Commitments and Flexibilities in the WTO Agreement on Subsidies and Countervailing Measures: An Economically Informed Analysis
Abstract
Cambridge Core - International Trade Law - Commitments and Flexibilities in the WTO Agreement on Subsidies and Countervailing Measures - by José Guilherme Moreno Caiado
... Nonetheless, we are able in this general setting to derive a number of insights about the nature of the optimal agreement. 13 Our first result (proved in the Appendix) is that, if an agreement is to achieve any improvement over the noncooperative equilibrium, it must constrain import taxes. More formally: PROPOSITION 1: An agreement that constrains the subsidy s (even in a state-contingent way) while leaving the import tariff τ to discretion cannot improve over the noncooperative equilibrium, and therefore cannot be an optimal agreement. ...
... In 12 Notice that rigidity and discretion do not necessarily imply a loss of gross surplus relative to the first best. For example, the {FB} contract is not contingent on the trade-volume shift parameter α, so it is rigid with respect to α. 13 In an earlier version of our paper (Horn, Maggi, and Staiger 2008) we analyze a parametrized specification of the model that allows for a full characterization of the optimal contract. We summarize the main results from this specification at the end of the section. ...
... Evidently, as (13) indicates, the conditions that lead the cost of discretion over t to be small can be understood in terms of the monopoly power, trade volume, and instrument substitutability effects familiar from (9), with one important difference: the substitutability between t and τ is low when X′ is high or when | d′ | is low, because in each of these cases t (which distorts only the consumer margin) is a poor substitute for τ (which distorts both the producer and the consumer margin) as an instrument for manipulating the terms of trade. ...
Transparency, one of the basic pillars and fundamental norms of a well-functioning trading system, is increasingly seen as an inevitable tool in the governance of international trade. Without transparency, trade agreements are just words on paper. Transparency allows economic actors and trading partners to see how rules are implanted, reformed and implemented. For subsidy control, one of the most debated and ambivalent areas of international trade, it is more necessary than ever. The World Trade Organization (WTO) Agreement on Subsidies and Countervailing Measures (ASCM) establishes disciplines on its Members’ use of subsidies and provides extensive means for reporting and monitoring. Transparency in subsidization has increased considerably in the last two decades. But the transparency mechanism has been criticized for deficient attention, underperformance and impetus to implementation. Members comply with transparency obligations only half-heartedly. Lack of incentive for notification and sanction for non-compliance, resource constraint, ambiguous notification-template and inherent difficulties of the subsidy regime have been great obstacles for transparency to work. Experiences from the WTO Agreement on Agriculture and the Technical Barriers to Trade show that well-defined provisions, collaborative approach and capacity building for increased domestic reporting are necessary for the system to run smoothly. Civil society and NGO involvement may also contribute positively. For transparency to control subsidy, negotiators must think carefully about the government behaviour they wish to modify using the mechanism. The future of the WTO as a legitimate and effective international organization will depend, in short, on finding a mode of transparency accessible to all its Members.
The search for an appropriate balance between trade liberalization and regulatory autonomy lies at the heart of the WTO system. In this paper, the authors examine the relationship between three WTO Agreements regulating trade in goods - the GATT 1994, the SPS Agreement, and the TBT Agreement - and explore how these treaties, individually and together, define the sphere of domestic regulatory autonomy in the context of the multilateral trading system. Drawing on new Appellate Body jurisprudence, including the recent TBT 'trilogy', this article provides a 'map' of WTO regulation of trade in goods and sheds light on the types of rules and standards contained in each Agreement, their relationship to domestic regulation and the regulatory process, and the way they incorporate by reference norms outside of the WTO system. The article also discusses the bases for invoking each Agreement and evaluates the circumstances in which they may overlap.
Assuming that certain subsidies to support renewable energy may be 'good', the central question of this article is whether World Trade Organization (WTO) subsidy disciplines recognize this and offer appropriate policy space to Members. The analysis reveals that the situation is one of diffuse legal uncertainty, if not outright conflict between policy prescriptions and trade law requirements. The argument of the article is that the uncertainty of the legal assessment in itself produces a constraint on policy space. Some issues may be clarified through litigation but this is not the optimal approach since disputes are subject to many vagaries and may offer, at best, piece-meal and partial solutions. The pressure put on the judiciary should also not be underestimated. The analysis of the credible but controversial possibility of resorting to GATT Article XX to justify certain subsidies is the best example in point. The unsatisfactory nature of the legal framework is not merely hypothetical since subsidies for renewable energy are increasingly subject to disputes at both WTO and national levels. Against this scenario of inadequate legal framework and increasing litigiousness, law reform emerges as the first-best alternative. It is claimed that what is needed is a legal shelter that, in a clear and positive way, defines what types of subsidies supporting renewable energy are legitimate and permitted. © The Author 2012. Published by Oxford University Press. All rights reserved.
