Building the WTO Cathedral

Abstract

The WTO law of remedies for violation appears incoherent. States that fail to comply with their obligations are subject to WTO-authorized retaliation. First, this retaliation takes the inefficient form of blocked trade by the complaining state. This remedy is unlikely to be useful to developing countries. Second, the amount of trade blocked by the violation is often used as the measure of authorized retaliation. This measure is not necessarily incentive compatible, as it is not necessarily linked to welfare. Thus, its use may result in inefficient breach, or inefficient compliance, with WTO law. Third, only states that engage in dispute resolution proceedings are authorized to retaliate, artificially reducing the possible incentives to comply. Fourth, authorization to retaliate is granted only prospectively, and there are generally no formal remedies for damages accruing before adjudication and the passage of permitted time for compliance. This also artificially reduces incentives to comply. This paper analyzes the rationale for, and structure of, welfare-based remedies that could form the basis for cash compensation in WTO law.

Keywords: WTO, trade, retaliation, remedies, efficient breach

JEL Classification: F1, K10, K33