The Case Against Reforming the WTO Enforcement Mechanism

This essay states the public choice case against reforming the cur-rent WTO enforcement mechanism, which allows parties that prevail in an international trade dispute to retaliate against the scofflaw state by suspending equivalent trade concessions. Currently, there are two dis-tinct kinds of proposals floating around to change this mechanism to make it more incentive-compatible for all member states and user-friendly to developing nations: the first is the use of collective or third-party sanctions; the second is the imposition of monetary compensation. This essay argues that both these proposed reform schemes introduce po-tential pathologies of their own that are likely to dwarf those of the cur-rent enforcement mechanism. First, it argues that under a collective or third-party sanction scheme, the administering third-party states will have no incentive to choose a retaliation strategy that maximizes compli-ance because they will not face any export group pressures to do so. Ra-ther, such states will have an incentive to choose a retaliation strategy that maximizes the returns to their protectionist groups. In other words, collective or third-party sanctions are likely to increase the global level of protectionism without any offsetting compliance benefits. Second, it argues that the costs associated with monetary damages—including the likelihood they will lead to socially undesirable litigation levels—are likely to be higher than their putative benefits to developing countries. Finally, the essay suggests that proreform advocates tend to rely on empirical assumptions that might overstate the extent to which the current enforcement scheme actually hurts developing states’ interests.

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