Title

Trade Agreements with Domestic Policies as Disguised Protection

Publication Type

Journal Article

Publication Date

3-2007

Abstract

WTO rules prohibit “disguised protection” in the form of domestic policies. How then do governments cooperate over trade and domestic policies when none can verify whether a nation's domestic tax reduction is a protective measure or a reaction to a production externality? In this paper, each government privately observes whether a production externality associated with its import-competing good is high or low. This paper finds that in an optimal agreement, disguised protection with domestic policies is never used by governments with a high externality, and is never commonly realized. Moreover, in an optimal agreement, tariffs may be conditional on domestic policies.

Keywords

Trade agreement; Private information; Domestic policy; Disguised protection

Discipline

International Economics

Research Areas

Applied Microeconomics

Publication

Journal of International Economics

Volume

71

Issue

1

First Page

241

Last Page

259

ISSN

0022-1996

Identifier

10.1016/j.jinteco.2006.05.002

Publisher

Elsevier

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

Additional URL

http://dx.doi.org/10.1016/j.jinteco.2006.05.002

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