The Law, Economics and Politics of Retaliation in WTO Dispute Settlement (Cambridge International Trade and Economic Law)

Half-title......Page 3
Title......Page 5
Copyright......Page 6
Contents......Page 7
List of tables and figures......Page 11
Contributors......Page 13
Introduction: Trade retaliation in WTO dispute settlement: a multidisciplinary analysis......Page 17
1 ‘Trade retaliation is shooting yourself in the foot’ (reciprocity versus welfare; definition of nullification; choice of counterfactual)......Page 20
2 'Trade retaliation simply does not work when developing countries win a case' (informal remedies; the WTO enforcement club; smart sanctions; cross-retaliation)......Page 25
3 ‘Accurately calculating the authorized level of retaliation is a myth and close to impossible’......Page 31
Part I Background and goal(s) of WTO retaliation......Page 37
1 Novelties in the WTO dispute settlement system......Page 39
2 Third-party adjudication in the DSU implementation phase......Page 41
3 WTO arbitrations during the implementation phase: legal versus non-legal disputes; lawyers versus non-lawyers......Page 42
4 Specific features of WTO arbitration on the level of retaliation......Page 47
1 Introduction......Page 50
2 What could be the goal(s) of WTO suspension?......Page 52
3 Why does the goal of WTO suspension matter?......Page 54
4 How can we figure out the intended goal(s) of WTO suspension?......Page 57
5 The historical evolution of the goal(s) of trade suspension from GATT to WTO......Page 59
6 Statements in WTO arbitration reports as to the goal(s) of WTO suspension......Page 65
Phase 1: induce compliance (albeit with equivalent suspension)......Page 66
Phase 2: inducing compliance requires more than equivalent suspension (‘appropriate countermeasures’ in response to prohibited subsidies)......Page 67
Phase 3: identity crisis and doubt as to the goal of WTO suspension in regular DSU cases......Page 70
Conclusion on WTO arbitration case law......Page 71
7 Proposition A: suspension in the GATT/WTO has variable goals......Page 72
8 Proposition B: equivalent suspension can (and normally does) induce compliance largely because it can be tailor-made and is combined with reputation and community costs......Page 74
9 Proposition C: optimal protection of WTO entitlements is variable protection......Page 76
10 Conclusion......Page 80
Comment on chapter 2......Page 82
Appendix Policy underpinnings of international juridical institutions......Page 84
Comment on chapter 2......Page 86
3 Extrapolating purpose from practice: rebalancing or inducing compliance......Page 89
Our hypotheses......Page 90
Complainant practice......Page 92
Conclusion: extrapolating purpose from practice......Page 98
PART II A legal assessment after ten arbitration disputes......Page 103
Introduction......Page 105
(a) The sole remedy for continuing non-compliance is retaliation......Page 106
(b) Collective retaliation is not envisaged......Page 107
(c) Retaliation is subject to multilateral disciplines on form and magnitude......Page 108
(e) Retaliation does not respond to non-compliance occurring before the expiry of the RPT......Page 109
(a) The initial request for authorisation to retaliate......Page 110
(i) Mandate of the arbitrator......Page 111
(c) The post-award request for authorisation to retaliate......Page 113
(e) Termination of retaliatory measures......Page 114
(a) The equality-of-harm approach......Page 115
(i) Calculation of nullification and impairment arising from the underlying violation......Page 116
(ii) Calculation of nullification and impairment arising from retaliatory measures......Page 128
(b) Other approaches......Page 129
(i) Description of the approach......Page 130
(ii) Justification of the approach......Page 132
(a) Overview: no hop, one hop, two hops......Page 134
(b) Scope of review......Page 135
(c) Practicability and effectiveness......Page 136
(d) 'Circumstances are serious enough'......Page 138
7 The purpose of retaliation......Page 139
Conclusion......Page 142
1 Introduction......Page 144
2 Article 22.6 of the DSU: still in the early stages of development......Page 145
3 Choice of metric for assessing nullification or impairment: the punishment should fit the crime......Page 146
4 The choice of counterfactual: the arbitrators temporary solution must be WTO-consistent......Page 147
5 Institutional considerations: improving the information available to arbitrators......Page 149
The issue......Page 151
1 The arbitrators’ choice to make their own calculation of the amount of countermeasures......Page 152
