WTO Exceptions as Insurance

The paper formalizes the notion that GATT exceptions such as antidumping and escape clause actions can act as insurance for import competing sectors affected by adverse price shocks. The authors use a general-equilibrium model with several import competing sectors and assume incomplete markets so that agents cannot contract insurance. It is shown that sector-specific contingent protection measures are superior to uniform contingent tariffs as an insurance mechanism. A tax-cum-subsidy policy (i.e., taxing all sectors in order to subsidize the shocked sector) also improves welfare and is superior to contingent protection. Copyright Blackwell Publishing Ltd 2003.