Professor David Kuenzel is the author of a new paper published in the January issue of the European Economic Review titled WTO Tariff Commitments and Temporary Protection: Complements or Substitutes?
In the paper, Kuenzel investigates the link between traditional tariff instruments and temporary protection measures (antidumping, safeguard and countervailing duties). There is a long-held notion in the trade policy community that most-favored-nation (MFN) tariffs and temporary protection measures are substitutes. Despite this prediction, there is only mixed empirical evidence for a link between MFN tariff reductions and the usage pattern of antidumping, safeguard and countervailing duties. Based on recent theoretical advances, Kuenzel argues in the paper that the relevant trade policy margin for implementing temporary protection measures is instead tariff overhangs, which measure the sector-specific difference between the maximum tariff that countries could apply and the tariff rate they actually set. Lower tariff overhangs constrain countries to raise their applied rates without legal repercussions, independent of past tariff changes. Using detailed sectoral data for a sample of 30 WTO member countries during the period 1996–2014, he finds strong evidence for an inverse link between tariff overhangs and temporary protection activity. This result implies that tariff overhangs and temporary protection measures are substitutes, vindicating the importance of existing tariff commitments as a key determinant of alternative protection instruments.