Working Paper: NBER ID: w10987
Authors: Kyle Bagwell; Robert W. Staiger
Abstract: We consider the design and implementation of international trade agreements when: (i) negotiations are undertaken and commitments made in the presence of uncertainty about future political pressures; (ii) governments possess private information about political pressures at the time that the agreement is actually implemented; and (iii) negotiated commitments can be implemented only if they are self-enforcing. We thus consider the design of self-enforcing trade agreements among governments that acquire private information over time. In this context, we provide equilibrium interpretations of GATT/WTO negotiations regarding upper bounds on applied tariffs and GATT/WTO escape clauses. We find that governments achieve greater welfare when they negotiate the optimal upper bound on tariffs rather than precise tariff levels; furthermore, when governments negotiate the optimal upper bound on tariffs, the observed applied tariffs often fall strictly below the bound. Our analysis also provides a novel interpretation of a feature of the WTO Safeguard Agreement, under which escape clause actions cannot be re-imposed in the same industry for a time period equal to the duration of the most recent escape clause action. We find that a dynamic usage constraint of this kind can raise the expected welfare of negotiating governments.
Keywords: international trade agreements; GATT; WTO; tariff negotiations; political pressure
JEL Codes: F1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| optimal upper bounds on tariffs (F14) | greater welfare of governments (D69) |
| dynamic usage constraint on escape clauses (C41) | expected welfare of negotiating governments (D69) |
| weak tariff bindings (F13) | higher negotiated commitments (C78) |
| strong tariff bindings (F13) | lower negotiated commitments (C78) |