Cap and Escape in Trade Agreements

Author:

Beshkar Mostafa1,Bond Eric W.2

Affiliation:

1. Assistant Professor of Economics, Indiana University, 100 S. Woodlawn Ave., Bloomington, IN 47405 (email: )

2. Joe L. Roby Professor of Economics, Vanderbilt University, 2301 Vanderbilt Place, Nashville, TN 37235 (email: )

Abstract

We propose a model of flexible trade agreements in which verifying the prevailing contingencies is possible but costly. Two types of flexibility emerge: contingent protection, which requires governments to verify the state of the world, and discretionary protection, which allows governments to set tariffs unilaterally. The structure of the GATT/WTO agreement provides these two types of flexibility through a mechanism that we call Cap and Escape. Governments may choose tariffs unilaterally below the negotiated cap, but escaping from the cap requires state verification. We show that this framework explains key features of the GATT/WTO agreements, including the substantial variation across sectors and countries in the level of negotiated tariffs, and the rate at which different flexibility measures are used. (JEL D86, F11, F13, F41)

Publisher

American Economic Association

Subject

General Economics, Econometrics and Finance

Cited by 18 articles. 订阅此论文施引文献 订阅此论文施引文献,注册后可以免费订阅5篇论文的施引文献,订阅后可以查看论文全部施引文献

1. Costless Information and Costly Verification: A Case for Transparency;Journal of Political Economy;2023-02-01

2. Non‐tariff measures: What's tariffs got to do with it?;Canadian Journal of Economics/Revue canadienne d'économique;2023-01-24

3. A World Trading System for the Twenty-First Century;OHLIN LECT SER;2022-12-20

4. Trade Policy Uncertainty;Annual Review of Economics;2022-08-12

5. How does import market power matter for trade agreements?;Journal of International Economics;2022-07

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