The dispute resolution procedures of the World Trade Organization allow sanctions to be imposed when a country is unwilling to bring a WTO-inconsistent trade measure into conformity. Apart from the fact that the procedure for triggering the retaliation process has ambiguities that need to be removed, the retaliation itself has some undesirable economic features. This paper looks at why compensation is not preferred to retaliation and then examines five economic features of the temporary trade retaliation that WTO may permit under certain conditions. Both efficiency and equity concerns are raised. The paper concludes with some suggestions for reforming this part of WTO dispute resolution during the review of the Dispute Settlement Understanding that is due to be completed by May 2003.

The last ten years have seen an upsurge in interest in the nexus of trade and environmental policies. In part this reflects the need to deal with major global pollution problems, and in part a concern that globalization may have adverse impacts on the environment. Environmentalists worry that globalization may trigger a race-to-the-bottom in environmental standards. While they would like to see upward harmonization in environmental standards, they are sceptical about the ability of supra-national agencies to achieve this. Industrialists also raise concerns about the need for a ‘level playing field’ in environmental regulations because of fears about the impact of environmental regulations on competitiveness. However, developing countries question whether disputes over differences in environmental regulations simply reflect a covert form of ‘green protectionism’. In this paper we review what light recent developments in economic analysis (conceptual and empirical) can shed on these concerns. We quickly summarize conventional trade models in which government bodies have perfect information and are welfare maximizers, and show that this analysis does not provide much support for the concerns or proposed policy recommendations. We then turn to models of political economy and imperfect information to see whether they provide a better explanation for the concerns and policy recommendations.

Trade policy used to be a rather simple matter of defining conditions of access to markets at the border. Little more was needed than rules defining non-discriminatory tariff levels, circumscribing the use of quantitative trade restrictions, and protecting the conditions of market access through the principle of national treatment. But the very success of these simple rules in creating the conditions for successive bouts of market-opening negotiations bred the complex and multi-faceted institution that is the World Trade Organization of today. As tariffs tumbled, all manner of other policies became crucial for continuing market integration. The rules had to follow the reality. It is a brave person now who claims more than a passing familiarity with each and every aspect of the WTO Agreements.

In this fascinating labyrinth of what passes for policy relating to trade, it is unconvincing to argue that there is ever enough research and analysis. There will always be more that needs to be explored and better understood. Every effort to illuminate, to clarify, and to explain the trading system must surely be welcome. But if we are to advance our understanding of what makes sense and what does not, and contribute effectively to international economic cooperation, the quality and integrity of analysis is vital. This has become more especially true in recent years as dozens of developing countries facing formidable development challenges seek progress through meaningful participation in the world trading system. One of the great strengths of the WTO is its commitment to universality. If we are to give meaning to this vision and foster confidence in the fairness of the system, we must ensure its proper design on solid conceptual foundations.

I am proud to associate the WTO Secretariat with the birth of the World Trade Review. The journal is committed to promoting high-quality policy analysis and welcomes contributions from a wide range of disciplines and cross-section of contributors. This is not an in-house journal devoted to selling pre-conceived ideas. Its mission is to promote informed and honest debate and to deepen understanding. The journal's editorial independence is central to these objectives. I wish the Editor and the members of the Editorial Board of the World Trade Review well in this important endeavour.

The negotiation of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) greatly expands the purview of the World Trade Organization (WTO) into domestic regulatory standards. This evolution immediately raises the question of whether other regulatory standards, including competition policy, environmental standards, and worker rights, should be added to the WTO agenda. Indeed, the Doha Declaration opened the door for negotiations on the environment and competition policy but not labor standards. In this paper I review the logic and evidence for this decision based on economic arguments for multilateral management of market externalities, policy coordination problems, and systemic trade issues. The review concludes that, conditional upon the protection of intellectual property rights in the WTO, a strong case may be made for including competition rules. The case is weaker for environmental regulation (if by that is meant a set of WTO rules on permissible standards) and quite weak for core labor standards.

WTO member countries understand the core agreement of the organization to consist of binding reciprocal market access achieved through multilateral negotiation, and supported by a system of trade policy rules and dispute settlement. Attempts to introduce social chapters into the WTO would compromise the core agreement. Specifically, authorizing the use of trade sanctions to pursue non-trade goals would diminish the value of the WTO to its members, and undermine the global trading system. WTO agreements and rules can be reconciled with environmental goals, the improvement of labor standards and the promotion of human rights through the development and strengthening of international institutions dedicated to these issues. Efforts by governments to promote new global institutions and international agreements would thereby remove political barriers to trade liberalization.

