15 - Evaluating the criticism that WTO retaliation rules undermine the utility of WTO dispute settlement for developing countries

Summary

Introduction

It has often been observed that a fundamental disadvantage of the WTO dispute settlement system for developing countries is the inability of many of them to enforce positive rulings against larger WTO members. When there is an asymmetry in the market size of the developing country and the non-complying WTO member, the WTO's enforcement measures have been characterised as ‘virtually meaningless’.

The WTO legal system envisages a right of retaliation through the suspension of trade concessions or obligations as well as countermeasures. The criticism of these retaliation rules, from a developing-country perspective, is that developing countries with small domestic markets are not able to impose sufficient economic or political losses within the larger WTO members to generate the requisite pressure in order to induce compliance. In fact, the suspension of trade concessions may be more detrimental to the developing country than the non-complying member. Consequently, there is a common perception that shortcomings in the WTO retaliation rules undermine the utility of WTO dispute settlement for developing countries.

This chapter critically evaluates this widely held criticism of the WTO retaliation rules. It observes that while legal and economic theory illustrates the potential shortcomings of WTO retaliation for developing countries, GATT and WTO dispute settlement practice demonstrates high rates of compliance with dispute settlement rulings. Thus, the chapter queries whether the ability to retaliate effectively is a key determinant for WTO members complying with dispute settlement rulings.