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The GATT was founded in 1947 as a truncated, “provisional” arrangement of the International Trade Organization (ITO). The ITO had been designed as the third leg of the Bretton Woods system but was never ratified. Political opposition in the United States, in particular, was its downfall. The ITO had included an ambitious agenda of economic and trade-related topics, including international agreements on employment and economic policy, economic development and postwar reconstruction, restrictive business practices, intergovernmental commodity agreements, and commercial policies. However, the negotiating countries could conclude a final agreement on only the last of these topics, which resulted in the GATT. Even then, the issue of national sovereignty played a large role in international trade relations. It will be useful to keep this point in mind in the subsequent discussion, since the content of the GATT showed specifically just how far the United States and other countries were willing to go in 1947 to reach a consensus on international trade policies. It was never intended to serve as a permanent international institution, and its lack of a treaty framework meant that it had no members, only “contracting parties. ” The institutional limitations of the GATT eventually led to the creation of its more formal, treaty-based trade institution, the WTO.
Despite its inauspicious beginnings, the GATT evolved into a highly successful mechanism for trade liberalization. Its success was the result of an evolutionary process of negotiating methods that adapted to an expanding membership and changing agenda over several years. Because of its limited scope, the GATT covered mainly trade in manufactured products, but trade negotiations in the GATT system succeeded in lowering tariffs in these sectors from a depression-era average of 45 percent to post-Uruguay levels averaging about 5 percent. GATT-sponsored negotiations also resulted in the reduced use of nontariff barriers (NTBs), especially quantitative restrictions on trade, which tend in general to distort trade more than tariffs do.
The first GATT trade talks in 1947–1948 included only the twenty three founding countries, and led to some 45,000 trade concessions, slashing all participating countries’ industrial tariff levels by nearly 20 percent. This early postwar success in trade liberalization was the result of a legacy of extremely high tariffs from the Great Depression and World War II, which were ripe for the cutting, and U. S. willingness to lead the way on most favored nation (MFN) tariff reductions as part of a new postwar economic order. The next four rounds of trade negotiations, in contrast, were much less successful. The first Geneva Round had harvested the low-hanging fruit of heavy protectionism, and after these tariffs were lowered, political difficulties stood in the way of further cuts. Negotiators attempted to continue with the line-by-line approach used in 1947, but a growing GATT membership was making this approach more difficult. In addition, the United States was no longer playing the same leadership role, as its imposition of escape clause measures and peril point tariff rate floors on trade negotiations prevented tariff reductions below levels that would trigger political opposition at home. Tariff cuts during this period of negotiations averaged only about 3 percent.
The ever-expanding GATT had ninety-nine member countries by the time the Tokyo Round (1973–1979) was completed. Trade negotiations, which in the early postwar years took a matter of months to complete, were by now lasting several years. The Tokyo Round negotiators again used an across-the-board approach to tariff reductions, combined now with an even broader agenda of nontariff issues and new preferences for developing countries. The overall results were again impressive: a further reduction of industrial tariffs by 33 percent, to an average level of 6 percent among GATT countries, and a number of partial agreements on new, nontariff issues.
After the Tokyo Round, the pressures to push for more multilateral trade liberalization across several fronts, including agriculture, services, investment measures, and intellectual property, led eventually to the launch of the Uruguay Round. By combining nearly all of the negotiations into a unified, single undertaking within the framework of a fully fledged, treaty-based WTO, the trading system finally got a permanent framework for comprehensive trade liberalization. Despite the persistence of protectionist sentiments in all WTO countries over the years and unresolved trade disputes among WTO members, nearly all countries continue to push for more trade liberalization. The fact that these countries have adapted their negotiating methods, put up with increasingly lengthy trade rounds, and persevered in reaching compromises to achieve agreements provides compelling evidence of the gains from trade4 and the value of the WTO.
The GATT/WTO Law and Regulations System
The successes of the GATT negotiations over four decades encouraged countries to extend trade liberalization negotiations into other areas, such as services, trade-related investment activities, and intellectual property protection, as well as agriculture and textiles, which had remained largely exempt from GATT disciplines. In this regard, one of the most serious problems with the GATT was that its increasingly ambitious negotiating agendas were leading to the voluntary lá carte codes, as mentioned earlier. Progress in these areas required an expanded institutional structure, which was finally realized in the founding of the WTO at the conclusion of the Uruguay Round trade negotiations in 1994. Building on the GATT structure, the WTO incorporated the original GATT rules (as amended in the Uruguay Round negotiations) and created new multilateral agreements: TRIMs (covering trade-related investment measures), TRIPs (trade-related intellectual property protection), and GATS (the General Agreement on Trade in Services). Along with further tariff reductions and some reforms of GATT rules, the WTO also introduced a revised and strengthened GATT Dispute Settlement Understanding (DSU), now applicable to all of the new areas covered by WTO agreements. Most important was the fact that the WTO was a comprehensive agreement, whose entire set of provisions had to be accepted as a “single undertaking” by all members.
