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Kamal Saggi and Mark Wu
''Understanding Agricultural Price Range Systems as Trade Restraints: Peru – Agricultural Products (DS457)''
An agricultural price range system (PRS) aims to stabilize local prices in an open economy via the use of import duties that vary with international prices. The policy is inherently distortionary and welfare-reducing for a small open economy, at least according to the canonical economic model. We offer an explanation for why a government concerned with national welfare may nevertheless implement such a policy when faced with risk aversion and imperfect insurance markets. We also highlight open questions arising out of the Peru – Agricultural Products dispute for the WTO's Appellate Body to address in order to clarify how a PRS consistent with WTO rules could be designed. Finally, we discuss the possibility that a WTO member might resort to a free trade agreement (FTA) to preserve its flexibility to implement a PRS and how an FTA provision of this sort ought to be treated in WTO litigation.
Keywords: Price range systems, variable duties, WTO, dispute, welfare
JEL: F1 - Trade: General
K0 - Law and Economics: General (including Data Sources and Description)
Manuscript Received : Aug 18 2015 Manuscript Accepted : Aug 18 2015

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