Trade Policy Flexibility and Enforcement in the WTO: A Law and Economics Analysis (Cambridge International Trade and Economic Law)

Half-title......Page 3
Title......Page 5
Copyright......Page 6
Dedication......Page 7
Contents......Page 9
Figures......Page 13
Abbreviations......Page 14
Acknowledgements......Page 16
Foreword......Page 19
1 Introduction: trade policy exibility in the WTO – vice or virtue?......Page 21
1.1 Trade policy flexibility in the WTO: a system at fault......Page 23
1.2 Some definitional groundwork: connecting issues of breach, remedies, and commitment level in incomplete contracts......Page 27
1.3 Objectives of the study......Page 32
1.4 A reader’s guide to this study......Page 34
1.5 A brief survey of the literature on trade policy flexibility and enforcement in the WTO......Page 40
Strand 2: literature on single trade policy flexibility tools......Page 41
Strand 4: theories of trade cooperation and self-enforcement......Page 42
Strand 5: linking trade flexibility and commitment level......Page 44
Strand 6: theories linking trade policy flexibility to enforcement......Page 45
Strand 7: the compliance vs. rebalancing debate......Page 46
Part I An introduction to incomplete contracting......Page 47
2.1 Contracts: enforceable commitment over time......Page 49
2.1.2 Commitment: cooperative intent and assurance......Page 50
2.1.3 Effective enforcement and the link between commitment and enforcement......Page 52
2.1.4 Concluding remarks on the definition of contracts......Page 61
2.2.1 Primary rules of contracting: exchange of entitlements......Page 63
Bilateral vs. multilateral entitlements......Page 64
Balance of substantive and auxiliary entitlements......Page 65
2.2.2 Secondary rules of contracting: entitlement protection......Page 66
2.2.3 Tertiary rules of contracting: enforcement of entitlements......Page 69
2.2.4 Mixed regimes of entitlement and entitlement protection......Page 70
Multi-entitlement contracts and divided entitlements......Page 71
Rules of divided entitlement protection......Page 72
2.3.1 Collaboration vs. coordination......Page 74
2.3.2 Complexity of contracts and alternatives to contracting......Page 76
2.4 The contracting ideal: the Pareto-efficient complete contingent contract......Page 77
3 Incomplete contracting and the essence of flexibility......Page 80
3.1 A categorization of contractual incompleteness a taxonomy......Page 81
Transaction costs......Page 82
Bounded rationality......Page 84
3.1.2 Contractual incompleteness: a taxonomy......Page 85
(1) Strategic incompleteness......Page 89
(2) Accidental incompleteness......Page 90
(4) Inexorable incompleteness......Page 91
(5) Type A or efficient incompleteness......Page 92
(6) Type B or necessary incompleteness......Page 93
3.1.3 Effects of incompleteness on contracting behavior......Page 97
Effect of incompleteness on victims' willingness to cooperate......Page 98
Effect of incompleteness on injurers' willingness to cooperate......Page 100
3.2 How to deal with contractual incompleteness: strategies of gap-filling......Page 104
3.2.1 Circumnavigating incompleteness: comprehensive contracting......Page 105
3.2.2 Seizing regret: drafting flexibility mechanisms......Page 107
Contingency measures......Page 108
Default rules......Page 110
3.2.3 Minimizing room for disputes: the principle of precaution......Page 114
3.2.4 Delegating responsibility: using courts as gap-fillers......Page 115
3.2.5 Summary: dealing with contractual incompleteness and the significance of contractual rules of default......Page 118
3.3 Crafting rules of flexibility: inalienability, specific performance, or liability?......Page 121
3.3.1 Inalienability or efficient non-performance?......Page 125
(2) Choose inalienability whenever ex post escape is contractannihilating......Page 126
3.3.2 Liability or property rule?......Page 127
Which remedy best complements a liability rule?......Page 128
Property rule or liability rule? A question of transaction costs......Page 135
(2) Hold-out......Page 138
(3) Over-investment......Page 139
(4) War of attrition or double-sided hold-out......Page 140
3.3.3 Additional modalities of default rule design......Page 142
Efficient “breach” is no breach......Page 144
Efficient “breach” is not just about opting out of the agreement......Page 145
An efficient “breach” contract is the ideal of an incomplete-contract governance structure......Page 147
3.5 A first step towards a general theory of disputes?......Page 148
Part II Theorizing about the WTO as an incomplete contract......Page 151
4 Adding context: the WTO as an incomplete contract......Page 153
4.1 Players, preferences, and contractual intent......Page 154
4.1.1 Players and preferences: political economy theories of endogenous trade policy-making......Page 155
(ii) Theory of decision-making......Page 156
(iii) Actors’ preferences and objective functions......Page 157
Corollary 2: self-interest is the driving force behind trade policymaking......Page 160
Corollary 4: trade agreements pursue political, not economic, goals......Page 161
Corollary 5: the natural state of affairs is protection not free trade......Page 162
4.1.2 Contractual intent: what is the rationale for trade cooperation?......Page 163
An overview of economic approaches to trade agreements......Page 164
Commitment approach to trade agreements......Page 167
Market access externalities approach to trade agreements......Page 169
Optimal tariff approach......Page 170
Politically enhanced TOT approach......Page 171
Political externality school of thought......Page 172
Mixed externality school of thought......Page 174
Commitment approach......Page 175
Politically enhanced terms-of-trade approach......Page 177
Political externalities approach......Page 178
A general critique of economic models......Page 179
An overlooked economic rationale for trade agreements......Page 180
Non-economic rationales for trade contracts I: lessons from the international relations literature......Page 182
Neoliberal institutionalism......Page 186
Neomarxism......Page 187
Neorealism......Page 188
Constructivist approaches......Page 190
