Why Do We Need Antidumping Rules?
We show that the inclusion of antidumping (AD) and countervailing subsidy (CVD) regulations can increase the range of feasible preferential trade agreements (PTA), given that governments are sensitive to pressure groups defending import competing industries. AD and CVD regulations serve as an "escape valve" for pressure groups affected by the PTA in some states of the world. If the preferences of government do not differ by much from those of a welfare maximizing planner, there exist PTAs with escape clauses that provide more welfare than PTAs without escape. AD and CVD differ from safeguards in not requiring compensation to exporting countries, so a feasible agreement requires testing for injury caused by imports. Cheating on trade agree-ments is likely unless the level of pressure for protection is verifiable, and this is the role of the World Trade Organization (WTO) injury tests. If the injury tests are weakened, and the level of political pressure is less observable than expected, agreements become less valuable or may collapse.
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