1 / 25

Trade Remedies and “Tariff Overhang” at the WTO

Trade Remedies and “Tariff Overhang” at the WTO. Marc L. Busch, Georgetown Krzysztof J. Pelc, Princeton and McGill. Summary. With nearly all tariffs bound under WTO obligation, Members use other protectionism

yehudi
Download Presentation

Trade Remedies and “Tariff Overhang” at the WTO

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Trade Remedies and “Tariff Overhang” at the WTO Marc L. Busch, Georgetown Krzysztof J. Pelc, Princeton and McGill

  2. Summary • With nearly all tariffs bound under WTO obligation, Members use other protectionism • The most popular protectionist tools are so-called trade remedies: ADs, CVDs, and safeguards • But in fact, many countries have tariff overhang, and this influences their use of trade remedies

  3. Trade Rules and Flexibility • WTO builds in flexibility, allowing Members to temporarily abrogate obligations in hard times. • Trade remedies serve this purpose, but Members can also exploit tariff overhang, which averages 18% • Each of these measures entails different costs and benefits to the user, and to the institution

  4. Why Trade Remedies? • There is evidence that flexibility allows Members to make deeper commitments to liberalization • Trade remedies may also lower the barriers to joining trade institutions, increasing membership • This is because ADs, CVDs and safeguards help ease the political cost of adjusting to free trade

  5. Yet Flexibility Comes at a Cost • Trade remedies create uncertainty and thus can reduce international commerce • The easier it is to use trade remedies, the more likely they are to be abused • Trade remedies may thus simply substitute for tariff liberalization: law of constant protection

  6. How do Trade Remedies Work? • AD: Tariff applied to imported products thought to be priced lower than fair market value • CVD: Tariff levied to offset a perceived subsidy by a foreign government • Safeguard: Duty on import that has experienced an unexpected surge, causing injury domestically

  7. Comparative Use of Trade Remedies • 3220 AD investigations since 1995 • 96 CVD investigations since 1995 • 83 Safeguard investigations since 1995 Source: WTO Secretariat 2009

  8. Antidumping in Hard Times • In tough economic times, the pressure for import relief rises. Source: WTO Secretariat 2009

  9. Antidumping • The most used trade remedy is antidumping: targeted, easily extendable, no stringent criteria • Mostly used by developing countries (two thirds of AD measures): India is by far the top user. • Also sparks greatest number of WTO complaints: 60 since 1995, vs. 20 on CVD, 34 on safeguards

  10. AD Initiations, 1995-2008 37 ADs versus China in first 6 months of 2008 1Q 2009, trade remedies up 18.8%, duties up 15.4% Source: Global Trade Protection Report 2008

  11. AD Initiations by Industry, 1995-2008 Source: Global Trade Protection Report 2008

  12. Main Targets of AD Filing Source: Global Trade Protection Report 2008

  13. Countervailing Duties • Like AD, countervailing duties offset perceived “unfair” measures • Used by developed countries (86% of measures) against developing countries (61% of targets) • The amount of the duty is limited to the amount of the alleged subsidy

  14. CVD Investigations, 1995-2008 Source: Global Trade Protection Report 2008

  15. Main Targets of CVD Filing Source: Global Trade Protection Report 2008

  16. Safeguards • Contingent on import increase, injury, and “unforeseen developments” • Most frequent users are developing countries (representing 89% of measures) • Not targeted at a specific country, as opposed to either an AD or CVD

  17. Safeguard Usage Safeguard Investigations by WTO Members Source: Global Trade Protection Report 2008

  18. Safeguards and Compensation • Already under the GATT, Article XIX saw decreasing rates of compensation • Under the WTO, no compensation has ever been offered to affected parties • The greater point: there is no “efficient breach” or “buy-out” option at the WTO

  19. Tariff Cuts and the WTO • The Uruguay Round increased bindings… Percentage of Tariffs Bound Before and After the 1986-94 Talks Source: WTO

  20. Tariff Overhang as Contingent Protection Bound and Applied Agricultural Tariffs • Bound rates are the legal ceiling of protection • Applied rates are the duties actually levied • Bound rates are often set much higher than past or current applied duties, leaving considerable tariff overhang

  21. Tariff Overhang and Unpredictability • Exploiting tariff overhang is cheap, since there is no legal check • This ease of use leads to unpredictability, which acts as a tax on trade • Increasing overhang on a product by one standard deviation decreases imports by 18%, on average

  22. Tariff Overhang Bound Tariff Tariff Overhang • Many applied tariffs are up against the bound rate • Governments have to be creative to be protectionist Applied Tariff Source: WTO Document TN/MA/M/7

  23. Tariff Binding and Trade Remedies • Once a binding on a product takes effect, it is more likely to be targeted for trade remedies • Past that binding point, the amount of tariff overhang influences use of trade remedies • Thus, tariff overhang and trade remedies are inextricably linked

  24. The Law of Constant Protection? • Increasing overhang by one standard deviation cuts the odds of trade remedies by 48%

  25. Conclusion • Some built in flexibility is a necessary element of trade agreements • Reliance on flexibility increases in tough times, or in reaction to increased commitments • Trade remedies limit unpredictability through legal checks; tariff overhang does not • The inability to use one type of flexibility may increase reliance on other devices

More Related