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Law, politics, and the true cost of protectionism: the choice of trade remedies or binding overhang

Published online by Cambridge University Press:  10 October 2013

MARC L. BUSCH  and
KRZYSZTOF J. PELC
MARC L. BUSCH
Affiliation:
Edmund A. Walsh School of Foreign Service and Department of Government, Georgetown University
KRZYSZTOF J. PELC*
Affiliation:
Department of Politcal Science, McGill University
*
*Email: kj.pelc@mcgill.ca
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Abstract

The literature on escape clauses in international commerce focuses on the workings of trade remedies. The logic is that, by adhering to a strict methodology that is subject to legal review, trade remedies credibly signal that the government is only temporarily defecting from free trade. And yet, countries often turn, instead, to a measure that does not adhere to a strict methodology and is not subject to legal review: binding overhang, or the gap between a country's bound and applied tariffs. What explains a government's decision to use trade remedies or binding overhang? We argue that trade remedies are used where import surges are big enough that injury can be proven, but low enough that governments have incentive to prove it. Otherwise, binding overhang is their flexibility measure of choice. We conduct a variety of empirical analyses concerning 22 emerging economies with access to both trade remedies and binding overhang. The results strongly bear out our hypothesis, shedding new light on governments' incentives over the design of the law governing flexibility provisions.

Type
Review Article
Information
World Trade Review , Volume 13 , Issue 1 , January 2014 , pp. 39 - 64
Copyright
Copyright © Krzysztof Pelc and Marc Busch 2013 

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