2 The bold yet generally prudently applied concept of ‘inducing compliance’......Page 153
3 The use of economic models and data, and its limits......Page 156
4 The reliance on trade loss as a benchmark for nullification or impairment......Page 158
5 The form of countermeasures......Page 159
Conclusion......Page 160
PART III An economic assessment after ten arbitration disputes......Page 163
1 Introduction......Page 165
2 The Bagwell–Staiger theory of trade agreements and the “reciprocity approach”......Page 169
3 WTO disputes and retaliation over import-restricting measures......Page 172
3.1 Import tariffs......Page 173
3.2 Import quotas......Page 176
3.2.1 Actual DSU arbitrations over import quotas: EC–Bananas, EC–Beef Hormones, and US–Internet Gambling......Page 179
3.3 Non-tariff measures on imports that violate national treatment......Page 186
3.3.1 Actual DSU arbitrations over NTMs on imports that violate national treatment: US–Antidumping Act of 1916......Page 188
3.4 Domestic subsidies to import-competing firms......Page 189
3.4.1 Actual DSU arbitrations over domestic subsidies to importcompeting firms: US–Continuing Dumping and Subsidy Offset Act (Byrd Amendment)......Page 191
4.1 Export subsidies in a three-country model......Page 193
4.1.1 Actual DSU arbitrations over export subsidies and third country effects: Canada–Aircraft Subsidies, Brazil–Aircraft Subsidies, and US–Foreign Sales Corporations (FSC)......Page 195
4.2 Export subsidies in a two-country model......Page 199
4.2.1 Actual and potential DSU arbitrations over export subsidies in a twocountry model: US–Foreign Sales Corporations (FSC)......Page 201
5.1 Imperfectly competitive markets: strategic trade policy......Page 202
5.2 Non-political shocks......Page 203
6 Conclusions......Page 206
References......Page 208
Comment on chapter 6......Page 210
References......Page 213
Introduction......Page 214
1 Further motivation provided by elements of the existing literature......Page 218
2 Empirical implementation......Page 221
3 Concluding remarks......Page 245
References......Page 246
PART IV The domestic politics and procedures for implementing trade retaliation......Page 249
2 US procedures for suspension of concessions......Page 251
3 US Suspension of tariff concessions in Hormones and Bananas......Page 253
EC–Bananas......Page 254
EC–hormones......Page 255
4 Analysis and conclusion......Page 257
1 Introduction: the EC’s experience and the objectives of trade sanctions......Page 260
2 The cases in which the EC applied sanctions......Page 262
(a) Retaliation against safeguards: the Wheat Gluten and Steel disputes......Page 263
(b) US–Foreign Sales Corporations (FSC)......Page 264
(c) US–Byrd Amendment......Page 266
(a) US–1916 Act......Page 268
(b) US–Section 110(5) of the Copyright Act (the Irish music case)......Page 269
(c) US–Section 211 of the omnibus Appropriations Act (havana Club)......Page 270
(a) Sanctions applied by the EC......Page 271
(b) Sanctions applied against the EC......Page 272
(a) Terminology......Page 274
(b) The difference between the suspension of WTO obligations and the actual sanctions......Page 275
(c) The need for appellate review of arbitration decisions under Article 22.6......Page 276
(d) The US–Gambling arbitration: a judicial disaster......Page 277
(e) Retaliation under the TRIPS Agreement and conventions administered by the WIPO......Page 280
2 Splitting the bill......Page 283
3 Non-contractual liability......Page 286
4 The 'long list' approach......Page 290
5 But …......Page 291
References......Page 292
11 Canada's experience and practice in suspending WTO obligations......Page 293
12 Is retaliation useful? Observations and analysis of Mexico’s experience......Page 297
1.1 Observation one: only some portions of the chocolate cake were taken into account for retaliation (Byrd)......Page 298
1.2 Observation two: there was no negotiation on compensation (Byrd)......Page 299
1.4 Observation four: rules on early retaliation were followed by earlier compliance (Brooms)......Page 300
1.5 Observation five: the selection of goods subject to retaliation involved consideration of the impact on domestic consumers (Byrd and Brooms)......Page 301
1.6 Observation six: an amicable approach was preferred to retaliation (Bananas)......Page 303
1.8 Observation eight: no retaliation occurred when MFN market access eroded Mexico’s tariff preference subject to dispute......Page 304
2.1.1 The chocolate cake scenario......Page 305
2.1.3 Level of sensitivity of the products......Page 307