Internal constitutional view......Page 193
External constitutional view......Page 194
Internal-external constitutional view......Page 195
Global constitutional view......Page 196
Summary of rationales for trade contracts......Page 197
 4.1.3 A tentative conclusion: trade agreements based on market access externalities and minimum standards......Page 201
Primacy of market access externalities......Page 203
Trade contracts based on market access externalities......Page 204
Minimum standards as a second(ary) rationale for trade agreements......Page 207
(i) Different contractual motivation......Page 208
(iii) Different nature of commitments......Page 209
4.2 Primary rules of contracting: basic entitlements in the WTO......Page 210
4.2.1 Bilateral market access entitlement......Page 211
4.2.2 Minimum standard entitlements......Page 213
(i) Procedural rules......Page 214
(iv) “External” entitlements......Page 215
4.2.4 Prominent role of the market access entitlement......Page 216
4.3 Establishing the WTO as an incomplete contract political support shocks with spillover potential......Page 219
The nature of market access contingencies: political support shocks with spillover potential......Page 222
(i) Can market access contingencies be forecast?......Page 226
(iii) Can signatories de.ne the probability of occurrence?......Page 227
(iv ) Is the informati on symmetric ally observable?......Page 228
4.3.2 Contingencies, uncertainty, and incompleteness affecting minimum standard entitlements and other multilateral entitlements......Page 230
4.4 Conclusion: the WTO – an incomplete contract based on market access externalities and minimum standards......Page 231
5 Analyzing the system of non-performance in the WTO......Page 233
5.1 Trade policy flexibility and protection of the market access entitlement......Page 234
Negative integration provisions......Page 235
Non-violation complaints......Page 237
Contingency measures......Page 238
Default rule......Page 240
5.1.2 De facto protection of the market access entitlement......Page 242
Voluntary export restraints (and orderly marketing agreements)......Page 243
Subsidies......Page 244
Non-discriminatory domestic policies......Page 245
Antidumping and countervailing duties......Page 246
Violation of the WTO Agreement......Page 247
5.2.1 De iure protection of multilateral entitlements......Page 248
 5.3 Rules of enforcement......Page 250
 5.4.1 Flawed protection of the market access entitlement......Page 254
GATT Art. XXVIII is a questionable rule of default......Page 255
Insufficient scope of de iure escape mechanisms......Page 256
Application scope of non-violation complaints is limited......Page 257
WTO framers picked the wrong battlefield: negative integration clauses are over-engineered whereas default rules are neglected......Page 258
Retaliation is a questionable mechanism of remediation......Page 259
(ii) Informal flexibility mechanisms possess a broader scope of application......Page 260
(iv) De facto flexibility tools are accompanied by lower remedies......Page 261
Intra- and extra-contractual behavior are sanctioned in the same way......Page 262
Extra-contractual remedies are systematically undercompensatory......Page 263
Retaliation is a suboptimal countermeasure......Page 264
5.4.2 Flawed protection of multilateral coordination entitlements......Page 267
5.4.3 Conclusion and consequences......Page 269
Summary of the main flaws of the current WTO system of non-performance......Page 270
Over-"breach" and undercommitment......Page 271
Part III Flexibility and enforcement in the WTO: towards an agenda for reform......Page 275
6 Theorizing about the WTO as an efficient “breach” contract......Page 277
 6.1 The "trade game"......Page 280
(i) Nature of entitlements......Page 282
(iii) Nature of contingencies and incompleteness......Page 283
6.2 Organizing protection of the market access entitlement......Page 284
6.2.1 Focusing on default rules......Page 285
If stability of the system is an issue......Page 286
If stability of the system is not an issue......Page 296
 6.2.3 A property or liability rule of escape? A question of transaction costs......Page 300
Transaction costs of damage calculation......Page 301
Implicit calculation of expectation damages by the injurer......Page 302
Implicit calculation of damages and non-performance gains by injurer and victim......Page 303
Double-sided hold-out......Page 304
Conclusion: a rule of liability Pareto-dominates a rule of renegotiation as default rule of the market access entitlement......Page 305
Level of conditionality: enactment threshold and application scope limitations?......Page 306
6.2.5 Conclusion: an unconditional liability rule as optimal protection of the market access entitlement......Page 308
6.3.1 Focusing on default rules......Page 309
If ex post discretion is impermissible: an inalienability rule of default......Page 310
A rule of liability is a slippery slope......Page 312
Liability damages are difficult to measure......Page 313
Probability of strategic victim behavior is small......Page 314
6.4 A two-tier system of enforcement......Page 315
6.5 The vWTO as an efficient “breach” contract: a “better” trade agreement?......Page 320
The vWTO is simpler......Page 321
Violation of the Agreement is no longer a substitute for using intracontractual flexibility......Page 322
(i) Clear separation between good faith and bad faith: opportunism curbed......Page 323
(iii) More cooperation, deeper integration......Page 324
 6.5.3 The vWTO: a "better" contract?......Page 325
7.1 The shortlist of reform......Page 328
7.1.1 Establish a revised GATT Art. XIX......Page 329
7.1.2 Add Art. Xbis to the WTO Agreement......Page 332
7.1.3 Revise DSU Art. 22......Page 333
7.2.1 Reforming the protection of the market access entitlement......Page 337
(ii) Revise AD and CvD regimes......Page 338
7.2.2 Reforming the protection of multilateral entitlements......Page 339
7.3 Final remarks and future research......Page 340
Rationale for trade agreements......Page 341
How to measure expectation damages?......Page 342
Bibliography......Page 344
Index......Page 367