Anti-Dumping as Insurance Policy: What the 'Grey Area' Measures Tell Us

Abstract

A general argument in support of trade remedies is that they act as an insurance policy that allows countries to take on deeper commitments in trade negotiations than they would otherwise be willing to make. This paper reviews both the negotiating history of major trade liberalization initiatives and the largely unexploited history of the use of so-called “grey area” measures in the pre-WTO era to manage pressures on domestic economies emanating from international trade to shed light on the extent to which this argument holds true. The negotiating history makes clear that across-the-board liberalization in the absence of perfect knowledge about the possible consequences in terms of trade pressures depends on the availability of contingent protection. Economic theory demonstrates that such an insurance role is welfare enhancing. The history of use of grey area measures in the pre-WTO period as successive waves of trade liberalizing initiatives were being implemented to manage excessive pressures in a context where the trade flows were not characterized as “unfair” but simply disruptive makes clear that that they were clear substitutes for trade remedies. This history provides the linchpin that allows the identification of the on-going use of trade remedies as an implicit continuation of the management of transient trade pressures. While the use of trade remedies may be defended as welfare enhancing on these grounds, with the individual instances of application of measures analogous to claims on a pre-existing insurance policy, the paper concludes that the design of trade defense laws and the emphasis on “unfair” trade in their justification, makes them ill-suited for this role.