Tariff Retaliation versus Financial Compensation in the Enforcement of International Trade Agreements

The authors analyze whether financial compensation is preferable to the current system of dispute settlement in the World Trade Organization that permits member countries to impose retaliatory tariffs in response to trade violations committed by other members. They show that monetary fines are more efficient than tariffs in terms of granting compensation to injured parties when there are violations in equilibrium. However, fines suffer from an enforcement problem since they must be paid by the violating country. If fines must ultimately be supported by the threat of retaliatory tariffs, they fail to yield a more cooperative outcome than the current system. The authors also consider the use of bonds as a means of settling disputes. If bonds can be posted with a third party, they do not have to be supported by retaliatory tariffs and can improve the negotiating position of countries that are too small to threaten tariff retaliation.

Bibliographic Details

Main Authors:	Limão, Nuno, Saggi, Kamal
Language:	English
Published:	World Bank, Washington, DC 2006-04
Subjects:	ANTITRUST ENFORCEMENT, BALANCE OF CONCESSIONS, BENCHMARK, BILATERAL TRADE, BILATERAL TRADE AGREEMENT, BONDS, CENTRAL AMERICAN, COLLECTIVE ACTION, CONCESSIONS, CONSUMER, CONSUMER SURPLUS, DEMAND ELASTICITY, DISCOUNTED VALUE, DISPUTE SETTLEMENT, DISPUTE SETTLEMENT PROCEDURES, DISPUTE SETTLEMENT SYSTEM, ENFORCEMENT MECHANISM, ENFORCEMENT MECHANISMS, EQUILIBRIUM, ESCROW, EXCESS DEMAND, EXPORT, EXPORT CARTELS, EXPORT SUPPLY, EXPORTERS, EXPORTS, EXTERNALITIES, FOREIGN COUNTRY, FORMAL ANALYSIS, FREE RIDER, FREE RIDER PROBLEM, HOME COUNTRY, IMPORT PRICES, IMPORT TARIFF, INCENTIVE CONSTRAINT, INCENTIVE CONSTRAINTS, INCOME, INEFFICIENCY, INTELLECTUAL PROPERTY, INTERNATIONAL AGREEMENT, INTERNATIONAL AGREEMENTS, INTERNATIONAL LAW, INTERNATIONAL SPILLOVERS, INTERNATIONAL TRADE, LEGAL SCHOLARS, LESS DEVELOPED COUNTRIES, LIABILITY, LOW TARIFFS, MARKET CLEARING, MARKET SHARE, MEMBER COUNTRIES, OPPORTUNITY COST, OPTIMAL TARIFF, OPTIMAL TARIFFS, POLITICAL ECONOMY, PREFERENTIAL TRADE, PREFERENTIAL TRADE AGREEMENTS, PROOF OF PROPOSITION, PROVISIONS, PUBLIC GOOD, RECIPROCITY, REMEDIES, RENEGOTIATION, ROYALTIES, TARIFF CONCESSION, TARIFF CONCESSIONS, TARIFF REDUCTION, TARIFF REDUCTIONS, TAX, TAX REVENUE, TERMS OF TRADE, THIRD PARTIES, THIRD PARTY, TOTAL VALUE, TRADE AGREEMENT, TRADE AGREEMENTS, TRADE BARRIERS, TRADE CONCESSIONS, TRADE DISPUTE, TRADE DISPUTES, TRADE EFFECT, TRADE NEGOTIATIONS, TRADE PARTNER, TRADE POLICY, TRADING PARTNER, TRADING SYSTEM, URUGUAY ROUND, UTILITY FUNCTION, WORLD PRICE, WORLD PRICES, WORLD TRADE, WORLD TRADE ORGANIZATION, WTO,
Online Access:	http://documents.worldbank.org/curated/en/2006/04/6683376/tariff-retaliation-versus-financial-compensation-enforcement-international-trade-agreements https://hdl.handle.net/10986/8734
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