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The Safeguard Clause, Asymmetric Information, and Endogenous Protection
Author(s) -
Kohler Philippe,
Moore Michael O.
Publication year - 2001
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/1467-9396.00263
Subject(s) - safeguard , protectionism , information asymmetry , economics , competition (biology) , international trade , politics , law and economics , business , international economics , microeconomics , law , political science , ecology , biology
When imports surge, governments often must seek simultaneously to satisfy protectionist pressures through increased tariffs, induce adjustment to foreign competition, and minimize consumer costs of protection. The WTO’s safeguard clause can be viewed as an attempt to resolve these potentially conflicting goals since it allows governments to offer an implicit contract to protected industries to induce adjustment. In this paper, we show that with asymmetric information about costs, protected industries behave strategically which leads to under‐adjustment. The safeguard clause therefore cannot optimally resolve the conflict among domestic political objectives.