Law & Economics Workshop
presents
Professor Chad P. Bown
Department of Economics and International Business School (IBS)
Brandeis University
The Economics of Permissible WTO Retaliation
(with Michele Ruta, WTO)
Wednesday, October 22, 2008
12:30 – 2:00
Solarium (Room FA2) – Falconer Hall
University of Toronto, Faculty of Law
84 Queen’s Park
WTO arbitrators rely on economics to establish the permissible retaliation limits authorized by the Dispute Settlement Understanding (DSU) which arguably serves to enforce the overall agreement. We examine how theoretical and quantitative economic analysis has and can be used in this stage of the DSU process. First, we identify, characterize, and categorize the major classes of disputes – e.g., those affecting import protection versus export promotion – and use the Bagwell and Staiger interpretation of the WTO principle of reciprocity to provide a theoretical framework that arbitrators can use to identify the maximum level of retaliatory countermeasures. Second, we allocate each of the ten DSU arbitrations that have taken place thus far into one of these categories and compare the arbitrators’ actual approach with the theory. Third, we use this framework to identify three crucial elements to the arbitrators' decisionmaking process for each case: i) the formula that they decide to adopt for identifying appropriate countermeasures, ii) their political-legal-economic decision on a WTO consistent counterfactual to use to implement the formula, and iii) the quantitative methods they use to necessarily construct the (unobserved) WTO-consistent counterfactual. We examine not only the arbitrations that have taken place thus far, but our approach also illustrates a template for many additional types of arbitrations likely to take place under the DSU. Finally, in the disputes in which this reciprocity approach has not been used, we identify procedural difficulties that arbitrators confront thus highlighting the constraints that hinder their use of economic analysis in practice.
Chad Bown is Associate Professor in the Department of Economics and International Business School (IBS) at Brandeis University in Waltham, Massachusetts (USA) and a Non-Resident Fellow in the Global Economy and Development (GED) Program at the Brookings Institution in Washington, DC. Bown is a term member of the Council on Foreign Relations and serves as the Book Review Editor for the World Trade Review. For 2007-2008 he was the visiting scholar in the Economic Research and Statistics Division in the World Trade Organization (WTO) Secretariat in Geneva, Switzerland. Professor Bown’s research focuses on the economics of international trade laws and institutions, trade policy negotiations, and trade frictions. His recent research examines WTO dispute settlement, the international use of antidumping and safeguard trade policies, and the integration of China, India, and other developing countries into the global trading system. His research has been funded through grants from the William and Flora Hewlett Foundation, the Andrew W. Mellon Foundation, and the German Marshall Fund of the United States, and it has been published in professional academic journals, edited volumes, and in policy outlets. He has also been a visiting scholar at the World Bank in Washington, DC and a visiting fellow at the Center for European Integration Studies (ZEI) in Bonn, Germany. For the 2004-2005 academic year he was the Okun-Model Visiting Fellow in Economic Studies at the Brookings Institution. Professor Bown teaches courses on the global economy, international trade policy and institutions, and international trade disputes to undergraduate students at Brandeis, as well as in Brandeis’ International Business School. Bown received a B.A. magna cum laude in Economics and International Relations from Bucknell University and a Ph.D. in Economics from the University of Wisconsin-Madison.
A light lunch will be provided.
For more workshop information, please contact Nadia Gulezko at n.gulezko@utoronto.ca.