L Introduction Justice Powell remarked twenty years ago that '[u]ntil international tribunals command a wider constituency, the courts of the various countries afford the best means for the development of a respected body of international law.' 1 Few would challenge this statement which underlines the promise of world-wide development and enforcement of international law by national courts. But can national courts really live up to this challenge? Apparently, there are weighty factors that inhibit national courts from the rigorous application and enforcement of international law. This is particularly the case when the application of international norms is sought in an attempt to constrain the activities of the national court's executive. The somewhat idyllic statement of Justice Powell is the starting point for this article. Sharing his aspiration, this article endeavours to explore its limitations. Only by understanding the factors that hinder national courts from becoming the enforcement agencies of international law will it be possible to assess the real potential of national courts in the international arena and the means to realize it The first part of the article is an inquiry into die practice of national courts with respect to the application of international law. This comparative analysis demonstrates the existence of 'a similar pattern of behaviour in most jurisdictions. It provides the background for assessing the reasons that prompt most national courts to adopt an apprehensive approach towards international norms, and die circumstances in which such an approach could be revised. In light of this general study, the second part of die article examines more closely the jurisprudence of die Israeli Supreme Court in this context The claim I shall make in the second part is that die continuation of die * Lecturer, the Hebrew Uttivenity of Jerusalem, Faculty ofLaw. LLJ}., the Hebrew Univenity; li-M, JSJ>^ the Yak Law School.
In seven years of WTO dispute settlement (1995–2001), six panels appointed scientific experts, ² two panels requested expert advice from other international organisations ³ and one panel nominated a linguistic expert. ⁴ Under GATT 1947, in contrast, only one panel saw the need to seek expert advice. ⁵ Very often also the parties to a WTO dispute nominate experts on their delegation, be they lawyers, economists, scientists or linguists. In addition, an increasing number of ‘outsiders’ or amici curiae , such as NGOs, but also industry and academics, have pressed their (expert) opinion on WTO panels and the Appellate Body.
Emissions trading schemes (ETSs) are policy tools designed to cut greenhouse gas emissions where this can be done in the most cost effective way. Existing and proposed schemes generally take the form of cap-and-trade systems, meaning that there is a political commitment to limit overall emissions by putting in place a cap, and that the emissions quotas allowed are distributed as permits between covered entities in the scheme, permits that can be traded freely. It has become common practice to allocate the majority or all of the emission allowances to firms free of charge. There are a number of reasons for this. One is political. The other primary reasons are related to concerns of carbon leakage and distortions in competitiveness. In the light of these claims, the question investigated in this paper, from both an economic and a legal perspective, is whether the practice of allocating emission allowances free of charge may constitute a subsidy and thereby distort international trade. A subsidy can have world-wide effects, potentially undermining the competitive position of any firm competing in any market with the subsidized entities. Distortions in trade may negatively impact growth and economic development. Moreover, subsidies entail government spending that should be brought into the daylight and assessed so that taxpayers and constituencies can evaluate whether it is money well spent.
In this article, contrary to "neo-realist" and "neo-liberal" arguments that identify identites and interest as given in the system, the author porposes an alternative system perception based on the hypotheses of "constuctivist" theory focusing on the processes. This constructivist explanation that the author defends questions the main consensus in the literature by emphasizing the proceses and provides alternative explanations. In the first part, the author presents the way main stream theories explain the system and as alternative to them he explores how social proceses create and transform identites and interests. In the second part, the author explains how inter-state relations are formed and transformed with the examples from different types of states and emphasize that this relationship system is a process. In the third part, the author discusses the dynamics that define the structure of international relations by exploring concepts like security and sovereignty. In the conclusion, the author argues that the social dynamics are important in creation of the international system and that these dynamics can transform the system into different structures and that these alternative explanations should be explored more in the literature.
Following the recent UNESCO Convention on the Protection and Promotion of the Diversity of Cultural Expressions, the first wave of scholarly work has focused on clarifying the interface between the Convention and the WTO Agreements. Building upon these analyses, the present article takes however a different stance. It seeks a new, rather pragmatic definition of the relationship between trade and culture and argues that such a re-definition is particularly needed in the digital networked environment that has modified the ways markets for cultural content function and the ways in which cultural content is created, distributed and accessed. The article explores first the significance of the UNESCO Convention (or the lack thereof) and subsequently outlines a variety of ways in which the WTO framework can be improved in a 'neutral', not necessarily culturally motivated, manner to become more conducive to the pursuit of cultural diversity and taking into account the changed reality of digital media. The article also looks at other facets of the profoundly fragmented culture-related regulatory framework and underscores the critical importance of intellectual property rights and of other domains that appear at first sight peripheral to the trade and culture discussion, such as access to infrastructure, interoperability or net neutrality. It is argued that a number of feasible solutions exist beyond the politically charged confrontation of trade versus culture and that the new digital media landscape may require a readjustment of the priorities and the tools for the achievement of the widely accepted objective of cultural diversity. , Oxford University Press.
