Introduction: trade retaliation in WTO dispute settlement: a multi-disciplinary analysis

Summary

It is hard to think of a better topic for multi-disciplinary study than trade retaliation in the WTO. When a country violates WTO rules, the remedy of last resort is bilateral, state-to-state trade sanctions. Such trade sanctions are imposed against the violating country by one or more other WTO members who took the initiative to challenge the breach. WTO retaliation must, however, be multilaterally authorized by the WTO following, first, an elaborate procedure establishing (continued) breach in the first place and, second, an arbitration on whether the retaliation is ‘equivalent’ or ‘appropriate’ in the light of the harm caused by the original violation. This is where the law comes in: arbitrators must apply legal criteria to assess the harm caused by a WTO violation, select benchmarks and counterfactuals to do so, as well as decide, where requested, on whether the conditions for so-called cross-retaliation are met (that is, retaliation in the form of, for example, suspending intellectual property rights in response to a WTO-inconsistent import restriction). This process obviously involves economics as well, both economic theory (what is the role of violation-cum-retaliation in an incomplete contract?; what is the optimal design of remedies for breach of contract?) and applied or quantitative economics (how does one calculate lost trade, lost royalties or other economic harm caused by a WTO violation?; how does one make sure that the retaliation in response is ‘equivalent’?).