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Abstract

This paper illustrates the economic impact of the U.S. countervailing trade policy because of the European Union's failure to adhere to the dispute panel findings of the World Trade Organization (WTO) in the banana dispute. The United States subsequently imposed prohibitive tariffs (100% ad valorem) on imports of selected EU products as countervailing policy. The estimated loss in consumer surplus for Pecorino cheese was $4.96 million per year as a result of the U.S. retaliatory trade policy. Tariff revenue and deadweight losses were $1.86 and $3.10 million, respectively. Italian producers are expected to lose $8.55 million in revenue due to reduced exports to the United States. Thus, the estimated welfare loss for Italian producers is nearly twice that for U.S. consumers.

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