2.1.4 Amicable approach for something of comparable value......Page 309
2.2.1 Three considerations for product selection......Page 310
2.2.2 The clarity of the data......Page 311
3 Conclusions......Page 312
1 Introduction......Page 313
(a) Design......Page 315
(b) Implementation......Page 317
3 Boosting Brazil’s capacity to ‘induce compliance’: the TRIPS retaliation bill......Page 319
4 Concluding remarks......Page 324
The award of the arbitrators......Page 326
Application of the TRIPS remedy......Page 329
GATS, Article XXI and its implications......Page 330
PART V Problems and options for reform......Page 333
1 Introduction......Page 335
(a) Developing-country sanctions are not able to generate sufficient pressure to induce compliance......Page 336
(b) Developing countries harm themselves by imposing sanctions......Page 338
(c) WTO retaliation rules are skewed against developing countries......Page 339
(d) WTO retaliation rules undermine the utility of WTO dispute settlement for developing countries......Page 340
(a) Even skewed WTO retaliation rules do not undermine the utility of WTO dispute settlement for developing countries......Page 341
(b) Developing-country practice with retaliation......Page 346
(c) Conventional wisdom may need to be revisited where developing countries cross-retaliate with intellectual property rights or services......Page 351
4 Conclusion......Page 353
16 optimal sanctions in the WTO: the case for decoupling (and the uneasy case for the status quo)......Page 355
1 The expectation damages analogy......Page 357
(a) Sanctions during the GATT years......Page 358
(b) The WTO innovation......Page 359
2 "Equivalent" trade sanctions......Page 363
3 Compensating exporters as an alternative......Page 366
4 Conclusion......Page 370
2 No direct effect......Page 371
3 Collateral damage?......Page 372
4 Discrepancy no more......Page 374
1 Compliance in WTO dispute settlement: how much of a problem? What role for sanctions?......Page 376
(a) Comments......Page 379
(b) A proposal......Page 380
3 Specific topics: the calculation and implementation of sanctions......Page 381
(a) Time period for calculating nullification......Page 382
(b) Counterfactuals......Page 383
(c) Carousel provisions......Page 384
(d) Causation......Page 385
(e) Changed circumstances (implementation after retaliation)......Page 387
Conclusion......Page 388
The importance of the domestic process......Page 389
How to regulate the domestic process and at what level......Page 394
Conclusion......Page 402
Annex......Page 403
1 Introduction......Page 407
2.1 Theoretical and empirical arguments that the DSU process affects economic markets......Page 412
2.2 One extreme: economists only as experts in interpreting evidence......Page 414
2.3 The other extreme: economists as equal collaboration partners in the DSU adjudication process......Page 416
2.4 The limits to the utility of economists......Page 419
3.1 The panellists and arbitrators......Page 420
3.2.1 The process of staffing panels and arbitrations with Secretariat support......Page 426
3.2.2 The data on divisions that staff panels and arbitrations with Secretariat support......Page 428
3.3 The panellists, arbitrators and extra-Secretariat assistance......Page 433
4.1 The lessons from central banks......Page 434
4.2 The lessons from national trade remedy investigating agencies......Page 438
4.3 The lessons from competition authorities......Page 440
5 Providing additional economic support to the DSU via the WTO Secretariat......Page 441
5.1 Institutional reform: staffing the Secretariat with the right economists......Page 442
5.2 Reform at the individual level: bridging the legal–economic communications gap......Page 443
6 Conclusions and policy recommendations......Page 446
References......Page 447
Comment on chapter 19: Some reflections on the use of economic analysis in WTO dispute settlement proceedings......Page 450
1 Synopsis of the argument......Page 462
2 Introduction: a law and economics approach to the equivalence standard of Article 22.4 of the DSU......Page 465
3.1 Calculating the level of nullification and impairment......Page 467
3.1.1 Nature and form of injury......Page 468
3.1.2 Intensity of injury......Page 473
3.2 Calculating the level of suspension of concessions or other operations......Page 490
3.3 Safeguarding equivalence between NoI and SCOO......Page 493
4 The equivalence standard in the light of past Article 22.6 arbitrations......Page 494
4.1 An assessment of arbitrators' calculation of NoI......Page 495
