The Evolution and Utilization of the GATT/WTO Dispute Settlement Mechanism

This paper provides a theoretical framework of dispute settlement to explain the surge in blocking incidence of GATT panel reports during the 1980s and the variations in withdrawn incidence versus total disputes across different decades of the GATT regime. The study first suggests the role of the degree of legal controversy over a panel ruling in determining countries' incentives to block (appeal) a panel report under the GATT (WTO) regime. The study then analyzes the effects of political power on countries' incentives to use, and their interactions in using, the dispute settlement mechanism, when two-sided asymmetric information exists regarding panel judgement.Dispute Settlement, legal controversy, block, appeal, two-sided asymmetric information, political cost

The Optimal Degree of Reciprocity in Tariff Reduction

This article clari…es the roles played by trade policy, in contrast with iceberg transport cost, in the popular setting of Melitz (2003), and characterizes the optimal reciprocal trade policy in such a setting. I show that import tariffs and iceberg transport cost are not equivalent in the strength of their trade- restricting effects and their welfare implications. With all the conflicting effectsof import tariffs on welfare considered, the optimal degree of reciprocity in multilateral tariff reduction turns out to be free trade.Firm Heterogeneity,Reciprocal Trade Policy

Endogenous Tariff Formation with Intra-Industry Trade

Previous theoretical contributions on endogenous tariff formation have focused on trade mod-els with homogeneous goods and constant returns to scale. This paper investigates the political equilibrium of trade policy when economic structure is instead characterized by differentiated products and increasing returns to scale and there exists intra-industry trade. The result shows that endogenous tariffs are positive for all industries with non-negligible shares of world pro-duction. However, the level of protection is less than the optimal tariff that would otherwise be imposed by a benevolent government in an unorganized industry, and higher in an organized industry. The protection provided to all unorganized (organized) industries increases (falls) with the relative weight the government attaches to aggregate welfare vis-` a-vis campaign contribu-tions and falls with the fraction of the population that belongs to a lobby group. The model also indicates that the endogenous tariff level in an organized industry might be explosive. The higher is the fraction of the population represented by a lobby and the higher is the weight on aggregate welfare in the government’s objective function, the smaller is the possibility for such an explosive tariff.endogenous tariff, intra-industry trade

The Evolution and Utilization of the GATT/WTO Dispute Settlement Mechanism

This paper attempts to study the usage of the GATT/WTO dispute settlement mechanism and to explain its patterns across different regimes and decades, using a unified theoretical model. This study first explores the role of the degree of legal controversy over a panel ruling in determining countries' incentives to block/appeal a panel report under the GATT/WTO regime. The model is able to explain the surge in blocking incidence during the 1980s over the preceding GATT years and the immense frequency at which the new appellate procedure under the WTO is invoked. Furthermore, a two-sided asymmetric information framework is used to study the effects of political power on countries' incentives to use, and interactions in using, the GATT/WTO dispute settlement mechanism. It is shown that the magnitude of the political cost relative to the potential benefit that the complainant stands to gain when using this mechanism determines the pattern of filing activity and the frequency of various procedural outcomes. This result, when confronted with the statistics on disputes in different decades of the GATT regime, provides us an indicator of how well the dispute procedure has worked during various decades, in terms of how much this procedure has been subject to potential power politics.GATT/WTO, dispute settlement

Trade and Divergence in Education Systems

This paper presents a theory on the endogenous choice of a country's education policy and the two-way causal relationship between trade and education systems. The setting of a country's education system determines its talent distribution and comparative advantage in trade; the possibility of trade by raising the returns to the sector of comparative advantage in turn induces countries to further differentiate their education systems and reinforces the initial pattern of comparative advantage. Speci…cally, the Nash equilibrium choice of education systems by two countries interacting strategically are necessarily more divergent than their autarky choices,although the difference is still less than what is socially optimal for the world. We provide some preliminary empirical evidence on the relationship between education, talent distribution, and trade.Education System, Talent Distribution, Comparative Advantage, Trade Pattern

Protection for Sale Under Monopolistic Competition: An Empirical Investigation

This paper proposes a general empirical framework to estimate the protection-for-sale model, where the protection regime shifts according to a sector's market structure (perfectly or monop-olistically competitive). We base the protection structure on Grossman and Helpman (1994) for the subset of perfectly competitive sectors and on Chang (2005) for the subset of monop- olistically competitive sectors. The two protection regimes are simultaneously estimated with joint constraints. The results of the J-test consistently reject the homogeneous (perfect compe- tition) protection-for-sale model often adopted in previous literature and suggest a direction of improvement toward the proposed heterogeneous protection structure model.endogenous trade policy; campaign contribution; monopolistic competition; intrain- dustry trade; import penetration

Protection for Sale Under Monopolistic Competition : An Empirical Investigation

This paper proposes a general empirical framework to estimate the protection-for-sale model, where the protection regime shifts according to a sector's market structure (perfectly or monopolistically competitive). We base the protection structure on Grossman and Helpman (1994) for the subset of perfectly competitive sectors and on Chang (2005) for the subset of monopolistically competitive sectors. The two protection regimes are simultaneously estimated with joint constraints. The results of the J-test consistently reject the homogeneous (perfect competition) protection-for-sale model often adopted in previous literature and suggest a direction of improvement toward the proposed heterogeneous protection structure model.endogenous trade policy, campaign contribution, monopolistic competition, intraindustry trade, import penetration

The WTO Trade Effect

This paper reexamines the GATT/WTO membership effect on bilateral trade flows, using nonparametric methods including pair-matching, permutation tests, and a Rosenbaum (2002) sensitivity analysis. Together, these methods provide an estimation framework that is robust to misspecification biases, allows general forms of heterogeneous treatment effects, and addresses potential hidden selection biases. This is in contrast to most conventional parametric studies on this issue. Our results suggest large GATT/WTO trade-promoting e®ects, robust to various restricted matching criteria, alternative indicators for GATT/WTO involvement, different matching methodologies, non-random incidence of positive trade flows, and inclusion of multilateral resistance terms.Trade flow,Treatment effect,Matching,Permutation test,Signed-rank test,Sensitivity analysis

The WTO Trade Effect

Rose (2004) showed that the WTO or its predecessor, the GATT, did not promote trade, based on conventional econometric analysis of gravity-type equations of trade. We argue that conclusions regarding the GATT/WTO trade effect based on gravity-type equations are arbitrary and subject to parametric misspecifications. We propose using nonparametric matching methods to estimate the `treatment effect' of GATT/WTO membership, and permutation-based inferential procedures for assessing statistical significance of the estimated effects. A sensitivity analysis following Rosenbaum (2002) is then used to evaluate the sensitivity of our estimation results to potential selection biases. Contrary to Rose (2004), we find the effect of GATT/WTO membership economically and statistically significant, and far greater than that of the Generalized System of Preferences (GSP).GATT/WTO, GSP, treatment effect, matching, permutation test, signed-rank test, sensitivity analysis

The optimal degree of reciprocity in tariff reduction

Published in East Asian Economic Review, 2020, 24 (3), 237-252. https://doi.org/10.11644/KIEP.EAER.2020.24.3.378</p