Smoke in the Water: The Use of Tariff Policy Flexibility in Crises

24 Pages Posted: 20 Apr 2016

See all articles by Liliana Foletti

Liliana Foletti

University of Geneva

Marco Fugazza

United Nations - Trade Analysis Branch

Alessandro Nicita

World Bank - Development Research Group (DECRG)

Marcelo Olarreaga

University of Geneva; Centre for Economic Policy Research (CEPR)

Date Written: September 1, 2009

Abstract

As the economic crisis deepens and widens, fears of a return to the protectionist spiral of the 1930s become more common. However, an important difference between the 1930s and today is the existence of the World Trade Organization and the legal limits it imposes on the protectionist responses members can pursue. The objective of this paper is threefold. First, to assess the extent to which applied tariff can legally be raised without violating tariff-bound obligations, and compare it with what is economically possible. Second, to examine what has been the protectionist response of individual countries when facing an economic crisis since the creation of the WTO. Finally, to predict how far the protectionist responses will go during the current crisis. Results suggest that the policy space left when looking at what is economically possible is indeed quite large. However, in the recent past very little of the available policy space has been used by countries suffering from an economic crisis. Our predictions for the current crisis are modest tariff hikes in the order of 8 percent.

Keywords: International Trade and Trade Rules, Trade Policy, Free Trade, Debt Markets, Access to Finance

Suggested Citation

Foletti, Liliana and Fugazza, Marco and Nicita, Alessandro and Olarreaga, Marcelo, Smoke in the Water: The Use of Tariff Policy Flexibility in Crises (September 1, 2009). World Bank Policy Research Working Paper No. 5050, Available at SSRN: https://ssrn.com/abstract=1476692

Liliana Foletti (Contact Author)

University of Geneva ( email )

102 Bd Carl-Vogt
Genève, CH - 1205
Switzerland

Marco Fugazza

United Nations - Trade Analysis Branch ( email )

Palais des Nations
Office E 8074
Geneva, 1211
Switzerland

Alessandro Nicita

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States
202-473-4066 (Phone)
202-522-1159 (Fax)

Marcelo Olarreaga

University of Geneva ( email )

40 Boulevard du Pont-d'Arve
Genève, CH - 1205
Switzerland

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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