Moral Hazard and GATT Article XVIII(B)

Hartley Furtan
June 1992  [90-GATT 12]

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Suggested citation:

Furtan, H. 1992. "Moral Hazard and GATT Article XVIII(B)." CARD paper 90-GATT 12. Center for Agricultural and Rural Development, Iowa State University.


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.