Why Compensation Cannot Replace Trade Retaliation in the WTO Dispute Settlement Understanding

Abstract:     
Throughout the course of the DSU Review, Members and commentators alike have proposed numerous modifications to the WTO DSU covering a wide range of areas. One area which has received quite a bit of attention is that of retaliatory measures in the implementation phase of the dispute settlement process. This article does not attempt to recap the debate over the appropriateness of trade retaliation or even to discuss all potential amendments targeting this issue. It does, however, identify some of the key criticisms of trade retaliation before analyzing and evaluating the worthiness of trade and/or financial compensation as an alternative. The article finds that neither trade nor financial compensation will do much to resolve the prominent criticisms of trade retaliation while also finding both options would add several uncertainties to the system and, far from increasing compliance with the rulings and recommendations of the DSB, could in fact increase the instances of noncompliance.

Keywords: WTO, dispute settlement, trade retaliation, compensation, noncompliance

JEL Classifications: F1, F13, K10, K33, K42

Accepted Paper Series