The dispute resolution procedures of the World Trade Organization allow sanctions to be imposed when a country is unwilling to bring a WTO-inconsistent trade measure into conformity. Apart from the fact that the procedure for triggering the retaliation process has ambiguities that need to be removed, the retaliation itself has some undesirable economic features. This paper looks at why compensation is not preferred to retaliation and then examines five economic features of the temporary trade retaliation that WTO may permit under certain conditions. Both efficiency and equity concerns are raised. The paper concludes with some suggestions for reforming this part of WTO dispute resolution during the review of the Dispute Settlement Understanding that is due to be completed by May 2003.

The negotiation of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) greatly expands the purview of the World Trade Organization (WTO) into domestic regulatory standards. This evolution immediately raises the question of whether other regulatory standards, including competition policy, environmental standards, and worker rights, should be added to the WTO agenda. Indeed, the Doha Declaration opened the door for negotiations on the environment and competition policy but not labor standards. In this paper I review the logic and evidence for this decision based on economic arguments for multilateral management of market externalities, policy coordination problems, and systemic trade issues. The review concludes that, conditional upon the protection of intellectual property rights in the WTO, a strong case may be made for including competition rules. The case is weaker for environmental regulation (if by that is meant a set of WTO rules on permissible standards) and quite weak for core labor standards.

This essay examines the effect of power asymmetries and imperfect markets on US trade policy, two issues often neglected in the conventional literature. We suggest that when the distribution of power is skewed and markets do not conform to the world of standard trade theory, open international markets will not exist unless the disproportionately most powerful state can make a credible commitment to free trade. We suggest that these two conditions characterized the post-World War II trade environment and partially explain why the United States encouraged the formation of the postwar international trade regime. To demonstrate this argument, we examine the voting rules, dispute settlement procedures, and regional trading arrangements that characterized the three postwar trade organizations: the stillborn International Trade Organization, the General Agreement on Tariffs and Trade, and the World Trade Organization. We argue that the rules of these institutions empowered their member states to punish any US attempts to ‘cheat’. In so doing, it made free trade their welfare-maximizing strategy choice.

This paper reviews the increase in problems associated with the origin of goods that is due to increasing fragmentation of international trade. In particular, it examines three applications of rules of origin: rules of origin in free trade areas, preferences to developing countries, and the treatment of imports that have some domestic factor content. Traditionally each of these has used all-or-nothing rules of origin. The paper proposes a new method of dealing with all three problems. This method substitutes a valuation based on the value added in different origins for the present methods of valuing goods at the gross price and attributing origin to only one country. The value added method would improve the efficiency of world production and consumption in a number of ways.

Many WTO members have been engaging in efforts at the regional level to liberalize services trade even as they are negotiating under the GATS. This duplication of negotiating effort might appear misplaced, unless regional trade agreements can actually produce results going beyond those at the multilateral level and thus serve the interests of their members. This paper explores in what areas regional agreements on services have surpassed the GATS in terms of delivering on three key objectives set out by all service agreements, namely the promotion of transparency, stability, and liberalization for services trade. The paper comments on how countries may evaluate where to best direct their negotiating efforts, according to the type of service activity in question, and suggests that regional agreements can prove to be useful in supporting and pushing forward multilateral services liberalization.