WTO Dispute Settlement and the EU–US Mini Trade Wars: A Commentary on Fritz Breuss

Economic theory suggests that some of the trade remedies allowed by the WTO may lead away from liberal trade and impose costs on those that apply them. Breuss has provided evidence in the case of four EU-US mini-wars that the policy that created the trade conflict was not clearly in the economic interest of the offending country and that the sanctions imposed exacerbated rather than alleviated the problem. Breuss builds a case for compensation payments rather than trade sanctions for rule violations and for targeting of the recipients of those payments. If trade policy were a matter of economic rationality then this approach would be convincing. For better or worse, the trade rules are an unruly mix of economic, political and legal constructs. The commentary expands on this to explore the role of the dispute settlement process itself and the sanctions designed to give it "teeth." The conclusion is that the economic calculations, while a good measure of the costs of legal or political decisions, are not central to the dispute settlement and sanctions processes. The dispute settlement process is also about preserving the balance of political advantage from negotiated rules and schedules, and the sanctions process is as much to do with preventing abuse as correcting it. So a full economic analysis would have to compare politically balanced alternative scenarios and the incorporate the effect of the threat of sanctions on government behavior. [PUBLICATION ABSTRACT]