Originally published on February 13, 2009
The NYT posted a pro and con debate about the Buy America provisions in the fiscal stimulus package. I can will add one point to the debate. First, it is important to note that many less developed countries have much more leverage to increase their protection of imported goods without violating their WTO commitments. That’s because many have their applied, or actual, tariffs set lower than their bound, or maximum, tariff rate agreed to in the WTO agreement. For example, in 2007 India imported $1.3 billion of palm oil, it’s largest agricultural import product. The applied tariff is currently set at zero. However, its maximum bound tariff is 300%. That means that India can raise its tariff significantly on this item and most other items too, without violating its WTO agreement. The US and EU in comparison have almost all of their applied tariffs set at the bound rates. That means there is almost no ability for the US to increase protection consistent with its WTO commitments.
Thus, if the Buy America provision provokes a response abroad it will be easy for many countries to raise tariffs against the US, and others since tariffs would have to be raised in an MFN consistent way, without violating the WTO agreement.