The membership of the WTO as of mid-2003 stood at 146 countries and is growing. Critics of the WTO who lament countries’ alleged loss of sovereignty by subjecting themselves to WTO decisions should ponder the fact that nearly every country in the world is a member or else wants to be. The basic requirements for membership are that the country’s economy has something approaching a market-based price system and a trade policy structure that is amenable to negotiation. The revised set of trade rules has come to be known as the GATT/ WTO system, a designation that acknowledges the legacy of the GATT in establishing the basic principles of multilateral trade rules, extended now to cover the broader set of products and activities represented by the WTO.
The WTO’s purpose is to establish a system of trade policy rules upon which all of its members agree, a forum for negotiating market-opening and other trade-related issues, and a dispute settlement system that tries to resolve trade disputes among the members peacefully (that is, without resort to an escalating trade war).
At the heart of the GATT/WTO system lie the principles carried over from the GATT. Most important among these is the most-favored nation (MFN) principle, which mandates nondiscriminatory treatment in trade relations among all WTO members. The importance of this principle is revealed in the fact that it cannot be amended without the unanimous agreement of all member countries. Essentially, this rule declares that WTO members are not allowed to play favorites among their trading partners. The term itself stems from the requirement that each member must apply trade policies to other member nations that are no less advantageous than the policies applied to its “most-favored nation.” That is, everybody in the WTO gets the same (best) treatment from everybody else in the WTO: no discrimination, no favorites.
There are exceptions to the MFN rule in the GATT/WTO system. One of the most significant is the permission (under specified circumstances) to form customs unions or free trade areas of limited membership. These arrangements, such as the North American Free Trade Agreement (NAFTA), the European Union, and Mercosur (Argentina, Brazil, Paraguay, and Uruguay), violate the MFN rule in principle by giving the free trade partners special favored treatment. An example of negative discrimination is the use of antidumping and countervailing duties to restrict trade against specific targeted suppliers that violate certain defined fair-trade practices. A more systematic departure from MFN is contained in the Generalized System of Preferences (GSP), which allows more favorable tariff treatment toward certain products exported by developing countries. It should be noted that MFN is such a compellingly simple and powerful concept for conducting trade policy that all of the exceptions to it have always been controversial and are typically motivated by the politics of playing favorites among domestic constituents and trading partners.
Another principle enshrined in the GATT/WTO system is reciprocity in trade negotiations. The system of multilateral trade liberalization can only work politically if all countries that come to the negotiating table are ready to deal, that is, to offer concessions in the form of improved market access measures, in return for market-opening offers by other countries. This negotiating principle—“I will lower my tariffs if you lower yours”— is a key part of the political solution to the problem of overcoming resistance to trade liberalization at home (Macmillan, 2004). At home, negotiators will inevitably run into opposition from the domestic industries now exposed to more import competition by the lower tariffs. But reciprocity allows them to go home with a victory in the form of increased access to other countries’ markets for the home country’s exporters (Roessler, 1999).
The three basic principles of the WTO—MFN treatment, reciprocity, and dispute settlement—create a simple but powerful framework for ordering trade relations among independent, sovereign countries. The signal accomplishment of the GATT was to harness these ideas into an integrated, self-reinforcing system, which could legitimately claim that if all signatories followed the rules, everyone would benefit. This consensual and collaborative approach is important, since the WTO has no direct enforcement mechanisms and no centralized authority. It cannot punish those who violate the rules, but only allow other members, under certain circumstances and within limits, to retaliate against the violator. The WTO maintains a historical continuity with this tradition by carrying over these principles to the broader areas of trade, investment, and intellectual property.
What the WTO Does and How Various Interests Are Represented
The WTO is an umbrella organization that incorporates previous GATT accords and includes new agreements on trade in services and trade-related intellectual property rights. Unlike the GATT, which bound its contracting parties to a smaller scope of rules, mainly regarding trade in manufactured products, the WTO is an organization whose members commit to adhere to the entire set of agreements in a single undertaking.