The WTO is an international organization with its own distinctive culture, which is derived from the practice and experience of the GATT. The WTO, however, is not the old GATT. The multilateral trading system was transformed into an international organization in 1995, and today, the WTO also administers a host of agreements that contain detailed rules regulating international economic activity. The membership of the WTO has grown to 150, the vast majority of which are developing countries. Most importantly, the trading system, which was once bi-polar, driven by the United States and the European Union, has changed dramatically to become multi-polar, with the large emerging economies, such as China, India and Brazil, becoming major economic powers in their own right. The WTO needs major surgery in order to respond effectively to the new political realities in the international economic system. The current impasse in the Doha Round is in large part due to the great transformation in geopolitical power relationships taking place in the world today. If the Round fails, it will not be the end of the WTO. On the contrary, it might provide a useful 'time out' for the multilateral system to find its new stride. A related problem is that the mandate of the WTO is no longer clear. This article suggests that WTO Members work together to define the new purpose and mandate of the WTO to make it relevant to governments, companies and people in the 21st century. Institutional reform of the WTO is needed to provide it with the architecture and decision making machinery that will allow it to become a vibrant, responsive and accountable organization. , Oxford University Press.
Available at: http://ssrn.com/abstract=1402965. The subject of this volume is legalization and world politics. World politics in this formulation needs no clarification, but legalization, the real focus of the volume, must be more clearly defined, if only because of its relative unfamiliarity to students of international relations. In the introduction the editors have briefly previewed the concept of legalization used throughout the volume, a concept developed collaboratively by the authors of this article. We understand legalization as a particular form of institutionalization characterized by three components: obligation, precision, and delegation. In this article, we introduce these three characteristics,explore their variability and the range of institutional forms produced by combining them, and explicate the elements of legalization in greater detail.
Neoliberals and their neorealist critics have debated the relative importance of two main obstacles to international cooperation—problems of cheating and enforcement and problems of relative gains. By contrast, I argue that problems of international cooperation have a common strategic structure in which a third, distinct obstacle plays a crucial role. Almost regardless of the issue area, states must first resolve the bargaining problem of agreeing on terms before they can implement and begin to enforce an agreement. Furthermore, the bargaining and enforcement problems interact. Using a game model, I show that if states must bargain to determine the deal to be enforced, the “shadow of the future” cuts two ways. A high expectation of continued interactions may make enforcing the agreement easier, but it can also give states an incentive to bargain harder, delaying agreement in hopes of getting a better deal. Empirical evidence from trade and arms control negotiations suggests that this mechanism may help to explain the costly standoffs that are often observed in international politics and are problematic for received neoliberal theories.
Passage of the Sherman Act in the United States in 1890 set the stage for a century of jurisprudence regarding monopoly, cartels, and oligopoly. Among American statutes that regulate commerce, the Sherman Act is unequaled in its generality. The Act outlawed "every contract, combination or conspiracy in restraint of trade" and "monopolization" and treated violations as crimes. By these open-ended commands, Congress gave federal judges extraordinary power to draw lines between acceptable cooperation and illegal collusion, between vigorous competition and unlawful monopolization.
We develop a model of trade agreements with renegotiation and imperfectly verifiable information. In equilibrium, trade disputes can occur and can be resolved in a variety of ways: governments may settle “early” or trigger a court ruling, and in the latter case, they may implement the ruling or reach a post-ruling settlement. The model yields predictions on how the dispute outcome depends on the contracting environment and how it correlates with the optimal contract form. We find support for a key prediction of our model using data on the outcomes of actual trade disputes in the GATT/WTO.
