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The process of resolving disputes under the WTO's Dispute Settlement Understanding (DSU) involves a complex and evolving legal jurisprudence. One foundational element to the WTO legal contract is that WTO adjudicators – that is, panellists and arbitrators – issue formal rulings that might result in changes to members' economic policies. This tight link between WTO dispute settlement and changes to members' economic policy makes it important to understand, evaluate, and continually refine how economic analysis is used to influence the legal–judicial process that is a critical element of the WTO's institutional performance.
Consider two representative examples of DSU panellists' and arbitrators' direct influence on members' economic policies. One is the US–Steel Safeguards dispute in which the prospect (or realization) of a DSU arbitration and authorized retaliation induced the respondent country to comply with WTO obligations by reforming a policy that adversely affected another member's expected market access benefits. In this dispute, the United States responded to the threat of DSU arbitration by eliminating a WTO-inconsistent safeguard and thus decreasing the US import tariff. A second example is the EC–Beef Hormones case; even though the dispute settlement process failed to change the respondent's economic policy and induce compliance, WTO arbitrators established a level of permissible retaliation that authorized the adversely affected complainant to change its economic policy. In this case, the complainant policy change was an increase in the US import tariff. And while these two disputes are examples of induced changes in national trade policies, almost every dispute involves a contested government measure affecting markets or economic incentives, and thus affects some element of a nation's economic policy.
The present contribution argues that the domestic decision-making process WTO members use to prepare and adopt WTO retaliatory measures is a legitimate concern for the WTO and that there would be merit in regulating this process at the multilateral level.
The importance of the domestic process
One of the key differences between dispute settlement under the GATT and dispute settlement under the WTO has been the frequency of recourse to retaliation. During the close to 50 years of the GATT there was but one single dispute in which the GATT Council authorized a ‘suspension of concessions or other obligations’. On the other hand, under the WTO, which has been in existence only since 1995, there have so far been six disputes in which the DSB has granted authorization to retaliate. Moreover, there currently are an additional two WTO disputes in which authorization to retaliate might be granted in the future. If retaliation remains a recurrent feature of international trade relations under the WTO, and the indications are that it will, it becomes pertinent to ask whether existing DSU rules deal with all aspects of retaliation adequately. To determine whether existing Dispute Settlement Understanding (DSU) rules on retaliation are adequate, it is necessary first to consider what factors determine the success and acceptance of WTO retaliation as a remedy. It would seem that three factors in particular are key: namely, effectiveness, cost and fairness.
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