The WTO goals, as described in article III of the 1994 Morocco agreement, include (1) administering multilateral trade agreements, (2) acting as a forum for multilateral trade negotiations, (3) administering a dispute settlement process, (4) reviewing national trade policies, and (5) cooperating with the World Bank and the IMF to achieve greater coherence in global eco nomic policymaking. Of these goals, the second is the most important, since the goals and activities of the other four items flow from the agreements reached in the negotiations.
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The nature of such multilateral negotiations suggests the complicated process that is typically involved in reaching an agreement. In order to focus the discussion as efficiently as possible and to limit the number of negotiating units, the WTO gives legal standing only to nations, as represented by their governments. This provision is mandated by the accepted practice of public international law. Companies, individuals, and other groups or organizations can find representation in WTO negotiations and activities only to the extent that governments incorporate their interests into their negotiating positions.
Negotiating trade policy issues in democratic societies therefore involves, in basic terms, a two-stage process (Putnam 1988): (1) at the national level, identifying the trade-offs and compromises in trade policy that recognize domestic political constraints, and (2) in international negotiations, identifying the trade-offs and compromises necessary to get an agreement among countries that will simultaneously satisfy each country’s political objectives at home. Having identified the structure of political influence, it is also clear that actually achieving influence cannot be guaranteed for any specific point of view. Certain environmental, labor, and human rights groups complain, for example, that they do not have their fair share of access or influence on the trade negotiation process. Yet this complaint points to the role of domestic political structures and current administration attitudes, not the WTO as such, as the source of their problem. At the same time, it would be difficult to argue that these concerns have been ignored in trade negotiations, since the United States and the European Union, among others, have pushed for discussion of environmental and labor standards in WTO meetings.
Yet for those groups that are currently frustrated in their attempts to influence trade policy rules through the WTO, this study will offer some alternatives to what must be considered the pipe dream of creating a “green” WTO. (Hudec, 1996) Aside from some reforms that may be possible in submissions to dispute settlement panels, the main channel of effective influence will probably be through treaties and conventions that directly address the environmental or social issue. The fact remains, however, that international institutions such as the WTO will continue to operate on well-established rules and traditions that apply to all treaties and official international bodies: it is the governments that make the decisions and define the agendas. The issue of nongovernmental organizations’ participation in the WTO is also quite significant.
The WTO is officially headed by the Ministerial Conference, a sort of committee of the whole of the WTO membership. Each government’s delegation to the Ministerial Conference is usually headed by a trade minister or equivalent, and the group meets about every two years, as it has done in Singapore (1996), Geneva (1998), Seattle (1999), and Doha, Qatar (2001). These are major events that usually involve high-level decisions on upcoming negotiating agendas, interim agreements, or other business commensurate with the senior level of representation. The Ministerial Conference appoints a director general (DG), who is in charge of the WTO Secretariat in Geneva. The DG is usually a senior trade diplomat or government official whose primary job is to provide moral leadership for global trade liberalization; to encourage, cajole, or scold governments at critical points in multilateral negotiations; and otherwise to present the WTO case for increased trade to the outside world.
The WTO staff are therefore not in a position to act as a world government, as alleged by some critics, much less to take over the world. One reason is that they simply do not have enough money. (Trachtman, 2006) Another reason is that the WTO members have made sure that the Secretariat has no rule- or policymaking authority. All power emanates from the collective and consensual agreement of the WTO members.
Dispute Settlement Laws
One of the most important ongoing WTO activities, and certainly the most visible, is dispute settlement among its members. The WTO rules allow a member country to file a case against another member country to challenge a specific policy or practice, usually on the basis of its alleged incompatibility with the WTO system. If preliminary consultations do not resolve the dispute, the case is reviewed by a dispute settlement panel, which is charged with rendering a judgment as to whether the accused country’s policy or practice is in violation with WTO rules (Pauwelyn, 2000). If the panel rules against a specific policy or practice, the “guilty” country is technically required to change its practice or legislation in order to achieve WTO compliance. Either country can appeal the panel’s finding on the basis of fact or law to a standing WTO Appellate Body, which can sustain or overturn the original panel’s decision. If, after further consultation and possible arbitration, the loser refuses to comply with the panel’s ruling, the country that filed the case is allowed to impose retaliatory measures within certain constraints.
