Legislated Protection and the WTO

Abstract

Tariff bindings and administered protection are two characteristics of the WTO that are little understood. Tariff bindings place a ceiling on tariffs that is not always reached, while administered protection ensures that all sectors have access to some minimum import protection, effectively creating a floor for protection. How do these policies affect applied MFN tariff rates that are enacted through the legislature? More specifically, can these policies embolden legislatures to enact lower applied tariffs? I address this question using a model of tariffs determined by a dynamic legislative process. I show existence of a set of symmetric Markov perfect equilibria in which a low level of protection is a possible outcome, and show that it is more difficult to achieve this outcome with tariff bindings and easier to achieve with administered protection, than it is under purely legislated protection.

Keywords: WTO, Tariffs, Political Economy of Trade Policy

JEL Classification: C73, D74, F10