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1992

Iowa State University

GATT Research Papers

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Moral Hazard And Gatt Article Xviii(B), Hartley Furtan Jun 1992

Moral Hazard And Gatt Article Xviii(B), Hartley Furtan

GATT Research Papers

Article XVIII(B) of the GATT code allows developing countries to use tariffs to reduce imports when their balance-of-payments problems result in a low foreign currency reserve. While the intent of this GATT provision is sound, it has led to moral hazard problems. This chapter reviews the history and safeguards of Article XVIII(B0 and identifies some of its specific moral hazard problems. A model addressing these problems is then presented, and alternative policies are suggested to reform the Article.