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Why are safeguards needed in a trade agreement?

  • Meredith Crowley

This paper reviews the theoretical and empirical literature on the use of safeguards in a trade agreement. It then analyzes the available data on the use of safeguards by WTO members to examine two hypotheses in the economics literature, that safeguards improve welfare by facilitating tariff reductions and that safeguards improve welfare by providing insurance against adverse economic shocks. I find that countries which undertook larger tariff reductions during the Uruguay Round conducted more safeguards investigations after the WTO was established. However, this result is not robust across all specifications of the model and should not be regarded as definitive. I find no evidence to support the hypothesis that safeguards improve welfare by providing insurance. The empirical analysis rejects the hypothesis of a relationship between safeguards and aggregate uncertainty.

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Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number WP-06-06.

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Date of creation: 2006
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Handle: RePEc:fip:fedhwp:wp-06-06
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  1. Joost Pauwelyn, 2004. "The Puzzle Of Wto Safeguards And Regional Trade Agreements," Journal of International Economic Law, Oxford University Press, vol. 7(1), pages 109-142, March.
  2. 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.
  3. Hillman, Arye L, 1982. "Declining Industries and Political-Support Protectionist Motives," American Economic Review, American Economic Association, vol. 72(5), pages 1180-87, December.
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  5. Miyagiwa, K. & Ohno, Y., 1993. "Closing the Technology Gap Under Protection," Discussion Papers in Economics at the University of Washington 93-09, Department of Economics at the University of Washington.
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  9. Matsuyama, Kiminori, 1990. "Perfect Equilibria in a Trade Liberalization Game," American Economic Review, American Economic Association, vol. 80(3), pages 480-92, June.
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  11. Klimenko, Mikhail & Ramey, Garey & Watson, Joel, 2001. "Recurrent Trade Agreements and the Value of External Enforcement," University of California at San Diego, Economics Working Paper Series qt9xm2x5w7, Department of Economics, UC San Diego.
  12. Magee, Christopher, 2002. "Declining Industries and Persistent Tariff Protection," Review of International Economics, Wiley Blackwell, vol. 10(4), pages 749-62, November.
  13. Miyagiwa, Kaz & Ohno, Yuka, 1999. "Credibility of Protection and Incentives to Innovate," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(1), pages 143-63, February.
  14. Richard Arena, 2002. "Introduction," Revue d'├ęconomie politique, Dalloz, vol. 112(5), pages 627-633.
  15. Ronald D. Fischer & Thomas J. Prusa, 2003. "WTO Exceptions as Insurance," Review of International Economics, Wiley Blackwell, vol. 11(5), pages 745-757, November.
  16. Braillard, S. Lael & Verdier, Thierry, 1994. "Lobbying and adjustment in declining industries," European Economic Review, Elsevier, vol. 38(3-4), pages 586-595, April.
  17. Konings, Jozef & Vandenbussche, Hylke, 2004. "Antidumping Protection and Productivity Growth of Domestic Firms," CEPR Discussion Papers 4620, C.E.P.R. Discussion Papers.
  18. Wilfred J. Ethier, 2002. "Unilateralism in a Multilateral World," Economic Journal, Royal Economic Society, vol. 112(479), pages 266-292, April.
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