For much of the post-war period, interest in the multilateral trading system – as embodied in the General Agreement on Tariffs and Trade (GATT) – was limited to national delegates posted to Geneva, a small number of technocrats in capitals, and a handful of academics, mostly legal scholars plus a few economists and an even smaller number of political scientists. Among politicians and the general public, the GATT was virtually unknown. During those years, a professional journal devoted exclusively to the multilateral trading system would have been hard pressed to fill its pages.

This article contests the view advanced by Daniel Esty in World Trade Review, that the WTO is now facing ‘a crisis of legitimacy’, for which the remedy is to create for it ‘links with popular sovereignty’, to broaden its objectives and concerns, and to establish it as part of a stronger system of ‘global governance’. I argue that the legitimacy of an international agency derives first and foremost from its member governments; that democratic legitimacy and ‘popular sovereignty’ do not necessarily go together; that non-governmental organizations have no valid claim in their own right to participate in the activities of international agencies; that bringing these organizations into the WTO would weaken and divide it; that governments, in handling and deciding trade matters, already take account of wider issues and goals and are not uncritically committed to freer trade; that it is still appropriate to limit the concerns of the WTO to questions relating to trade and trade liberalization; that globalization has neither undermined the power and competence of national states nor given rise to a need for new forms of global governance; and that the WTO, despite its now more secure status and enlarged scope as compared with the GATT, is for good reasons neither a powerful instrument of global governance nor in course of becoming so. While the Organization has no ‘legitimacy crisis’, it faces substantial problems both old and new. Its potential for useful activity largely depends, as in the past, on the readiness of its member governments to defend and pursue the goal of freer trade.

Despite the successful launch of a new round of multilateral trade negotiations at Doha, the World Trade Organization faces a legitimacy crisis. Protests continue to rock major international economic meetings, and the WTO's role in globalization is being questioned by many observers. This paper examines the contours of this crisis and explores the possibility that the WTO's indirect ties to popular sovereignty – through national governments – provide an insufficient foundation for the trade regime's authority and central role in the emerging structure of global governance. Arguing that the WTO needs to re-establish its legitimacy based on wider links to the public around the world in whose name freer trade is pursued, the paper suggests that the WTO must also re-build its reputation for efficacy in a context where success is no longer measured exclusively in narrow economic terms. To be seen as serving the interests of the world community broadly, the trade regime needs to pursue its economic goals in a fashion that shows sensitivity to other important goals and values, such as poverty alleviation, environmental protection, and the promotion of public health. Long-term success further depends on the trade regime becoming embedded within a broader structure of global governance that provides ‘checks and balances’ and reinforces the legitimacy of international trade policy making.

This essay examines the effect of power asymmetries and imperfect markets on US trade policy, two issues often neglected in the conventional literature. We suggest that when the distribution of power is skewed and markets do not conform to the world of standard trade theory, open international markets will not exist unless the disproportionately most powerful state can make a credible commitment to free trade. We suggest that these two conditions characterized the post-World War II trade environment and partially explain why the United States encouraged the formation of the postwar international trade regime. To demonstrate this argument, we examine the voting rules, dispute settlement procedures, and regional trading arrangements that characterized the three postwar trade organizations: the stillborn International Trade Organization, the General Agreement on Tariffs and Trade, and the World Trade Organization. We argue that the rules of these institutions empowered their member states to punish any US attempts to ‘cheat’. In so doing, it made free trade their welfare-maximizing strategy choice.

David Henderson misreads, misstates, and misunderstands my argument in The World Trade Organization's Legitimacy Crisis. He pejoratively refers to my suggestions for restoring the WTO's legitimacy as ‘radical’ no fewer than three times.

Despite recurring rounds of trade liberalization under GATT/WTO auspices, complemented by unilateral reforms, many developing countries have not been able to integrate into the world economy. This paper argues that, from the perspective of the poorest countries, a multi-pronged strategy is required to strengthen the global trading system and that much of the agenda must be addressed outside the WTO. The most important contribution the WTO can make from a development perspective is to improve market access conditions – for goods and services – and ensure that trade rules are useful to developing countries. Enhancing trade capacity requires concerted action outside the WTO (‘aid for trade’) as well as unilateral actions by both industrialized and developing countries to reduce anti-trade biases.

