The Case Against Reforming the WTO's Enforcement Mechanism

This Essay states the public choice case against reforming the current WTO enforcement mechanism in which parties that prevail in an international trade dispute can retaliate against the scofflaw state by suspending equivalent trade concessions. Currently, there are two distinct 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; and the second is the imposition of monetary compensation. This Essay argues that both of these proposed reform schemes introduce potential pathologies of their own that are likely to dwarf those of the current enforcement mechanism. First, it argues that under a collective or third party sanctions scheme, the administering third-party states will have no incentive to choose a retaliation strategy that maximizes compliance because they will not face any export group pressures to do so. Rather, such states will have an incentive to choose a retaliation strategy that maximizes the returns to their protectionist interest 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 that it will lead to socially excessive levels of litigation are likely to be higher than its putative benefits to developing countries. Finally, the Essay suggests that pro-reform advocates tend to rely on empirical assumptions that might overstate the extent to which the current enforcement scheme actually hurts the interests of developing states