Meredith A., 2006. "Policy externalities: How US antidumping affects Japanese exports to the EU," European Journal of Political Economy, Elsevier, vol. 22(3), pages 696-714, September.
    2. Mohammad Amin, 2004. "Time Inconsistency of Trade Policy and Multilateralism," International Trade 0402002, EconWPA.
    3. Horn, Henrik & Mavroidis, Petros C., 2006. "A Survey of the Literature on the WTO Dispute Settlement System," Working Paper Series 684, Research Institute of Industrial Economics.
    4. Limão, Nuno & Saggi, Kamal, 2008. "Tariff retaliation versus financial compensation in the enforcement of international trade agreements," Journal of International Economics, Elsevier, vol. 76(1), pages 48-60, September.
    5. Philippe Jehiel & Benny Moldovanu, 2005. "Allocative and Informational Externalities in Auctions and Related Mechanisms," Levine's Bibliography 784828000000000490, UCLA Department of Economics.
    6. Bagwell, Kyle & Mavroidis, Petros C. & Staiger, Robert W., 2007. "Auctioning countermeasures in the WTO," Journal of International Economics, Elsevier, vol. 73(2), pages 309-332, November.
    7. Wilhelm Kohler, 2004. "The WTO Dispute Settlement Mechanism: Battlefield or Cooperation? A Commentary on Fritz Breuss," Journal of Industry, Competition and Trade, Springer, vol. 4(4), pages 317-336, December.
    8. Keck, Alexander & Schropp, Simon, 2007. "Indisputably essential: The economics of dispute settlement institutions in trade agreements," WTO Staff Working Papers ERSD-2007-02, World Trade Organization (WTO), Economic Research and Statistics Division.
    9. Joseph Stiglitz & Andrew Charlton, 2005. "Un cycle de négociations commerciales pour le développement ?," Revue d’économie du développement, De Boeck Université, vol. 13(4), pages 17-54.
    10. Bagwell, Kyle & Mavroidis, Petros C. & Staiger, Robert W., 2004. "The case for tradable remedies in WTO dispute settlement," Policy Research Working Paper Series 3314, The World Bank.
    11. Fritz Breuss, 2004. "WTO Dispute Settlement: An Economic Analysis of four EU-US Mini Trade Wars," WIFO Working Papers 231, WIFO.

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    JEL classification:

    • F1 - International Economics - - Trade

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