Bite the Bullet: Trade Retaliation, EU Jurisprudence and the Law and Economics of ‘Taking One for the Team’

26 Pages Posted: 6 Jun 2013

See all articles by Bernard Hoekman

Bernard Hoekman

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS); Robert Schuman Centre for Advanced Studies; Centre for Economic Policy Research (CEPR)

Petros C. Mavroidis

Columbia University - Law School; European University Institute - Department of Law (LAW); European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS)

Date Written: June 2013

Abstract

This paper discusses the Fedon case law of the European Court of Justice (ECJ), which involved a claim for compensation by Fedon (an Italian producer of eye glass cases) from the EU for the imposition of WTO-authorized retaliatory trade barriers by the United States following the failure by the EU to comply with an adverse ruling by the WTO regarding its import-regime for bananas. As a result of the EU non-compliance, European banana distributors and some bananas producers benefitted from WTO-illegal protection, at the expense of a set of EU exporters, including Fedon, that were hit by US countermeasures. By not complying with its international (WTO) obligations, the EU redistributed income across producers in different sectors as well as between suppliers and consumers of bananas. Fedon contested the non-compliance by the EU before the ECJ and sought compensation. This paper assesses the ECJ ruling against Fedon and argues that the ECJ got it wrong, both in terms of legal principle and as a matter of legal technicalities. An alternative approach is proposed that would better balance individual rights to property against the ‘general’ EU interest whether or not to comply with adverse WTO rulings.

Keywords: dispute settlement, EU law, trade agreements, trade retaliation, WTO

JEL Classification: F13, K41, K42

Suggested Citation

Hoekman, Bernard and Hoekman, Bernard and Mavroidis, Petros C., Bite the Bullet: Trade Retaliation, EU Jurisprudence and the Law and Economics of ‘Taking One for the Team’ (June 2013). CEPR Discussion Paper No. DP9496, Available at SSRN: https://ssrn.com/abstract=2275149

Bernard Hoekman (Contact Author)

Robert Schuman Centre for Advanced Studies ( email )

Fiesole, Tuscany
Italy

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS) ( email )

Villa La Fonte, via delle Fontanelle 18
50016 San Domenico di Fiesole
Florence, Florence 50014
Italy

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Petros C. Mavroidis

Columbia University - Law School ( email )

435 West 116th Street
New York, NY 10025
United States

European University Institute - Department of Law (LAW) ( email )

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50-139 Firenze
ITALY

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS) ( email )

Villa La Fonte, via delle Fontanelle 18
50016 San Domenico di Fiesole
Florence, Florence 50014
Italy

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