4.1.1 Using reliance damages as counterfactual is not appropriate......Page 496
4.1.2 Using direct trade damages as the unit of measurement is not appropriate......Page 499
4.2.1 The arbitrators’ ‘hands-off’ approach to calculating the level of SCOO......Page 502
4.2.2 The arbitrators’ opinion on calculating the level of SCOO......Page 505
5 Conclusions and policy reforms......Page 508
5.1 Discussion: car or driver – who is to blame?......Page 510
5.1.2 Is retroactivity possible under current DSU rules?......Page 511
5.1.3 Is compensation the objective of WTO enforcement?......Page 512
5.1.4 Can retaliation compensate complainants at all?......Page 513
5.2 Policy reforms......Page 515
Comment on chapter 20: A general equilibrium interpretation of some WTO dispute settlement cases: four EU–US trade conflicts......Page 519
1 Is ‘rebalancing’ retaliation in WTO dispute settlement more a myth than reality?......Page 520
2 Examples of unintended side effects in some transatlantic trade disputes......Page 521
2.1.1 The level of damage......Page 522
2.1.2 Questionable system of retaliation......Page 523
3 Suggestions for improvements of the dispute settlement system from an economic perspective......Page 524
3.1 Transfers instead of tariffs for retaliation......Page 525
References......Page 526
PART VI new frontiers and lessons from other fields......Page 529
1 Background and context......Page 531
2 Cross-retaliation and suspension under the TRIPS Agreement......Page 539
3 Cross-retaliation and suspension under the GATS......Page 546
1 Introduction......Page 552
2 WTO jurisprudence......Page 554
(a) EC–Bananas III – Article 22.6, DSU arbitration with Ecuador......Page 555
(b) US–Gambling – Article 22.6, DSU arbitration with Antigua and Barbuda......Page 558
(a) Imbalance in trade flows between developed and developing economies......Page 561
(c) The basic economic distinction of TRIPS concessions......Page 563
(d) Conceptual distinction between IPRs and traditional trade regulation subject matter......Page 565
(a) Multilateral commitments......Page 568
(b) Regional and bilateral commitments......Page 573
(a) Valuing changes in IP legislation generally......Page 576
(b) Valuing IP assets distinguished......Page 577
(c) Nationality......Page 579
(a) Categories......Page 580
(b) Copyright......Page 581
(c) Patent......Page 585
(d) Trademark......Page 587
(e) Geographical indication......Page 589
(f) Industrial design protection......Page 590
(h) Protection of undisclosed information......Page 591
(i) Enforcement......Page 593
(j) Acquisition and maintenance of IP......Page 594
7 Practical considerations for developing countries regarding suspension of concessions under the TRIPS Agreement......Page 595
(a) National legislation and constitutional concerns......Page 596
(b) Ordinary regulation and takings......Page 599
(c) Exports and the Internet......Page 600
(d) Social welfare and inducing compliance......Page 602
(e) Politics, asymmetry, and the DSU......Page 603
1 Introduction......Page 605
2 Summary of the legal framework......Page 606
3.1 'Sectors' and 'agreements'......Page 607
3.3 Modes of supply......Page 609
3.4 Scheduling specific commitments......Page 611
4.1.1 Article XVI......Page 612
4.1.2  Article XVII......Page 613
4.1.3 Article XVIII......Page 615
4.2 Suspension of specific commitments in each mode of supply......Page 616
4.2.1 Crossborder supply (mode 1)......Page 618
4.2.2 Consumption abroad (mode 2)......Page 620
4.2.3 Commercial presence (mode 3)......Page 622
4.2.4 Presence of natural persons (mode 4)......Page 627
5 Suspension of ‘other obligations’: the MFN obligation......Page 628
6 Conclusion: some developing country considerations......Page 635
1 Introduction: similarities and differences between investment and trade law......Page 639
2.1 Terminology......Page 641
2.2 Compensation for lawful expropriation......Page 642
2.3 Compensation for unlawful expropriation and non-expropriatory breaches......Page 645
2.4 Compensation-reducing factors......Page 647
3.2 Complexity......Page 650
4.1 Preliminary remarks......Page 651
4.2 Discretion in the assessment of compensation in the WTO system?......Page 652
4.3 Direct compensation to injured exporters in the WTO system?......Page 654
5 Concluding remarks......Page 656
Introduction and preliminary observations......Page 657
The use of fines......Page 659
The use of behavioural and structural remedies......Page 660
The matter of state subsidies or state aids......Page 661
Concluding remarks......Page 662
Index......Page 664