The paper investigates the opportunities and the limits of economic analysis in international economic law. Based on a legal theory approach, it highlights the different epistemological statements in law and explores where and how social sciences, and especially economics, may play a role in law-making (external view) and law-application (internal view). International Economic Law is in special need of economic insights (economics as a subject-matter). Economics as a methodology (and its empirical insights) can also be used to explain noneconomic issues in international economic law, such as treaty negotiations. Examples from trade and investment law highlight the need for economic analysis in international economic law as well as its limits
Are changes in tariff classification of goods used by States to deviate from their trade commitments? This article intends to discuss some of the implications of the current system of classification of goods on States´ behavior. From current disputes, it seems that technical aspects of goods cannot alone explain the controversies surrounding classification. By applying methodological individualism, we argue that the classification of goods, which could initially be described as a coordination game, is changed by the introduction of trade agreements and can be then better characterized as a collaboration game. It follows that classification becomes a tool that allow States to opportunistically deviate from the World Trade Organization (WTO) rules. We then conclude by raising some questions on how the current system deals with opportunistic behavior, and whether the existence of two dispute settlement mechanisms, the one at the World Customs Organization and the one at the WTO, is adequate.
In 1993, the US Department of Commerce began to levy countervailing duties on imports of certain leaded bars from the United Kingdom. The United States applied tariffs to goods imported from British Steel Engineering Steels, a subsidiary of British Steel plc. Following investigations by the US Department of Commerce and the United States International Trade Commission, the US authorities held that the imposition of duties was both required by Section 701 of the Tariff Act of 1930 (as amended) and not in violation of any of the country’s obligations as a member of the World Trade Organization.
This Article offers an economic analysis of the extent to which legal commands should be promulgated as rules or standards. Two dimensions of the problem are emphasized. First, the choice between rules and standards affects costs: Rules typically are more costly than standards to create, whereas standards tend to be more costly for individuals to interpret when deciding how to act and for an adjudicator to apply to past conduct. Second, when individuals can determine the application of rules to their contemplated acts more cheaply, conduct is more likely to reflect the content of previously promulgated rules than of standards that will be given content only after individuals act. The Article considers how these factors influence the manner in which rules and standards should be designed, and explores the circumstances in which rules or standards are likely to be preferable. The Article also addresses the level of detail with which laws should be formulated and applied, emphasizing how this question concerning the laws' relative simplicity or complexity can be distinguished from that of whether laws are given content ex ante (rules) or ex post (standards). In so doing, it illuminates concerns about the over- and underinclusiveness of rules relative to standards.
The contractual expectation interest traditionally is conceived in terms of a promisee's expectation of receiving the promised benefit of the contract. In this Article, Professor Burton argues that the expectation interest also encompasses the expected costs to the promisor, which consist of opportunities forgone at the time of contract formation. This cost perspective makes it possible to articulate an operational standard of good faith performance, which is now an implied covenant in every contract in most American common law jurisdictions. The duty to perform in good faith applies when one party exercises discretion in performance and thereby controls the other party's anticipated benefit. The discretion-exercising party performs in good faith when it exercises discretion for any purpose within the reasonable contemplation of the parties, and in bad faith when discretion is used to recapture forgone opportunities.
This article systematically explores the application of insights from behavioral economics to international legal issues. Economic analysis has in recent years made significant inroads into the study of international law, but most of this literature relies upon assumptions of perfect rationality of states and decision-makers. This approach is inadequate, both in its insufficient empirical grounding and in its question-begging tendency towards often unsophisticated and outdated forms of ‘Realist’ international relations theory. A behavioral approach would augment legal research by providing new hypotheses to address puzzles in international law while at the same time introducing empirically grounded concepts of real, observed bounded’ rationality, which diverge from the assumed, perfect rationality of traditional law and economics. The article addresses some possible methodological objections to the application of behavioral analysis to international law, namely: the focus of behavioral analysis on the individual; the empirical foundations of behavioral economics; and behavioral analysis’ relative lack of parsimony. It then offers indicative behavioral research frameworks for three outstanding puzzles in international law: (a) the relative inefficiency of the development of international law; (b) collegiality and dissent in international tribunals; and (c) target selection in armed conflict. Behavioral research of international law can serve as a viable and enriching alternative and complement to economic analysis and other theoretical approaches to international legal research, so long as it is pursued with academic and empirical rigor as well as intellectual humility.
The study of political institutions in general and international cooperation in particular has been beneficially influenced by the Prisoners' Dilemma (PD) game model, but there is a mistaken tendency to treat PD as representing the singular problem of collective action and cooperation. By relaxing the assumptions of 2 x 2 games and developing an alternate model of the coordination game, I show how some cooperation problems have very different properties from those found in PD. The analytical results of the two games are compared across several important dimensions: number of strategies available, number of iterations of the game, numbers of players, and the distribution of power among them. The discussion is illustrated with specific problems of international cooperation, and the implications of alternative cooperation problems for the formation and performance of international regimes are explored. The basic solutions for PD and coordination have divergent ramifications for the institutionalization, stability, and adaptability of regimes and for the role of hegemony in the international system. However, the coordination model does not replace the PD model but complements and supplements it as a way to understand the diversity of political institutions. These results are widely applicable to areas of politics beyond international relations.
