On the role of retaliation in trade agreements

Alberto Martin and Wouter Vergote

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: This paper analyzes the role of retaliation in trade agreements. It shows that, in the presence of private information, retaliation can always be used to increase the welfare derived from such agreements by the participating governments. In particular, it is shown that retaliation is a necessary feature of any efficient equilibrium. We argue that retaliation would not be necessary if governments could resort to international transfers or export subsidies to compensate for terms-of-trade externalities. Within the current world trading system, though, in which transfers are seldom observed whereas export subsidies are prohibited, the use of the remaining trade instruments in a retaliatory fashion might be optimal. The model is used to interpret the retaliatory use of antidumping observed in the last decades, and the proliferation of these measures relative to other trade remedies.

Keywords: Tariffs; Retaliation; Asymmetric Information; WTO; Antidumping Duties (search for similar items in EconPapers)
JEL-codes: C72 D82 F13 (search for similar items in EconPapers)
Date: 2005-06, Revised 2008-04
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (50)

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Related works:
Working Paper: On the role of retaliation in trade agreements (2009)
Journal Article: On the role of retaliation in trade agreements (2008)
Working Paper: On the role of retaliation in trade agreements (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:914

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