The dispute settlement process is perhaps the single most controversial component of the WTO system, specifically where protests over alleged violations of sovereignty, antidemocratic practices, and anti-environmental biases converge. For some WTO critics, it is a question of legitimacy: the panels do not reflect any direct democratic representation, and they seem not to be accountable to any checks and balances. For others, it is an issue of transparency, openness, and access: the panel reviews are not public, and only governments involved in the dispute are allowed to submit testimony. For yet others, the issue is ideological: the panel rulings have in some cases declared environmentally based trade provisions to be inconsistent with WTO obligations.( Reinhardt, 2000)
It is ironic that what was considered one of the most important diplomatic achievements of the Uruguay Round should now inspire such fury. Under the previous GATT system, the dispute settlement regime was much weaker, particularly since a country found “guilty” by a panel could veto the decision in the GATT Council, thus negating any official finding of wrongdoing. (Hudec, 1993) Many countries, led by the United States, argued specifically for a strengthened system that would prevent countries from escaping the consequences of an adverse ruling. Developing countries also supported the new Dispute Settlement Understanding (DSU), since it increased their chances of a favorable outcome in disputes with larger and more politically powerful countries (Petersmann, 1997).
In responding to these concerns, a few general points are worth noting here. First, the member countries of the WTO specifically empowered the Dispute Settlement Body (DSB) to pass judgment on the WTO-compatibility of national trade policies. This function was approved through the free acceptance of the international treaty obligations negotiated in the Uruguay Round and ratified by all of the participating national governments. No secret protocols were annexed to the treaty text; no surprises were sprung on countries after they signed on. To the extent that countries thereby sacrificed sovereignty over their trade policies, this was done consciously as part of a package agreement they chose to accept.
In addition, there are factors that mitigate the impact of apparently lost sovereignty when a WTO member country is found to be in violation of the rules. As the subsequent discussion on specific cases will show, a panel decision typically indicates that governments need to amend their statutes or practices in order to achieve WTO compliance (Jackson, 1998). This requirement often implies that alternative measures are available that can accomplish the goal of, for example, protecting the environment, without violating the MFN principle in the treatment of imports. Of particular interest is the possibility that treaties or other international agreements could be concluded to accomplish the goals of the disputed national law or policy.
Asif Qureshi writes in the book, Freedom and Trade “State fiscal activity partakes of all these three characteristics. However, the amenability of a State to have its fiscal jurisdiction constrained by international norms is dependent on how it perceives the fiscal activity. Thus, the caricature of taxation as a State trading activity is considered problematic—as indeed are any limits on revenue collection. On the other hand, the propriety of the claim of the international trading order in the field of taxation is also dependent on how State fiscal activity is characterized. Thus, to the extent that it is a trade policy instrument it is subject to international constraints, where it is distortive of international trade”(Asif, 1998).
The WTO dispute settlement system in practice also allows the dispute to be circumscribed, which prevents an escalation of the problem into an unfettered trade war. In addition, the panel decision cannot force a country to change its laws; as an alternative, a WTO member can provide compensation to the complaining country by rebalancing its concessions (market access measures) in order to offset the economic loss to that country resulting from the disputed practice. Any WTO-sanctioned retaliatory measures that would be triggered by a defiance of the panel ruling must be proportionate and follow certain rules of non-escalation. In the meantime, parties to the dispute often continue negotiations over the issue, which allows other aspects of trade relations to proceed without general disruption (Montaña, 1993). The DSU thus allows potentially inflammatory trade issues to be isolated diplomatically, so that the trading system can continue to function.
Finally, the WTO system preserves national sovereignty through member countries’ right to unilateral withdrawal. Any country can withdraw from the WTO on six months’ notice, for any reason. In view of the gains from trade enjoyed by WTO members, it is understandable that a country would be very reluctant to withdraw, even when a WTO dispute panel decision goes against it (Jackson, 2002).
Asif Qureshi is of the view “The provisions of the WTO code as they pertain to international tax issues are varied. Here only some of the principal aspects are focused upon, mainly to provide a sense of TRIT (Trade Related International Taxation), and to demonstrate the absence of a systematic regime in this field.” (Asif, 1998).
The WTO’s dispute settlement system has been very active since its inception in 1995: 276 complaints, representing 180 disputed practices, were filed through December 2002 (Jackson, 2003). The United States and the European Union appeared most often as both complainants and respondents. However, a significant development under the new DSU is that developing countries are participating much more under it than under its GATT predecessor. Some developing countries have even complained against and won cases against the United States and the European Union (Jackson, 2000). The likely reason for increased developing country participation—and for increased overall requests for dispute settlement consultations—is that the panel decisions cannot be vetoed by the respondent country, as was the common practice under the previous GATT system.