. Contract theory does not address the question of how parties design contracts under the existing adversarial system, which relies on the parties to establish relevant facts indirectly by the use of evidentiary proxies. In this Article, we advance a theory of contract design in a world of costly litigation. We examine the efficiency of investment at the front end and back end of the contracting process, where we focus on litigation as the back-end stage. In deciding whether to express their obligations in precise or vague terms, contracting parties implicitly allocate costs between the front and back end. When the parties agree to vague terms (or standards), such as "best efforts" or "commercial reasonableness," they delegate to the back end the task of selecting proxies: For example, the court selects market indicators that serve as benchmarks for performance. When the parties agree to precise terms (or rules), they invest more at the front end to specify proxies in their contract, thereby leaving a smaller task for the enforcing court. We explore the choice between rules and standards in terms of this tradeoff, and we offer an explanation for why contracts in practice have a mix of vague and precise provisions. We then suggest that parties can achieve further contracting gains by varying the procedural rules that will govern their disputes in court. We illustrate by examining provisions in commercial contracts that allocate burdens and standards of proof. If the parties can improve the cost-effectiveness of litigation in this manner, they can further lower contracting costs by shifting more investment to the back end through their increased use of vague terms. Although vague terms have fallen into disfavor with contract theorists, this Article offers a justification for their frequent use in commercial practice.
This paper addresses the question of what the current international legal systems concerning subsidies for innovation are and whether these fit the findings of economic analysis. Innovation is a very relevant economic instrument toward increasing the commercial and political competitiveness of companies and national states. However, investments which aim at achieving innovation may not be undertaken on a socially optimal level by private firms. This is because the social benefits of newly produced knowledge can exceed those that private investors in innovation might be able to individually enjoy. According to some scholars, this should be regarded as a market failure and would justify the use of public financial support as a means of inducing the socially optimal level of innovation by private firms. On the regional and international level, however, innovation subsidies might, as other kinds of subsidies, negatively impact industries located in third states, leading to economic and political tensions. To deal with these conflicts, states have agreed upon regional and international provisions to regulate the concession of subsidies. Some of these legal frameworks explicitly mention innovation subsidies, recognizing them as a particular type of financial support. The objective of this paper is to identify the existence or non-existence of rules concerning subsidies in specific regional and international legal systems (WTO, EU, NAFTA and MERCOSUR), with special attention devoted to rules for innovation subsidies and to confront these with the findings of economic analysis.
Growing international pressure to curb greenhouse gas (GHG) emissions has focused attention on existing policies that may, either by design or by effect, subsidize fossil fuel production and consumption. This paper reviews existing studies of fossil fuel subsidies within the United States, as well as assessments of the potential impact of subsidy reform on GHG emissions. Evaluating the differences across the studies, it highlights the most important disparities in subsidy definition and valuation in order to clarify the conclusions that can be drawn from this body of work. For example, these studies place the costs of fossil fuel subsidies between 121 billion. We then present some of the tools used to provide transparency in environmental regulation. If subsidies were exposed to the same transparency as federal environmental regulations, there would be a central registry, akin to the Code of Federal Regulations, where basic information about subsidies could be found. In addition, proposed subsidies would be subject to the same kind of public justification requirements to which proposed regulations are subject. Such public disclosure would likely improve governmental decision making about subsidies, engage the public in that decision making, and lead to the reduction or elimination of the most damaging or least effective subsidies.
Individual actors want to make their promises enforceable in order to motivate mutually profitable investments. But parties cannot easily design contracts that maximize beneficial investments and also respond appropriately to changing conditions. Although economists have designed theoretical models that maximize joint welfare both ex ante and ex post, these mechanisms depend on a perfectly functioning and costless system of enforcement. In the real world, parties must expend substantial resources to enforce commitments legally, and, in many cases, courts lack information to assess the parties' actions. This review examines one of the main insights of the theory of incomplete contracts: that legal enforcement alone cannot ensure the full realization of jointly beneficial cooperative ventures. Legal enforcement, supported by the coercive power of the state, is only one mechanism for inducing cooperation, and in many relationships it typically has only a limited role to play. Complex contracts do lend themselves to effective formal enforcement. But parties often choose to write simple contracts that look to renegotiation once the future is known. Simple contracts require enforcement by informal mechanisms, such as reputation, repeated dealings, and norms of reciprocity in order to motivate both beneficial investment ex ante and adjustment ex post.
