Krzysztof Pelc: “Why Do We Not See More Efficient Breach at the WTO?”

by

Krzysztof Pelc:

While models of “optimal compensation” grow in sophistication, the institutions concerned are evolving progressively further away from the recommendations of efficient breach advocates. Indeed, voluntary export restraints were forcefully banned during the Uruguay Round, and there is no sign of their being brought back into use; the WTO Agreement on Safeguards has drastically reduced the possibility of compensation, by explicitly ruling it out in the first three years of any safeguard measure; retaliation, far from becoming an automatic response to continued violations, is exercised in about one percent of all WTO disputes; monetary compensation has been offered only once in WTO history…

If efficient breach at the WTO would make all parties better off, then why do we see so little of it?…

The argument presented in this paper brings back the question of the purpose of the WTO as an institution. Focusing on domestic politics, I demonstrate how the possibility of efficient breach defies the purpose for which countries join the institution in the first place…

while individual instances of efficient breach would indeed make trading partners better off, its sheer possibility empowers domestic interest groups, by raising payoffs from lobbying for protection, and thus acts to slow down trade liberalization. It is little wonder that the countries that would seem to benefit most from the possibility of efficient breach have consistently opposed it. Over and above its normative implications, and the net transaction costs it may generate, efficient breach goes against the very purpose of international trade agreements.

Hat tip to IELP.

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