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WTO Working Papers

WTO working papers usually represent research in progress. Such research may be conducted in the preparation of WTO Secretariat reports, studies or other material for WTO members. The papers are circulated for comment because the WTO considers critical review of professional research to be extremely important.

English

Trade Skirmishes and Safeguards

A Theory of the WTO Dispute Settlement Process

I propose a framework within which to interpret and evaluate the major reforms introduced to the GATT system in its transition to the WTO. In particular, I examine the WTO Agreement on Safeguards that has replaced the GATT escape clause (Article XIX), and the Dispute Settlement Process (DSP) that resembles a court of law under the WTO. Using this framework, I interpret the weakening of the reciprocity principle under the Agreement on Safeguards as an attempt to reduce efficiency-reducing trade skirmishes. The DSP is interpreted as an impartial arbitrator that announces its opinion about the state of the world when a dispute arises among member countries. I demonstrate that the reforms in the GATT escape clause should be bundled with the introduction of the DSP, in order to maintain the incentive-compatibility of trade agreements. The model implies that trade agreements under the WTO lead to fewer trade skirmishes but this effect does not necessarily result in higher payoffs to the governments. The model also implies that the introduction of the WTO court, which has no enforcement power, can in fact improve the self-enforceability of trade agreements.

English

Keywords: Dispute Settlement, Trade Agreements, Safeguard Agreement, Impartial Arbitration
JEL: F51: International Economics / International Relations, National Security, and International Political Economy / International Conflicts; Negotiations; Sanctions; F13: International Economics / Trade / Trade Policy; International Trade Organizations; K41: Law and Economics / Legal Procedure, the Legal System, and Illegal Behavior / Litigation Process; C72: Mathematical and Quantitative Methods / Game Theory and Bargaining Theory / Noncooperative Games; K33: Law and Economics / Other Substantive Areas of Law / International Law; F53: International Economics / International Relations, National Security, and International Political Economy / International Agreements and Observance; International Organizations
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