The concluding remarks not only dwell on the merits of an economic approach to public international law but also view public international law as a challenge for economic analysis. The potential lessons of a reciprocal learning process for public international law could be the following ones: (1) stress the functional approach to public international law; (2) expand the subject matter; (3) take into consideration costs and benefits of alternative solutions, even in the realm of private law; (4) re-conceptualise the legitimisation paradigm. The branch of New Institutional Economics provides the necessary methodological tools to treat the specific problems of that field of law. The lessons for economics, on the other hand, could be the following ones: (1) stress institutional economics (including constitutional economics); (2) start a dialogue with social science rational choice approaches.
This article reviews the successes of the World Trade Organization (WTO) Agreement on Subsidies and Countervailing Measures (the strengthened discipline on export subsidies), and the failures (the lack of discipline on domestic subsidies) from the birth of the WTO in 1995 to the onset of the financial crisis in 2007--09. During the crisis, governments poured money into economically necessary or politically deserving industries. The prohibition on export subsidies held up fairly well during the crisis, but the prohibition on import-substitution subsidies was likely flouted by understandings that bail-outs of industrial companies would lead to use of local supply chains. Trillions of dollars were poured into service sectors, notably financial services and real estate, and there are no WTO rules for services subsidies, notwithstanding commitments to negotiate them in the General Agreement on Trade in Services. Most likely, if there had been any rules disciplining subsidies in the financial services sectors, they would have been ignored, as the disciplines on domestic subsidies for goods were often ignored during the crisis, and before it. The crisis threw into clearer relief the question of why governments agreed to rules in 1994 which they found too uncomfortable to obey, or to enforce against other governments. The Agreement on Subsidies and Countervailing Measures sets up rules which are not strict enough to eliminate the use of countervailing duties as protectionism, and disciplines on subsidies that are too loose to prevent politicians from over-subsidizing. The authors conclude with some thoughts on the future of subsidies disciplines within the WTO. Oxford University Press 2010, all rights reserved, Oxford University Press.
The study of regimes can contribute to our understanding of international politics only if regimes represent more than international organizations and less than all international relations. The conceptualization of regimes developed here accepts the realist image of international politics, in which autonomous self-interested states interact in an anarchic environment. Yet there are situations in which rational actors have an incentive to eschew unconstrained independent decision making, situations in which individualistic self-interested calculation leads them to prefer joint decision making (regimes) because independent self-interested behavior can result in undesirable or suboptimal outcomes. These situations are labeled dilemmas of common interests and dilemmas of common aversions. To deal with these, states must collaborate with one another or coordinate their behavior, respectively. Thus there are different bases for regimes, which give rise to regimes with different characteristics. Coordination is self-enforcing and can be reached through the use of conventions. Collaboration is more formalized and requires mechanisms both to monitor potential cheating and to insure compliance with the regime. The article elucidates the assumptions of such an interest-based approach to regimes, assimilates alternative explanations into this framework, and develops the implications for regime maintenance and change.
Rational politicians are interested in judicial independence (JI) in order to make their promises credible. However, politicians whose preferences deviate from the dicta of the judiciary have incentives to renege on judicial independence. In this paper, we measure these two conflicting aspects of judicial independence using two indicators: (i) de iure JI, which focuses on legal foundations, and (ii) a de facto JI, which focuses on countries' actual experiences. We test whether JI affects economic growth for a cross section of 57 countries. We find that real GDP growth per capita is not affected by de iure JI but is positively related to de facto JI.
We explore the role of export subsidies when foreign goods are initially of unknown quality to domestic consumers. Absent export subsidies, entry of high quality firms may be blocked by their inability to sell at prices reflecting their true quality. Export subsidies can break this entry barrier and increase welfare. Moreover, even when high quality firms find it possible to signal their quality to consumers through an introductory pricing strategy, a rolefor government policy can arise: the signal (low introductory price) transfers surplus from foreign producers to domestic consumers and can be avoided with an appropriate export tax/subsidy policy.
We propose a model of trade agreements in which contracting is costly, and as a consequence the optimal agreement may be incomplete. In spite of its simplicity, the model yields rich predictions on the structure of the optimal trade agreement and how this depends on the fundamentals of the contracting environment. We argue that taking contracting costs explicitly into account can help explain a number of key features of real trade agreements. (JEL D86, F13)
This article analyzes international investment protection law by using tools of economic contract theory. Contract theory
has been applied to international trade law, but investment law has not yet been analyzed under this methodology. International
Investment Agreements may be interpreted as a mechanism for overcoming commitment problems between investor and host state
in order to generate mutual benefits. States trade credibility for sovereignty as international investment law restricts the
regulatory conduct of states to an unusual extent, subject to control through compulsory international adjudication. A well-known
problem in contract theory is how to deal with uncertainty. Changing conditions are a prevalent characteristic in investment
law. Contract theory finds that too strict and inflexible contracts may impair the joint surplus of the contracting parties.
