¹ Robert, Howse and Damien, Neven, 2004. “United States - Tax treatment for ‘Foreign Sales Corporations’ Recourse to Arbitration by the United States under Article 22.6 of the DSU and Article 4.11 of the SCM Agreement (WT/DS106/ARB): A comment,” in Horn, and Mavroidis, (eds.) The WTO Case Law of 2002, The American Law Institute Reporters’ Studies, Cambridge University Press, 2004.Google Scholar

² This is a complex issue conceptually: on the relationship between “egalite” and “equivalence” in economic justice, see Kojeve, A., Outline of a Phenomenology of Right, tr. Frost and Howse (2000).Google Scholar

³ Cannizzaro, E., “The Role of Proportionality in the Law of International Countermeasures,” EJIL (2001) 889–916, pp. 902–903.CrossRefGoogle Scholar

⁴ See, for example, Analytical Index: Guide to GATT Law and Practice, Volume 2, WTO, 1995, pp. 657–658.

⁵ The Arbitrators emphasize (pp. 16–17, 5.24–5.28) that their trade-effects approach follows in line with the general approach adopted in earlier arbitrations. However, given the nature and application of the US Anti-Dumping Act of 1916, any possible trade effects would have had to take the form of a “chilling” or deterrent effect, and the Arbitrators considered but ultimately rejected the quantification of such effects as too speculative. Consequently, most of the Arbitrators' discussion with regard to the level of nullification or impairment caused by the 1916 Act focuses on direct monetary payments made by European companies to the United States as a result of final legal judgements or settlements under the 1916 Act. We focus our evaluation on the general economic rationale for the trade effects approach, and for simplicity we ignore in our discussion the additional means of nullification or impairment that arose more specifically in the context of the 1916 Act (e.g. final legal judgments against foreign firms).

⁶ See Sykes, Alan O., “The Remedy for Breach of Obligations Under the WTO Dispute Settlement Understanding: Damages or Specific Performance?” in Bronckers, Marco and Quick, Reinhard (eds.) New Directions in International Economic Law, Kluwer Law International (The Hague), 2000Google Scholar; Schwartz, Warren F. and Sykes, Alan O., “The Economic Structure of Renegotiation and Dispute Resolution in the World Trade Organization,” Journal of Legal Studies 31, 2002Google Scholar; and Lawrence, Robert Z., Crimes & Punishments? – Retaliation Under the WTO, Institute for International Economics (Washington, DC) 2003Google Scholar. Sykes (2000) and Schwartz and Sykes (2002) also offer a number of arguments for why the WTO might favor a liability-rule approach over the natural alternative of a “property-rule” approach, which would allow a government to escape from its commitments only after securing the permission of adversely affected trading partners. We refer the reader to those papers for further discussion of these and related issues.

⁷ In principle, it might be possible that the resulting network of bilateral breaches could ultimately come to rest at a new internationally efficient point. But as a practical matter, the potential for instability seems real, and so we view these multilateral spillovers as a crucial fault associated with the remedies described in Figure 2. We also note that, by assuming that the tangency condition depicted in Figure 2 for the two-country case applies as well to an efficient point in our four-country example, we are implicitly assuming that the particular efficient MFN tariffs under consideration are “politically optimal” tariffs (see Kyle, Bagwell, and Staiger, Robert W., “An Economic Theory of GATT,” American Economic Review, March 1999Google Scholar; and Kyle, Bagwell, and Staiger, Robert W., The Economics ofThe World Trading System, MIT Press, 2002Google Scholar). More generally, as shown in Kyle, Bagwell, and Staiger, Robert W., “Multilateral Trade Negotiations, Bilateral Opportunism and the Rules of GATT/WTO,” Journal of International Economics, December 2005Google Scholar, efficient MFN tariffs in a multi-country setting do not imply a tangency such as that depicted in Figure 2, but these (non-politically-optimal) efficient points suffer from a related kind of instability even in the absence of preference shocks.

⁸ This point is related to the seminal observations of Murray, Kemp, and Wan, Henry L Jr., “An Elementary Proposition Concerning the Formation of Customs Unions,” Journal of International Economics 6, 1976Google Scholar. The essential observation underlying the present discussion, that reciprocal tariff changes in the presence of MFN leave third countries unaffected, is shown in Bagwell and Staiger (2005). We also note that we have couched our arguments in broad terms, so that we may interpret essential features of the trade-effects approach as that approach is applied in a wide variety of settings (e.g. Arts. XIX, XXIII, and XXVIII). However, our multilateral stability arguments are made under the assumption that both the initial breach and the retaliation are non-discriminatory, and hence conform to MFN. This assumption fits well in the context of Arts. XIX and XXVIII. But discriminatory measures are often at the heart of Art. XXIII disputes, and Art. XXIII provides explicitly for discriminatory retaliation, so this assumption will often be violated in the context of Art. XXIII, weakening our arguments for the multilateral stability of the trade-effects remedy in this context. While a deeper exploration of the stability properties of the trade effects approach in a discriminatory setting would be interesting and worthwhile, we simply observe here that the economic appeal of the trade-effects approach will be strongest in settings where deviations from MFN are relatively minor.

⁹ See Bagwell and Staiger (1999, 2002), for a development of the notion of politically optimal tariffs.

¹⁰ See Alan Winters, L., “Regionalism and the Rest of the World: The Irrelevance of the Kemp-Wan Theorem,” Oxford Economic Papers, 1997, for a discussion of the distinction between fixed equilibrium trade volumes and a fixed terms of trade.

¹¹ For further discussion of the links between standard economic arguments and the GATT/ WTO concept of market access, see Bagwell, and Staiger, (2002).Google Scholar

¹² See Staiger, Robert W. and Wolak, Frank A., “Measuring Industry-Specific Protection: Antidumping in the United States,” Brookings Papers on Economic Activity: Microeconomics, 1994, pp. 51–118CrossRefGoogle Scholar; and Krupp, Corinne M. and Pollard, Patricia S., “Market Responses to Antidumping Laws: Some Evidence from the US Chemical Industry,” Canadian Journal of Economics 29(1), February 1996, pp. 199–227.CrossRefGoogle Scholar

¹³ See, for example, Shin, Hyun Ja, “Possible Instances of Predatory Pricing in Recent Antidumping Cases,” in Lawrence, Robert Z. (ed.), Brookings Trade Forum, 1998, pp. 81–98.Google Scholar

¹⁴ Jackson, J.H., “The WTO Dispute Settlement Understanding-Misunderstanding on the Nature of Legal Obligation,” 91 American Journal of International Law 60 (1997).Google Scholar

¹⁵ Sykes, A.O., “The Remedy for Breach of Obligations under the WTO Dispute Settlement Understanding: Damages or Specific Performance?” in Bronckers, M. and Quick, R., eds., New Directions in International Economic Law: Essays in Honour of John H. Jackson (The Hague: Kluwer, 2000), pp. 347–357.Google Scholar

¹⁶ Esserman, Susan and Howse, Robert 2004, “The WTO on trial,” Foreign Affairs, 82(1), 130–140CrossRefGoogle Scholar. Howse, Robert and Nicolaidis, Kalypso, (2003), “Enhancing WTO legitimacy constitutionalization or global subsidiarity?” Governance, 16(1), 73–94.CrossRefGoogle Scholar

¹⁷ We have benefited from the illuminating discussion ofrelated and similar considerations in Jackson, John H., “Status of WTO Dispute Settlement Reports: Obligations to Comply or Option to ‘Buy Out’?” American Journal ofInternational Law, January 2004, 109–125.Google Scholar