This paper reviews the increase in problems associated with the origin of goods that is due to increasing fragmentation of international trade. In particular, it examines three applications of rules of origin: rules of origin in free trade areas, preferences to developing countries, and the treatment of imports that have some domestic factor content. Traditionally each of these has used all-or-nothing rules of origin. The paper proposes a new method of dealing with all three problems. This method substitutes a valuation based on the value added in different origins for the present methods of valuing goods at the gross price and attributing origin to only one country. The value added method would improve the efficiency of world production and consumption in a number of ways.

In recent years, more countries have increasingly turned to explicit, codified trade policy instruments of the international trading system such as antidumping measures. Countries have also increasingly participated in the institutions established to facilitate trade in the international system, such as the WTO's Dispute Settlement Understanding. Given these phenomena, a natural question to consider is why haven't countries resorted to the WTO's safeguards provisions at a similar pace? This paper focuses on the economic incentives generated by reforms in the Uruguay Round, and argues that in order to address the relative unpopularity of the application of safeguards measures, further reforms must be made to WTO's Antidumping Agreement and the rules of the Dispute Settlement Understanding.

The tensions between the (quasi-judicial) dispute settlement process and the (political) diplomatic and treaty-making activities have intrigued me ever since I arrived in Geneva in December 2001. In the course of the six years during which I served as a member of the Appellate Body, my original doubts have grown into concerns. They are shared by prominent and well-informed observers. They have not only become the subject of a provocative and alarming book, but also found their way into one of the world's leading newspapers. It is therefore timely to discuss these issues widely, particularly in the context of the ‘Doha development agenda’ and more specifically the negotiations on improvements and clarifications of the Dispute Settlement Understanding (DSU).

Many WTO members have been engaging in efforts at the regional level to liberalize services trade even as they are negotiating under the GATS. This duplication of negotiating effort might appear misplaced, unless regional trade agreements can actually produce results going beyond those at the multilateral level and thus serve the interests of their members. This paper explores in what areas regional agreements on services have surpassed the GATS in terms of delivering on three key objectives set out by all service agreements, namely the promotion of transparency, stability, and liberalization for services trade. The paper comments on how countries may evaluate where to best direct their negotiating efforts, according to the type of service activity in question, and suggests that regional agreements can prove to be useful in supporting and pushing forward multilateral services liberalization.

WTO panels are often called upon to decide overlapping claims based on different WTO agreements. One such dispute was the EC–Asbestos case where claims were made under both GATT 1994 and the Agreement on Technical Barriers to Trade (TBT). This paper examines whether the Appellate Body's refusal in that case to examine Canada's TBT claims was justified. The conclusion reached is no, based on the principle jura novit curia, the general prohibition on non liquet and the WTO case law on judicial economy. In addition, the paper examines when two WTO norms must be seen as ‘in conflict’. It argues in favour of broadening the current definition of conflict and clarifies the consequences of a norm being lex specialis.

Efforts to ensure that intellectual property rights are respected and protected world-wide have met increasing resistance by critics who see extreme imbalances in the costs and benefits of implementing stronger intellectual property protection. The WTO's Agreement on Trade-Related Aspects of Intellectual Property (TRIPS) attracts particular criticism as an enforceable multilateral embodiment of these efforts. While few disagree that developed countries stand to benefit more in the short term from TRIPS implementation than developing countries, precisely estimating associated costs and benefits is challenging. This paper comments on an approach to estimating the ‘indirect’ costs of implementing TRIPS proposed by McCalman (2001) and argues that the approach overestimates the costs born by developing countries. Specifically, this overestimation is due primarily to an inadequate representation of the TRIPS Agreement and a counterfactual assumption that countries would not have strengthened their intellectual property policies in the absence of the TRIPS Agreement.

This paper examines the statistical relationship between world trade and world income (GDP) over three different epochs: the pre-World War I era (1870–1913), the interwar era (1920–1938), and the post-World War II era (1950–2000). The results indicate that trade grew slightly more rapidly than income in the late nineteenth century, with little structural change in the trade–income relationship. In the interwar and post-war periods, the trade–income relationship can be divided into different periods due to structural breaks, but since the mid 1980s trade has been more responsive to income than in any other period under consideration. The trade policy regime differed in each period, from the bilateral treaty network in the late nineteenth century to interwar protectionism to post-war GATT/WTO liberalization. The commodity composition of trade has also shifted from primary commodities to manufactured goods over the past century, but the results cannot directly determine the reasons for the increased sensitivity of trade to income.