Thus, a trade-off arises between ex ante commitment on the one hand and flexibility ex post in order to uphold the efficiency of the contract on the other. Those problems become virulent in unforeseen crises, such
as financial or economic ones. This article analyzes commitment and flexibility mechanisms in international investment protection
law and proposes to use similar mechanisms as in WTO law to design more optimal contracts.
Standard rational choice analysis explains many but not all aspects of the highly political process of international legalization. Because law engages and affects not only the interests of actors but also their normative values, the development and operation of legal regimes can be understood only by considering both motivations together. We develop a simple model of the interaction of "value" and "interest" actors that shows how their different logics of behavior and distinctive strategies drive the politics of legalization--both in particular episodes and through deeper interrelationships over time. To demonstrate our argument empirically, we analyze how various turning points in the development of the 1997 Organization for Economic Cooperation and Development Anti-bribery Convention can be fully understood only as resulting from the interplay of values and interests. Our analysis thus blends rational choice with normative or constructivist approaches to provide a richer account of international legalization. Copyright 2002 by the University of Chicago.
This paper analyzes the resource-allocation and welfare effects of export-performance requirements imposed on foreign investors.
It argues that a satisfactory analysis must consider the presence of tariff distortions and oligopolistic behavior in host-country
markets. These create a second-best environment in which an evaluation of the welfare effects of such requirements is no longer
straightforward. It is concluded that export requirements can improve home welfare by reducing payments to foreign capital,
reducing the output of commodities which are being overproduced, and shifting profits toward domestically owned firms.
This article studies rules of "damage measures" that determine how much money must be paid by a party who defaults on a contract to the other party to the contract. The theme of the article is that damage measures serve as a substitute for completely specified contracts. In particular, it is shown that under an incompletely specified contract damage measures can induce parties to behave in a way that approximates what they would have explicitly agreed upon under a fully specified contract. Moreover, it is argued on familiar lines that because it is often costly or impossible to make contractual provisions for contingencies at a very detailed level, there is an evident need for such substitutes for well-specified contingent contracts as are afforded by damage measures
The adoption, on 20 October 2005, of the Convention on the Protection and Promotion of the Diversity of Cultural Expressions (Diversity Convention) has returned the limelight to the suitability of World Trade Organization (WTO) rules for cultural products. This article
shows that the Diversity Convention, while an important step towards the recognition of cultural diversity as an internationally recognized public choice of
states, does not affect the rights and obligations of WTO Members as such. The original purpose of the Convention was to create
a safe haven for cultural policies and protect them from WTO disciplines. However, the central operative provision for bringing
about the desired shielding effect for domestic policies safeguarding national cultural industries against foreign competition,
its now-article 20, while making a general claim to non-subordination in paragraph 1, modifies this broad statement in paragraph
2 so as to only apply to treaties concluded at the same time or later. The article explores how to avoid or minimize an undesirable
incongruence between liberal trade rules and the right of states to protect shelf-space for domestically produced cultural
products.
The Doha Ministerial Declaration mandates the WTO Negotiating Group on Rules to 'clarify and improve WTO Disciplines on fisheries subsidies'. Under this mandate, the so-called 'Friends of Fish' currently propose to adopt special sectoral disciplines on fisheries subsidies that directly and primarily aim at preserving fish resources. This paper examines whether and to what extent proposals by Friends of Fish can be justified, as a matter of law and policy. This paper first demonstrates that: (i) the current SCM Agreement may resolve fisheries subsidies issues to a considerable extent through dispute settlement; (ii) some limits of the SCM Agreement originate mostly from the generic imperfectness of the current SCM rules that apply equally to other sectors, rather than from unique features of the fisheries sector. Therefore, WTO Members may preferably move forwards negotiating on special disciplines only for residual matters that dispute settlement or cross-sectoral negotiations on SCM rules cannot effectively address. The Doha mandate cannot be construed as legally authorizing WTO Members to adopt special disciplines on fisheries subsidies as proposed by Friends of Fish, which would be a significant step beyond the trade-oriented WTO mission. As a matter of policy, such a move by the WTO towards sustainability would be an historic step for the WTO, but it would be justified only when proposed disciplines are accompanied by appropriate means to avoid or at least minimize an institutional systemic risk for the WTO. Current proposals by Friends of Fish seem to lack such a safety net. This paper concludes with several recommendations for WTO Members in dealing with fisheries subsidies issues so as to maintain a systemic balance and minimize an institutional risk for the WTO as a multilateral trading system. Oxford University Press 2003, Oxford University Press.