Vermulst and Graafsma (2001) have studied the dispute settlement cases involving antidumping, countervailing duties, and safeguard measures from 1995 to mid-2000. They note that nearly all of the cases that went to panel investigations ultimately resulted in “convictions” on at least some of the allegations. Clearly, a country will not usually go forward with a panel investigation unless there is a very strong case in its favor and the country believes the outcome will benefit itself overall (Hoekman, 2000). As noted earlier, the majority of complaints are settled “out of court” through consultations. Of the first 276 complaints, 71 had resulted in panel reports by December 2002, of which the Appellate Body reviewed 48, while 16 more were under active panel review. Thirty-five complaints were settled by “mutually agreed solutions” without panel investigations, and 23 were otherwise settled or inactive. The remainder of the complaints were still at the stage of consultations.
By most accounts, the WTO dispute settlement system has worked well, despite the political difficulties of a small number of cases, to be discussed below. The large number of requests for initial consultations gives testimony to the WTO members’ satisfaction with it. The vast majority of cases are settled through consultations or an acceptance of a panel decision and the remedies it requires—usually a change in trade legislation to align national laws and policies with WTO obligations—and do not attract much media attention or opposition from NGOs (Garrett, 1999). In fact the success of the DSU has caused a problem of funding; the case load has stretched available resources in the WTO Secretariat to the limit.
But then there are the special cases. Some trade disputes simply do not lend themselves easily to a third-party, legalistic resolution, as represented by a final panel report or Appellate Body decision. Some of the more controversial cases, for example, have involved high-profile disputes between the largest players, the United States and the European Union. For example, three prominent cases have gone through several rounds of dispute settlement under both the GATT and WTO: EU banana trade policy (WTO dispute panel decision supported the United States), EU trade restrictions based on U. S. beef hormones (decision supported the United States), and export tax credits for U. S. foreign sales corporations (decision supported the European Union) (Moore, 2000).
These disputes raged on for years and, in some cases, even after presumably final panel decisions, the two sides continued to argue over the adequacy of WTO-mandated policy reforms to resolve the issue, and secondary disputes arose regarding the appropriateness and scale of retaliatory measures under the rules. Yet, despite all stubborn resistance to being found “at fault” and conceding defeat in an official WTO decision, there are signs that the disputants may finally be putting at least some of these cases behind them (Mota, 1999). In other words, there seems to be evidence that definitive dispute panel findings have raised the stakes of opposing the WTO system, even when the most politically powerful players are involved.
Other dispute settlement cases have sparked strong opposition from environmental NGOs, setting up showdowns between national trade law legislation designed to achieve a nontrade goal and that country’s WTO obligations. In these cases, WTO critics have argued that the arrangement usurps a country’s sovereignty by giving WTO rules primacy over national legislation. A counterargument is that WTO members knew full well what the DSU would be doing when they concluded the Uruguay Round agreement and that the DSU actually protects national interests against the erosion of trade benefits through unwarranted policies and practices by other countries.
A balanced assessment of the DSU recognizes its accomplishments and its problems. Some observers, such as Jackson (2000), have proposed mainly “fine tuning” to improve the performance of the system. There are a number of details of the dispute settlement process that have been the subject of debate, including the use of monetary compensation, professional representation in counsel and panels, and various procedural issues (Hoekman and Mavroidis 2001). One pervasive issue is transparency of the panel proceedings, which in itself has many dimensions. While the information flow under the DSU has improved greatly due to the posting of documents on the WTO Website, other information remains restricted (Asif, 2007). In addition, participation in and access to the panel proceedings is still limited to governments, a policy heavily criticized by many NGOs.
The WTO could also avoid any serious loss in deterrence by increasing estimates as to what damages are appropriate. It is unlikely that a country will view damages designed to compensate for injuries it imposed on an entire industrial sector (including complementary industries) as insignificant. Moreover, the reader must not forget that countries would have deterrents in addition to WTO-imposed fiscal penalties. A particularly important disincentive is that a country choosing to ignore DSB reports would, as under the current regime, gain an injurious reputation. Such a standing in the international community impairs future negotiation over trade, and can force the uncooperative country to answer for these failures in other areas subject to negotiation.
