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Does Limited Punishment Limit the Scope for Cross-Retaliation?

  • Richard Chisik


    (Department of Economics, Ryerson University, Toronto, Canada)

  • Harun Onder


    (The World Bank)

This paper analyzes two prominent institutional rules in the international trading system: a lim- ited cross-retaliation rule characterized by the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) Article 22.3 and a limited punishment rule characterized by the General Agreement on Taris and Trade (GATT) Article XXVIII. In general, both rules are designed to limit the countermeasures upon a violation; however, the former rule species the limits of composition in retaliation, whereas the latter one designates the limits of retaliation magnitude. We show that, albeit seemingly unrelated, the limited cross-retaliation rule complements the limited punishment rule in per- mitting greater trade liberalization. Specically, we show how the limited cross-retaliation rule also helps limit the incentives to violate the trade agreement when the limited punishment rule prevails.

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Paper provided by Ryerson University, Department of Economics in its series Working Papers with number 025.

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Length: 30 pages
Date of creation: Aug 2010
Date of revision: Oct 2015
Handle: RePEc:rye:wpaper:wp025
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  1. Conconi, P. & Perroni, C., 2000. "Issue Linkage and Issue Tie-in in Multilateral Negotiations," The Warwick Economics Research Paper Series (TWERPS) 558, University of Warwick, Department of Economics.
  2. Josh Ederington, 2003. "Policy Linkage and Uncertainty in International Agreements," Economic Inquiry, Western Economic Association International, vol. 41(2), pages 305-317, April.
  3. Josh Ederington, 2002. "Trade and Domestic Policy Linkage in International Agreements," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(4), pages 1347-1368, November.
  4. Josh Ederington, 2001. "International Coordination of Trade and Domestic Policies," American Economic Review, American Economic Association, vol. 91(5), pages 1580-1593, December.
  5. 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, June.
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