Toleration of Temporary Non-Compliance: The Systemic Safety Valve of WTO Dispute Settlement Revisited

Abstract

Ever since the World Trade Organization (WTO) came into being, there has been much academic debate as to whether efficient breach of WTO rules is, or should be, encouraged under the provisions governing WTO dispute settlement. This article argues that, although the WTO’s dispute settlement mechanism has not been designed to encourage efficient breach, the existing system accommodates, de facto, temporary non-compliance. By operating at least temporarily as a system of ‘breach and pay’, the current design of the WTO’s dispute settlement mechanism fulfils a crucial role as a systemic safety valve for rare scenarios where WTO Members find it impossible to comply with the DSB’s recommendations and rulings within the ‘reasonable period of time’ as determined according to Article 21.3 of the DSU. This article takes a fresh look at the underlying nature of entitlements under WTO law and their respective protection before proceeding to a review of the existing avenues for both intra- and extra-contractual flexibility under the WTO legal framework. It also explains why economic efficiency should properly be viewed as being a merely subsidiary factor under the current design of the WTO’s dispute settlement mechanism and elaborates what this implies. This review supports the conclusion that the WTO legal framework provides WTO Members with a balanced compromise between legal security and flexibility, with reputational concerns acting as the key incentive towards compliance. It is this compromise between legal security and flexibility which ensures that sovereign states remain willing to give up large parts of their freedom of action in trade matters by adhering to the WTO in the first place, and participate in future rounds of trade liberalization. In light of the analysis provided in this article, any calls for equipping the WTO’s dispute settlement mechanism with tougher sanctions appear misguided.