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Smoke in the water : the use of tariff policy flexibility in crises


  • Foletti, Liliana
  • Fugazza, Marco
  • Nicita, Alessandro
  • Olarreaga, Marcelo


As the economic crisis deepens and widens, fears of a return to the protectionist spiral of the 1930s become more common. However, an important difference between the 1930s and today is the existence of the World Trade Organization and the legal limits it imposes on the protectionist responses members can pursue. The objective of this paper is threefold. First, to assess the extent to which applied tariff can legally be raised without violating tariff-bound obligations, and compare it with what is economically possible. Second, to examine what has been the protectionist response of individual countries when facing an economic crisis since the creation of the WTO. Finally, to predict how far the protectionist responses will go during the current crisis. Results suggest that the policy space left when looking at what is economically possible is indeed quite large. However, in the recent past very little of the available policy space has been used by countries suffering from an economic crisis. Our predictions for the current crisis are modest tariff hikes in the order of 8 percent.

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  • Foletti, Liliana & Fugazza, Marco & Nicita, Alessandro & Olarreaga, Marcelo, 2009. "Smoke in the water : the use of tariff policy flexibility in crises," Policy Research Working Paper Series 5050, The World Bank.
  • Handle: RePEc:wbk:wbrwps:5050

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    1. Pelzman, Joseph, 1977. "Trade Creation and Trade Diversion in the Council of Mutual Economic Assistance: 1954-70," American Economic Review, American Economic Association, vol. 67(4), pages 713-722, September.
    2. Brada, Josef C., 1988. "Interpreting the Soviet subsididzation of Eastern Europe," International Organization, Cambridge University Press, vol. 42(04), pages 639-658, September.
    3. Kornai, Janos, 1988. "Individual freedom and reform of the socialist economy," European Economic Review, Elsevier, vol. 32(2-3), pages 233-267, March.
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    International Trade and Trade Rules; Trade Policy; Free Trade; Debt Markets; Access to Finance;

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