Not All Special Interests Are Created Equal: The Role Of Industry Lobbying On WTO Patterns Of Protection

Abstract

This paper examines to what degree increase in bilateral and multilateral trade agreements has opened up liberalization process to the special interests of powerful industries in industrialized nations. A political economy model of endogenous tariff formation is used to compare the effects of industry lobbying on the tariff structure under unilateral and cooperative liberalization. The results of this analysis illustrate that industry special interests do have an effect on the tariff structure when trade policy is determined unilaterally or cooperatively (especially if the industries of major trading partners are not organized into effective lobbies). However, the model also illustrates that as countries pursue the ongoing liberalization of tariff protection, large industries will experience larger tariff reductions than smaller ones. In fact, during the process of ongoing unilateral or cooperative liberalization, the industries most able to maintain high levels of protection are those that are characterized by high displacement costs and are particularly susceptible to harm from imports. The paper concludes that regardless of the liberalization mechanism the organized special interests of large industries will affect the pattern of protection, however, this effect diminishes if a country commits to an ongoing liberalization process. Instead, ongoing multilateral liberalization through the WTO keeps tariff policy open as an avenue for the government objective of minimizing the deadweight loss associated with liberalization and protecting industries particularly susceptible to harm from imports.