The WTO is not explicitly concerned with the problem of regulatory jurisdiction in connection with prudential regulation (as
opposed to industrial policy regulation). However, as the WTO has addressed increasingly complex regulatory barriers to trade,
it has developed several devices that have the implicit effect of allocating regulatory jurisdiction among states.This article
reviews a few illustrative cases in WTO law, including Helms–Burton, Shrimp, and Gambling. This review suggests how these cases may be understood as dealing with allocation of regulatory jurisdiction. Negative integration
rules such as national treatment or proportionality may serve as devices applied by tribunals for allocation of regulatory
authority. The WTO has very limited rules of positive integration—whereby states either harmonize regulation or agree on more
specific allocations of regulatory authority, such as mutual recognition. However, it has developed a modest degree of capacity
to engage in positive regulation, or to refer to positive integration rules developed in other contexts, such as Codex Alimentarius.
Finally, this article examines theoretical bases for allocating and reallocating regulatory jurisdiction in order to establish
a framework by which to analyse the role of the WTO in this context.
The Asian currency crises have been introduced by many economists as evidence that almost any country could be vulnerable to speculative attacks and to contagion effects, even with apparently good economic fundamentals. These financial crises have also been interpreted by other economists as rational market reactions to the unsustainability of domestic macroeconomic policies or structural weaknesses. The objective of this paper is to evaluate the relative importance of macroeconomic unsustainability, financial vulnerability, and crisis contagion in a model that explains and predicts the Asian currency crises. Out-of-sample forecasts based on two-stage panel and logit regressions provide evidence of a pure contagion effect, which significantly worsened the crises. They also show that Indonesia was the only one of the six Asian nations examined (India, Indonesia, Malaysia, Philippines, South Korea, Thailand) that was in an unsustainable economic situation, and that the other five nations were only vulnerable to a currency crisis. Copyright 2002 by Blackwell Publishing Ltd.
A high degree of de facto judicial independence (JI) functions as a crucial precondition of governments to credibly commit to legislative decisions, such as respecting private property rights. Thus, de facto JI should improve the allocative efficiency and may therefore contribute positively to economic growth. But JI as formally written down in legal texts is an imperfect predictor for de facto JI. This paper tries to identify the forces which determine de facto JI. A distinction between factors that can be influenced in the short run and those that are the result of historical development and that are exempt from short-term modification is made. Ascertaining the relative relevance of these two groups of variables promises to be policy-relevant. A rigorous empirical model reduction process is used in order to cope with the potential excess of explanatory variables. The explanatory variables for de facto JI that survive the reduction process are de jure JI, legal confidence of the public, extent of democratization, degree of press freedom, and the religious beliefs of the population.
In this paper, we consider a three-stage game in the context of a competing exporters model to compare and contrast the effects of discriminatory and uniform (Most Favored Nation, MFN) tariffs on countries' choice over environmental standards for varying degrees of pollution spillovers. Because of the presence of punishment effects and stronger own and cross-tariff effects, we find that discrimination yields higher standards than MFN (and free trade) independently of the extent of pollution spillovers. When pollution is local and incentives to free ride on other countries' abatement efforts are weak, we show, however, that welfare is larger under MFN than under discrimination. In a dynamic setting, we consider the impact of symmetric and asymmetric treatments on the sustainability of an international environmental agreement (IEA) and obtain that multilateral cooperation is easier to sustain under discrimination than under MFN (or free trade).
Countries can choose between a wide range of policy instruments to address climate change. While economists tend to argue for the efficiency of instruments such as environmental taxes, many countries are incorporating subsidies into their plans for limiting greenhouse gas emissions. However, these subsidies may conflict with World Trade Organization rules. This paper analyzes the potential benefits of using climate change subsidies in terms of addressing market failures as well as the risks of protectionism arising from such subsidies. It then examines World Trade Organization rules to determine whether they optimally differentiate between beneficial and harmful subsidy policies. It concludes that existing WTO rules do not provide adequate scope for legitimate subsidies and makes suggestions for reforming subsidies law.
We provide a first formal analysis of the international rules that govern the use of subsidies to domestic production. Our analysis highlights the impact of the new subsidy disciplines that were added to GATT rules with the creation of the WTO. While GATT subsidy rules were typically viewed as weak and inadequate, our results suggest that the key changes introduced by the WTO subsidy rules may ultimately do more harm than good to the multilateral trading system by undermining the ability of tariff negotiations to serve as the mechanism for expanding market access to more efficient levels. (JEL: F02, F11, F13, F15, F53)