Another improvement that would likely accrue if the WTO were to employ pecuniary damages is that the remedy would be universally available. This is important because, as discussed above, under the current scheme, it is practically impossible for some smaller export-dependent countries to deter noncomplaint behavior with retaliatory mechanisms (William, 1987). If the WTO imposed damages, however, a country’s relative trade strength would have much less impact on a larger trading partner’s incentive to comply with WTO standards.
To fully explain this failure to achieve efficiency, it is necessary to give both a brief introduction to the history of the GATT’s original dispute resolution process and a description of its transformation, following the Uruguay Round, into the present process. GATT did not authorize retaliation by an injured country unless a party obtained the consent of all GATT contracting parties (Pierre, 1997). This unanimity rule shockingly required the affirmative vote of the country that had lost its case. The not too surprising result was that retaliation presented no more than an idle threat. GATT’s inability to deter improper behavior, despite a functioning legal framework, led to huge losses in efficiency.
To illustrate, in the years between 1948 and 1990, many disputes never lasted long enough to warrant retaliation. More than seventy-seven percent of the rulings found that the complaint was justified, but the disputes were either partially or completely settled through means other than retaliation. At first glance, this would appear to demonstrate that the system was working efficiently despite the disquieting veto power GATT gave to each contracting party. The failure of countries who violated GATT rules to follow GATT rulings, however, is more illustrative of the problems inherent in a system without a sufficient deterrence mechanism. For example, in a dispute between the United States and Nicaragua, GATT declared a United States discriminatory sugar quota illegal (Robert, 1993). Despite this ruling, the United States refused to alter its trade stance until Nicaragua met United States political demands. Even though the United States eventually removed the discriminatory sugar quotas, the case was a clear-cut illustration of legalistic inefficiency.
The failure of GATT’s ruling to compel the United States to remove its sugar quotas led to substantial losses. These injuries included not only the lost sugar sales for Nicaragua, but also the disputing parties’ wasted expenditures in arriving at an alternative outcome. These “inefficiencies” became apparent to countries operating within the GATT framework and pushed some nations to revert to self-help procedures.
Avoiding the economically destructive consequences of terrorism and of other sources of international conflict will require a firm and viable global trading system. This is because economic institutions serve to reduce the risk of doing business, while the prospect of international conflict, which includes both the outright violence of terrorism and the subtle intimidation that accompanies trade disputes between countries, tends to increase that risk. Recent challenges to the existing world trading order have served to increase the urgency of developing and expanding international economic institutions. Global trade cannot be allowed to become a victim of fear and conflict.
The immediate concern of governments in the wake of the terrorist attacks was to protect their countries from further attacks. Achieving this goal will require increased cooperation among governments in law enforcement, security measures, and, in some cases, military intervention. In addition, working toward a long-term resolution of the conflicts that spawn terrorist campaigns suggests the need for more effective means of defusing tensions among states, cultures, and ethnic groups. In both the short term and the long term, there will be a need for a deepening of international legal, political, and military institutions to deal with common threats to the global community, from both terrorism and conflicts between countries.
The long-term economic implications may yet transcend the military aspects of the war on terrorism. It is difficult to generalize about the underlying motivations of the terrorists themselves. Social, political, historical, religious, and economic factors may play a role, but such aggression is ultimately a psychological phenomenon and is committed by individuals. Yet, whatever impulses drive such violent acts, terrorist groups such as al-Qaeda tend to find popular support in poor countries in which economic deprivation has created fertile ground for hatred of the dominant and easily identifiable outside forces, such as the United States and Western capitalism. This factor complicates efforts to combat terrorism on a global scale. In this regard, there are two important links between the WTO and antiterrorist strategy.
The political economy of trade policy encompasses many concerns. The most prominent trade system, the WTO, makes economic efficiency its primary objective, yet employs procedures inconsistent with this goal. Why should the WTO utilize procedures contrary to its fundamental purpose? Looking at current procedures and their consequences, any compelling rationale for their continual use is lacking. Although the system undoubtedly requires strong enforcement mechanisms, retaliatory tariffs are destructive and inefficient. They cause the unnecessary loss of global welfare and encourage diplomatic strife. Returning again to the hypothetical dispute involving countries A and B in the beginning of this Note, if we use the damages alternative, A, the complaining country, would be able to acquire its lost sales and the benefits flowing from them without injuring its own citizens. A simple modification, moving from retaliatory tariffs to pecuniary damages, would avoid these costs and, as this Note demonstrates, not impose significant additional burdens on the world economy.
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